Virtual agreement exists that mastering emerging technologies is essential to winning the geopolitical competition of the twenty-first century. As Russian President Vladimir Putin warned, a leader in artificial intelligence (AI) “will become the ruler of the world.”

After that, a consensus quickly disintegrates. There is disagreement on which technologies are essential or how to “master” them. There is great excitement surrounding “innovation,” which has sparked a spate of government activity to support and encourage that creativity. But this might not be the best course of action. Entrepreneurs slogging away in garages and incubators with an idea in mind and hoping for an extensive initial public offering won’t produce success in the tech industry. Instead, governments should concentrate on integrating new technologies into all sectors of the economy. It’s not a sprint but a marathon.

Since the industrial revolution, innovation has been the primary engine of long-term economic growth. Increased productivity allows for the release of some resources and the creation of new applications for others. As a result, the value rises, generating wealth, and development follows.

In the past, emphasis was on creating those fresh concepts. That reflects both the availability of metrics that measure relative success rates and the Anglo-American orthodoxy that prioritizes markets over all other factors (i.e., that an individual’s or a specific business interest’s effort is more important than the society in which they operate) (R&D spending, in particular). In some nations, a potent “science lobby” supports this tendency.

The focus is on creating innovations. According to economist Michael Kitson at Cambridge University’s Judge Business School, the focus on creating innovations is erroneous. Instead, he contends that prioritizing the diffusion of innovation across the economy is a better strategy. As “innovation-using sectors” are much larger than “innovation-generating sectors,” creation diffusion has dramatically impacted economic growth since the industrial revolution. Or, to put it another way, execution is more important than invention.

One of the reasons for deception is that it takes time for new technologies to make an impact. A few inventors can foresee all possible applications for their ideas. We frequently utilize new technology to perform previously completed tasks using outdated methods. Revolutions happen when technologies are used well, sometimes in ways that weren’t previously possible.

Automobiles, for instance, revolutionized how we live because they freed people from the oppression of imposed transportation systems as they sped up travel. Moreover, because cars allowed people to travel wherever they wanted, they made the suburbs possible.

Because of their extraordinary potential impact, new technologies also pose a challenge to significant vested interests. As a result, the political clout of those interests or cultural barriers may prevent adoption (sometimes another expression of those economic interests).

An expert on AI and China, a professor at George Washington University, Jeffrey Ding, approaches this issue from a slightly different perspective. In a paper published in 2021, Ding argued that two opposing paradigms could account for innovation and its effects on the economy and world politics. States advance by dominating “critical technological innovations in new fast-growing industries,” claims the leading sector (LS) approach, which is the standard account (leading sectors). The nation that dominates innovation in these sectors rises to become the world’s most productive economy by taking advantage of a narrow window to monopolize profits in advanced industries.

General Purpose Technologies (GPT), which Ding claims are crucial and are “fundamental advances that can stimulate economic transformation,” present a challenge to the LS framework. GPT impacts economic productivity only after a “gradual and protracted process of diffusion into widespread use,” distinguished by its capacity for constant improvement, pervasive applicability throughout the economy, and synergies with complementary innovations. Consider GPT as an enabling technology for various concepts. The classic GPT includes automobiles, railroads, and electricity. The Internet, artificial intelligence, biotechnology, and nanotechnology are some examples of recent GPTs.

Ding examined three industrial revolutions using his theory. First, the industrial production of interchangeable parts, also known as the “American system of manufacturing,” was spurred by inventions in machine tools during the second period (1870–1914), which embodied the main GPT trajectory. Third, the US advantage in education and training systems also helped to standardize best practices in mechanical engineering and broaden the skill base. In the first decades of the 20th century, this served as the cornerstone for the United States rise to economic prominence on a global scale.

Ding also examined the third industrial revolution, or the development of computers and information, which took place in the final third of the 20th century. However, the dog, in this instance, didn’t bark. Despite all the concerns raised by Japan’s achievements, the geopolitical balance of power has not changed due to Japan’s “remarkable advances in electronic and information technology” or its “lead in technologically progressive industries, such as consumer electronics or semiconductors.” Instead, the United States spread new technology using its “superior ability to cultivate the computer engineering talent necessary to advance computerization,” protecting its economic hegemony.

Ulrike Schaede, a business professor at the University of California, San Diego, bolsters Ding’s theory. She emphasized the 2017 METI study, which revealed that Japanese companies dominated at least 478 global high-technology product markets in “The Business Reinvention of Japan” (out of 931 industries surveyed). She claimed in an email that these businesses are the best in Japan and “have all figured it out.”

However, not even those globally successful companies can propel the Japanese economy. The issue is that internal change resistance is extreme in many businesses. According to Schaede, “Japan’s tight culture (high consensus on what constitutes appropriate behavior and sanctioning of deviants) makes it difficult for reformers to push things through.” “Boycotting of change is common — as common as everywhere else, perhaps, but because it’s quiet and polite, it’s even more difficult to overcome.”

It is not dry academic prose or dry history. Call me traditional, but it seems crucial to comprehend how technological advancements can change the economic balance of power, especially when a transition appears to occur and geopolitical competition escalates. Ding’s theory of GPT diffusion questions accepted wisdom regarding how the power balance between the United States and China may change due to revolutionary technologies. His analysis, which focuses on the two nations’ capacity to implement AI across the economy rather than total R&D spending or notable scientific advances, concludes that the US advantage is more remarkable than anticipated.

However, the government bases most policies on the LS model, which is why innovation funds and entrepreneurship are popular. For instance, the Japanese government has released its new economic security law guidelines. In addition, it will use a $500 billion ($3.6 billion) fund to encourage the development of 20 cutting-edge technologies through public-private partnerships.

Moreover, a nation might waste those funds if its ability to adapt and modify general-purpose technologies across its entire economy over time determines its level of success. “The most important institutional factors may not be R&D infrastructure or training grounds for elite AI scientists,” Ding wrote, “but rather those which broaden the skill base in AI and enmesh AI designers in cross-cutting networks with entrepreneurs and scientists.” Education systems and technical associations are crucial for him.

Because they recognize that artificial intelligence (AI) is a fundamental technology that can improve competitiveness, boost productivity, safeguard national security, and help address societal challenges, many countries are vying to gain a global innovation advantage in AI. By looking at six categories of metrics—talent, research, development, adoption, data, and hardware—this report compares the relative positions of China, the European Union, and the United States in the AI economy. It concludes that the United States continues to lead in absolute terms despite China’s audacious AI initiative. The European Union comes further back than China, which comes in second. As China seems to be advancing more quickly than either the United States or the European Union, this ranking may change in the upcoming years.

Innovation is essential, but implementation is the key to economic success. It is because implementation is what turns an idea into a reality and a reality that can be profitable. Businesses need to be able to take a picture and turn it into a product or service that people will want to buy to be successful. It is not always easy, and it often requires a lot of trial and error. But it is worth it because once a business has a successful implementation, it can scale up and make a lot of money. So, to be successful, focus on implementation, not innovation.

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Europe is now trying to wean itself off Russian energy. To handle the resulting scarcity, it has approached OPEC and non-OPEC allies, who have promised to hike production to 432,000 barrels per day in June. The increased output will be enough to meet the EU’s short-term energy demands.

Europe was committed to meeting its climate control targets in the pre-war era. However, many question the continent’s commitment since the European Commission proposed a plan to consider some gas and nuclear energy as “green.” Climate change activists have staunchly opposed this move. This proposal could be law by 2023 if most member states back it. The proposed bill aims to commission 30 gas projects in the EU.

Critics dubbed this move “greenwashing” and warned that the bloc’s bid to become climate-neutral by 2050 is in danger.

The Russian invasion was a catalyst for this sudden shift, which environmental groups might contest legally.

Context
Europe has been taking the moral high ground for the last two decades. European governments are among the first in the world to take proactive steps against climate change. Despite their best efforts, their economy remained dependent on cheap Russian fossil fuel imports. Vladimir Putin used this energy dependency as an economic and political weapon in times of crisis.

Following the invasion of Ukraine, EU leaders decided to phase out Russian energy imports by the end of 2022. The commission said it wanted to REPower the EU by quickening the pace towards clean energy systems. They hoped to increase the utility of hydrogen and biomethane through imports or domestic production. Irrespective of the advertised clean energy movements, renewable energy will only make up 45% of total energy consumption by 2030. Fossil fuel and nuclear energy will still be the primary driver of European nations.

The European Commission’s chief Ursula Von Der Leyen is outspoken about the importance of climate action. Her climate-neutral rhetoric is glorious as she called the European Green Deal “Europe’s man on the moon moment.” She claimed that being the first continent with net-zero emissions is “our European destiny.”

Despite the flamboyant language, the big question is how the EU intends to achieve these goals.

The European Commission has a green investment rulebook to save the planet by 2050- a taxonomy or “a classification system, establishing a list of environmentally sustainable economic activities.”

However, are taxonomical changes sufficient to make gases and nuclear energy green?

Insight
In June, The EU’s executive arm, the European Commission, gave natural gas and nuclear energy the green label. Though they said that some strings remain attached. For example, nuclear power plants could only be classified as green if they manage to dispose of radioactive wastes safely. It is important to note that there isn’t a single permanent disposal site anywhere in the world thus far.

As per the commission, gas plants will be classified as green if they switch to low-carbon or renewable gases like hydrogen or biomass created with renewable energy by 2035.

Mairead McGuiness, the EU commissioner of financial services, denied the allegations claiming there was no “greenwashing” as the institution labeled nuclear and gas as “transitional” energy sources under the proposed plan. She iterated that the European Commission’s credibility is still strong.

Environmental groups are having none of it. They see this as a jeopardy to the EU’s climate neutrality goals. The Climate Action Network Europe said that the European Commission is sacrificing the scientific integrity of the taxonomy for gas and nuclear lobbies. According to environmentalists, the EU plans to redirect finances that would have funded climate-positive investments.

Apart from activists, experts advising the EU have also raised concerns about the environmental impact of these projects.

The nuclear plant initiative is a debated issue in the European parliament with many supporters and dissenters. Some prefer gas to atomic energy.

Germany versus France
The two great leaders of Europe, Germany & France, are at loggerheads on what should be considered “green.”

The French camp heads the pro-nuclear faction because nuclear power plants generate 70% of the electricity in France. The French have the support of Poland, Hungary, the Czech Republic, Bulgaria, Slovakia, and Finland.

France wants to invest in new nuclear plants with small modular reactors. Expert at the Foundation of Strategic Research Think Tank in Paris, Nicola Mazzucchi, supports the French government’s initiatives. He said that automated factories could produce quality reactors cheaply at an industrial level.

Germany has pledged to shut down all plants by 2023. They have been slowly phasing out nuclear energy following the Fukushima disaster in 2011. Denmark, Austria, and Luxembourg are in the German camp, asking where the opposing faction intends to store or dispose of highly radioactive nuclear waste.

In a letter to the European Commission, Germany’s ruling coalition remarked that gas is an interim energy source till renewables and green tech are available. However, German chancellor Olaf Scholz said the taxonomical debate was completely overrated in an EU meeting last year to avoid conflict with France.

A senior fellow at Brussels-based Bruegel Think Tank, Georg Zachmann, who follows the EU’s climate and energy policy, said that the union would not take any steps to prevent France from building new atomic plants.

Zachmann says that the new taxonomy would be the gold standard in the fight against climate change. But he added that no investor would be interested in gas or nuclear plants when the union has so much political capital invested in pushing its member states towards renewable energy.

He also pointed out that onshore wind and solar energy alternatives aren’t very costly in many member states.

The 30 proposed gas projects in the EU will ensure Europe’s economic independence from Russia. For example, the EastMed pipeline project will require billions of euros to build a 1900 km pipeline connecting offshore gas fields to Greece and Italy. The proposed plan contradicts the Paris agreement in 2015, where world leaders pledged to curb global temperature rise to less than two degrees. The ideal temperature rise agreed upon was below 1.5 degrees above pre-industrial temperature by the end of the century.

Methane is 85 times more harmful to the atmosphere than carbon dioxide. The Baltic Pipe project is a pipeline that could conduct Norwegian gas to Poland and develop the Cyprus gas infrastructure. Under the proposed plans, this program could spend 13 billion euros to boost transport, digital infrastructure, and energy. However, climate change activists believe this move will trap the EU in fossil fuel dependency for decades and goes against the principles it has been preaching to the world.

The union cannot build new gas projects under the current system. The EU Commission is acting slyly and exploiting a loophole in EU regulations. Bi-annually a compilation of beneficial energy infrastructure projects is presented to all members. Though EU members cannot build new gas infrastructure, the dossier may contain projects that ensure continuous energy supply and are vital to the continent.

Europe is now flouting the guidelines set by the International Energy Agency and the Intergovernmental Panel on Climate Change which bans the installation of new oil and gas extraction projects to keep global warming below 1.5 degrees above pre-industrial levels.

Conclusion
The European parliament and the 27 EU member states will review the commission’s proposal soon.

The European Commission has opted for a delegated act, a fast-track legislative procedure. A majority in the EU parliament of 20 member states must vote against it to scrap the bill from becoming law.

While the taxonomy is unlikely to be rejected by the EU states (there are substantial economic benefits from fossil fuels during a global financial crisis), many parliamentarians from different political camps are enraged over the proposal to greenwash gas and nuclear energy.

The Greens in the European parliament will fight this bill and try to gather a majority against it. Rasmus Andersen, a Green lawmaker, said the new proposal disappointed him greatly. Joachim Schuster of the German Social Democrats thought the EU parliament would vote to scrap the bill.

Austria and Luxembourg have threatened to sue the European Commission over the altered taxonomy even if the parliament passes the bill.

Meanwhile, the OPEC countries will increasingly cut production shortly. It is a move likely to create an unexpected supply deficit in the coming months. Though this might lead to a bull market for oil traders, it does not bode well for energy importers like India, China, Japan, and the EU.

The time is ticking for Europe. Russia is gearing up for strategic reductions of gas supplies to Europe to increase their leverage in the winter. The pipeline Nord Stream 1 is already running at 40% capacity, with Russia citing technical issues. Many experts are skeptical about these claims.

There are shortfalls in gas supply across Europe, with Italian energy firm Eni stating it has only received half of the anticipated Russian gas supply. Austria and Slovakia have the same complaints. France has not received gas since 15 June, and Denmark, Finland, Netherlands, Bulgaria, and Poland have their supply cut off after these countries refused to buy gas in roubles.

Europe has committed to reaching maximum capacity or at least 80% of gas stocks before November. There is data hinting that it might have reached 55% already.

Before the invasion, Europe bought 40% of its gas from Russia. Now, that share has dropped to 20%. The continent also imports 45% of its coal imports from Russia.

Russia will tactically starve the continent of gas, and Europe might struggle to heat its homes this coming winter. Gas prices are likely to go up, and the EU cannot overlook the possibility of energy rationing.

The European Commission’s Energy Prices Toolbox has been assisting citizens and businesses for a while now. About 25 member states have adopted suggestions from the toolbox, and it is helping 70 million households struggling with the soaring gas prices.

EU is in a tricky spot. It wants to maintain its image as a leader in the fight against climate change while ensuring it does not slip into an energy crisis. The OPEC alliance is temporary and might help out in the short term. But in the long run, Europe must transition from a consumer to a gas producer while accelerating the adoption of renewable energy.

The post Is the EU risking its climate goals to defeat Russia? appeared first on International Finance.

This development comes after the head of the International Energy Agency warned Europe that Russia is planning to cut off the gas exports to the region starting this winter.

The governments have been asked to work on reducing the demand for fuels and keeping the nuclear power plants open.

Fatih Birol, the Executive Director of the International Energy Agency has mentioned that there will be a reduction in supplies in the coming weeks as Gazprom announced that they will be cutting the deliveries via the pipeline by around 40%, stating the reason behind this as “maintenance work”.

This in turn could be the beginning of a huge shortage by preventing the filing of the storage facilities in order to prepare for the upcoming winter season.

Commenting on this, Robert Habeck has stated that the Russian energy plant Gazprom’s decision to cut supplies of natural gas to the European countries was a “political” move.

When asked if gas rationing would be needed, Habeck said, “Hopefully never” but added, “Of course, I cannot rule it out.”

With this news, the EU countries are rushing to refill the storage sites. Germany plans to reach 90% of its capacity by November.

In response to their decision to put sanctions on the Kremlin over its invasion of Ukraine, numerous EU members have seen Moscow limit or even stop their gas deliveries in recent weeks.

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The sheer intensity of the Covid-19 pandemic has a significant response in Europe and the Eurozone’s fiscal policy, both at national and international levels. Eurozone member states use fiscal measures to respond quickly and forcefully. Their responses aimed to minimise the danger of corporate failures and increased redundancies, paving the way for a rapid recovery from the crisis.

Government involvement has taken the form of various tools, including widespread usage of short-term labour programs, deferment of social security contributions for businesses, and state-guaranteed loans, among others. The fiscal budgets of member states deteriorated significantly in 2020 because of these initiatives.

According to the International Monetary Fund (IMF) predictions, the Eurozone public deficit reached a new high of 10.1 percent of gross domestic product (GDP) in 2020, with debt exceeding 100 percent of GDP (at 101.1 percent) for the first time. The European Central Bank’s (ECB) significant involvement in keeping the interest rates low reduced the dangers of these statistics.

Europe has managed to break some of its taboos throughout this crisis. Although far from ideal, the European Recovery Plan accord is a significant step forward. EU-wide borrowing funds the proposal, which mixes £360 billion in loans to member states with £390 billion in grants, something that was inconceivable. The Eurozone’s battle against the crisis is now no longer the duty of the ECB only; the union-wide fiscal policy is tackling it.

Implementing this recovery plan and targeting assistance to the most vulnerable nations could boost confidence and increase monetary policy efficacy. The rehabilitation strategy clearly defines priorities.

Member states’ recovery plans must enhance growth potential and employment while contributing to green and digital transformations to qualify for loans and grants from the European program. The plan’s proper execution will be difficult in the face of several points of contention, such as the European Union’s (EU) need to boost its own tax revenues to return the subsidies it has received.

All European countries appear to recognize the degradation of public finances. Government involvement was necessary to absorb part of the shock of Covid-19, and the EU will address the question of decreasing government deficits and indebtedness later. Member states have tightened their fiscal policies too soon in the past, notably in the aftermath of the sovereign debt crisis, hampering economic development. As a result, the European authorities’ measures to the current turmoil represent a clear positive shift in this regard.

Fiscal constraints have been eased, particularly those limiting government deficits to 3 percent of GDP and public debt to 60 percent of GDP. This enhanced adaptability has aided in combating the pandemic’s economic collapse.

The European Council, comprising the heads of state and government of the EU’s 27 countries, later agreed to further measures. Financial aid has been offered as loans from the EU to member states, primarily to help cover the rising use of short-term employment schemes.

Impact on the UK
The scale of the epidemic’s economic downturn is unmatched in contemporary history. Some estimates suggest a 9.8 percent fall in UK’s 2020 GDP, the biggest reduction since records began in 1948 and the largest in over 300 years.

During the first shutdown, the UK’s GDP was 25 percent lower in April 2020 than just two months before in February. Economic activity increased in the spring and summer of 2020, indicating the economy’s opening. This opening was followed by increased Covid-19 cases and more lockdowns in the autumn and winter, resulting in a drop in economic activity.

After a rapid recovery when the economy reopened, economic growth slowed in the summer of 2021. This slowdown was first attributed to the proliferation of the Delta strain and the resulting huge number of persons forced to self-isolate. The disruption of global supply networks, which has resulted in supply shortages of some items, is a more lasting problem. Many businesses are also having trouble finding qualified employees.

Inflation has increased in 2021, partly due to supply issues, and may continue doing so through 2022. Consumers may consequently become more cautious in their spending, slowing economic development. Another critical topic is how the conclusion of the furlough program in September 2021 would influence the labour market and, as a result, consumer spending.

Even assuming there will be no reappearance of the virus that will significantly impact the economy, there remains a tremendous amount of uncertainty about the economic outlook and how robust and sustainable the recovery will be.

The average projection for GDP growth in 2021 among economists as of September was 6.8 percent. There is a rise in expectations as statistics reveal a good rebound in the spring and early summer.

Impact on Germany
Germany’s GDP contracted by 1.8 percent from January to March in 2021, somewhat more than projected, compared to figures from the final quarter of 2020. Private consumption was most affected, with people spending 5.4 percent less on goods and services.

On the positive side, building investment increased by 1.1 percent. Imports of goods and services increased by 3.8 percent at the start of the year, while exports only increased by 1.8 percent. Germany’s GDP dropped by 3.4 percent from the same time in 2020. In the fourth quarter of 2019, the economy shrank by 5 percent compared to the previous year’s fourth quarter, before the Covid-19 outbreak.

Stringent lockdowns due to restrictions aimed at preventing the spread of Covid-19 led to the shuttering of businesses across Germany.
Although Germany did a good job handling the epidemic, the economic impact has been significant. The country’s aggressive public health response has resulted in Europe’s lowest death rates. Containment efforts, on the other hand, resulted in a significant dcline in company activity, particularly in contact-intensive industries.

Economic activity began to resume following the re-opening in late April, but a fresh wave of illnesses in the fall prompted yet another round of lockdowns. In all, the GDP shrank by more than 5 percent in 2020.

Impact on France
Last year, the Covid-19 pandemic reduced overall production by 8.3 percent, plunging the French economy into a severe recession. The statistics were marginally better than the 9 percent decline since France was spared a second Covid-19 shutdown in the latter half of the year. During the last three months of 2020, the French economy declined only by 1.3 percent.

On the other hand, the government predicted that the economy would contract by a considerably worse 11 percent this year. The French economy increased by 1.5 percent in 2019, placing it among Europe’s outstanding performers, although last year’s dip was the country’s worst since World War II.

France saw a significant increase in spending recovery, climbing to 80 percent after plunging by nearly 50 percent during the first lockdown — a recovery of +60 percent. The silver lining was that consumer expenditure rose the greatest of any country between the two shutdown periods. After initially falling to 50 percent of pre-pandemic levels, expenses increased by 80 percent between the first and second lockdowns.

Impact on Other EU Nations
The Covid-19 virus outbreak prompted many European nations to shut down large portions of their economy to combat the infection. These restrictions severely harmed the Italian economy. From March 9, 2020, through the end of May 2020, the entire country was under lockdown, with catastrophic results: Italy’s GDP decreased by 5.4 percent in the first quarter and 12.4 percent in the second. The major causes of GDP reduction were a drop in domestic demand and investment.

The national industrial output index fell by 17.5 percent in the second quarter, bringing production to an all-time low. However, despite being particularly heavily struck by the pandemic, Italy’s expenditure has improved, and it is now back to 70 percent of pre-pandemic levels — an astonishing 40 percent recovery.

In Spain, spending fell to 50 percent below average during the first lockout and then increased to 75 percent during the second lockdown, indicating a recovery of 50 percent.

Impact on Industries
Most manufacturing-based industries recovered relatively quickly in the third quarter of 2020, as there was gradual relaxation in the restrictions. As a result of various measures, such as recognizing “essential” sectors and creating green lanes to ensure cross-border transportation and supply chain functionality, economic recovery quickened.

However, there are significant disparities in performance not just between sectors but also within them. Large swathes of the digital business, as well as the healthcare industry, have succeeded well. Chemicals, construction, and the food and beverage industry may probably rebound in a V-shaped pattern.

Despite the early shocks, the automobile and textile sectors look to be on the mend since the lockdowns began. Industries that rely on human contact and connection — such as the cultural and creative industries and the aircraft sector (due to reduced mobility and tourism activities) — have taken a significant impact because of the crisis, and they are likely to continue to suffer longer.

According to sectoral and value chain evaluations, the pandemic functioned as a digitalization accelerator. The capacity of firms to adopt digital explains some varied patterns in the Covid-19 impacts. Streaming services, for example, have mostly benefited from the crisis in the creative industries. However, it has increased unemployment, which economies must handle.

Challenges Ahead
Europe confronted the pandemic with courage and inventiveness, and the countries across the region are now experiencing a robust but rocky economic recovery. It currently faces two policy challenges: inflation management and fiscal support reduction. While there is a great deal of uncertainty around inflation, central bankers have a lot of experience dealing with it and can use their powers rapidly and flexibly.

Unwinding the emergency expenditure measures that governments used to boost their economies, on the other hand, is a large and challenging undertaking. If policymakers make a mistake, they risk repeating the sluggish recovery that followed the 2008 global financial crisis.

Every quarter that goes by without attaining full employment adds to the difficulty of re-engaging people in the labor market. Emerging European economies are less concerned about the issue because they used less stimulus and had higher prospective growth rates. They would, however, see a drop in demand for their commodities from their advanced European rivals.

Changes in monetary policy would have little effect on the current drivers of inflation. Instead, fiscal policymakers would need to avoid inducing a wage-price spiral. Fortunately, in many modern European economies, where labor market slack remains large, the probability of such second-round impacts is low.

Policymakers may find themselves in a predicament comparable to the early phases of the global financial crisis more than a decade ago. There is a compelling case to be made for reducing extremely high budget deficits. However, this will need robust revenue growth and, as a result, increased activity, which larger transfers to families in need may aid.

There should be an increase in spending on recruiting incentives and investment tax credits. It will be difficult to get the timing of the fiscal support withdrawal quite right. To avoid undermining the recovery’s momentum, it appears that erring on the side of withdrawing too little fiscal support rather than too much is the wiser course of action, especially in economies with considerable budgetary headroom.

Outlook
In Europe, a more durable recovery is taking hold, aided by incremental improvements in vaccination rates and mobility. Strongly supportive macroeconomic policies and Covid-19 assistance packages have helped prepare the road for recovery by preserving employment ties and safeguarding private sector balance sheets.

However, there remains uncertainty, partly because of the risk of new infection waves and virus variants amid uneven vaccination rates across countries. As a result, it is critical to boosting vaccination rates, particularly in growing European economies, and firmly support international initiatives to improve global vaccine availability.

The post Impact of Covid-19 on the European Union Economy appeared first on International Finance.

Noda Pay enables businesses to bypass expensive banking intermediaries. The startup is planning to expand in North America as well as Singapore next year. Noda Pay, which is backed by Social Discovery Ventures (SDVentures) has projected annual revenue of $800,000.

Noda Pay spokesperson Brian Fitzgerald told the media, “Noda Pay was developed to help businesses keep more of their hard-earned money. With inflation rates soaring in many parts of the world, businesses need to save on expenses wherever they can. Paying upwards of 3 percent to receive payment is no longer acceptable. Noda Pay cuts out the intermediaries in bank payment processing, saving businesses up to 2 percent per transaction.”

Earlier this month, UK-based fintech startup Thought Machine raised around $200 million in a Series C funding round. The latest funding round valued the startup in excess of $1 billion.

The funding was led by Nyca Partners with participation by new investors JP Morgan Chase Strategic Investments, Standard Chartered Ventures and ING Ventures.

Paul Taylor, CEO and founder of Thought Machine told the media, “ These new funds will accelerate the delivery of Vault into banks around the world who wish to implement their future vision of financial services.”

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With Brexit, the UK became the first member and the only sovereign country to have left the union after being a member for nearly half a century. However, the transition has not been smooth. Over the years, the EU-UK relations have deteriorated as both parties clashed over issues from diplomatic representation to Covid-19 vaccine exports and above all, new arrangements for Northern Ireland. Negotiations were tense to such an extent that the UK issued a warning to the EU leaders that it will move away from the terms agreed during the Brexit deal in case there is no flexibility shown by them when it comes to North Ireland.

Even though Northern Ireland is a part of the UK, it continues to follow some EU rules under the divorce deal. This was agreed upon to keep an open land border with the Irish Republic, which is a member of the EU. Over the years, negotiations over the status of Northern Ireland have turned out to be the thorniest legacy of Brexit. In response, the EU proposed to ease border bureaucracy between Britain and Northern Ireland. However, it has ruled out a renegotiation of the treaty which is being called for the UK. Also, post-Brexit tensions continue to trouble Scotland, as separatist parties won a majority of seats in the 2021 elections. This led to calls being made for another independence referendum.

Brexit so far
Since Brexit, the UK has signed trade agreements with 69 nations across the world and one with the EU. However, a majority of them are rollover deals, meaning it’s the exact same deals the UK already had in place prior to its exit from the EU. The latest trade deal signed by the UK was with New Zealand, which was signed on October 20, 2021. According to British Prime Minister Boris Johnson, the deal will prove to be beneficial for exporters as it will reduce costs and at the same time open up New Zealand’s job market to UK professionals. Besides removing tariffs on goods such as clothing and machinery, the deal will also cut red tape for businesses.
Currently, New Zealand is a very small UK trading partner and trade accounts for less than 0.2 percent of GDP. The Johnson-led administration hopes it is a step towards joining a trade club with Canada and Japan.

However, according to government estimates, the New Zealand deal itself is unlikely to boost UK growth. There is also skepticism from different stakeholders such as the Labour and the National Farmers Union (NFU). They feel the trade deal with New Zealand could prove to be detrimental for farmers in the UK and lower food standards.

A UK-EU trade deal came into force on January 1st this year after months of negotiations. After the Brexit transition period came to an end on 31 January 2020, it was important for both parties to decide the rules to continue their trading relationship as the EU is the UK’s largest trading partner.

The deal helped prevent new tariffs or quotas from being introduced as it would have made trade between the EU and UK more expensive. But not everything is the same as it was prior to Brexit. However, since the UK no longer abides by EU rules, new rules are being drafted in terms of product standards and new checks are being introduced. Given the strict rules in place in the EU for animal products, the UK can no longer export its animal products to the EU. The deal neither completely eliminates the possibility of tariffs in the future. Both parties will need to find common grounds when it comes to workers’ rights and environmental protection. This is because a greater shift in rule either by the UK or the EU will force the other side to introduce tariffs.

Some rules that existed prior to January 2020 no longer exist. Such rules include those on freedom of movement, cross-border travel and personal rights. Now, EU citizens can no longer travel or move to the UK to work and settle, and vice versa. Now, the rules are similar to citizens of non-EU countries.

The UK also began implementing new immigration policies this year. The government has developed a new points-based system to attract skilled workers to the country. EU residents will be evaluated too based on this system. Since Brexit, the issue of labour shortage has popped up now and then. The road haulage industry especially has reported severe labour shortages on various occasions. This is due to multiple factors which also include Brexit and the Covid-19 pandemic.

Five years later, Brexit continues to divide
Even though it has been over five years, Brexit continues to divide Britain. A report published by the National Centre for Social Research and whatukthinks.org revealed that Britain still remains deeply divided over the issue. Professor Sir John Curtice, Senior Fellow at the National Centre for Social Research at The UK in a Changing Europe, said “While some voters would now vote to stay out of the EU, there is still relatively little evidence that they are coming to accept the decision to leave. Rather, Britain still looks like a country that is divided down the middle on the merits of that decision. Unless this picture changes, the debate about Brexit is likely to continue well after the transition period concludes at the end of next month.”

This debate over the relative merits of Brexit rages on. Some diplomats from both sides worry that the politics being played when it comes to Brexit could, unfortunately, seal the faith of UK-EU relations for the foreseeable future. The country is also split on whether Brexit has been a success. In 2016, Brexit was campaigned with two vital claims. Firstly, it would restore British sovereignty and save the country a lot of money. It was also claimed that Brexit would save the UK an extra $486 million a week, which can be diverted towards its national health service.

Five years on, the scars of Brexit still remain fresh. Even though people are finally accepting it, there are many who remain dissatisfied with how it ended. Truth be told, no version of Brexit would please all the parties involved. We all remember the Boris Johnson moment where he vowed to get Brexit done. We are about to enter 2022 in a month or so and Brexit is far from over. As it stands, negotiations are likely to go on for years or even decades. It is getting very difficult to predict what the end game will be. One of the issues that are expected to be dragged on for a long time is the Northern Ireland protocol, based on which Johnson won an election. Until the UK and the EU reach an agreement on its implementation, Brexit will not be put to bed. As far as the future relationship between the EU and the UK is concerned, it is a work in progress and hangs in the balance.

Brexit, pandemic and the economy
Both Brexit and the Covid-19 pandemic had a damaging impact on the British economy. Recently, the chairman of the Office for Budget Responsibility, Richard Hughes said that the impact of Brexit on the UK economy will be far more disastrous in the long run compared to the pandemic. He believes exiting the EU could shrink the UK gross domestic product (GDP) by nearly 4 percent in the long term. “In the long term, it is the case that Brexit has a bigger impact than the pandemic. We think that the effect of the pandemic will reduce that (GDP) output by a further 2 percent,” he told BBC.

According to the Office for National Statistics (ONS), gross domestic product (GDP) dropped by a quarterly 2.2 percent between January and March last year, the largest quarterly fall since 1979. The economy also contracted by 1.5 percent during the first quarter of 2021. This year, the economy is forecasted to grow by 6.5 percent in 2021, according to a report published by the ‘Office for Budget Responsibility.’

The report read, “Over the medium term, we have revised up real GDP as we now expect post-pandemic scarring of potential output to be 2 percent – rather than the 3 percent we assumed in March. Uncertainty around this judgment remains large, however, with limited evidence as yet regarding how smoothly furloughed workers will be reabsorbed into employment, whether those workers who became inactive or left the country during the pandemic will re-enter the labour force, and how fully shortfalls in capital investment, innovation, and the acquisition of skills will be made up.

“With inflation also higher and more persistent, we have revised up nominal GDP – the key driver of tax revenues – by 4.1 percent in 2025-26 relative to March, boosting our pre-measures revenue forecast by 4.5 percent in that year. While higher inflation also boosts public spending, overall, our pre-measures forecast for borrowing is lower by £38 billion a year on average relative to our March forecast.”

Both the pandemic and Brexit have also played their role in current supply chain issues across the UK. Recently, a broad coalition of business groups warned, that the UK supply chain crisis would continue at least 2023 and maybe beyond the threshold. The policy head of the UK’s Road Haulage Association also issued a warning that things are not visibly getting better for the UK’s supply chains in the run-up to Christmas.

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Ms Cecile Tassin-Pelzer, Head of Cooperation, EU Delegation to Nigeria and the Economic Community of West African States (ECOWAS), said that the NESP programme marks a notable example of how efficient cooperation between Nigeria and the EU.

“The programme is a notable example of efficient cooperation among the EU and the Nigerian partners, bringing tangible results to the country,” she said while speaking at an event in Abuja.

Recently, Vice President Yemi Osinbajo said that Nigeria’s solar power project will create 250,000 jobs. At the same time, it will electrify five million homes and give 25 million Nigeria access to clean electricity by 2023.

He told the media, “All these are included in nationally-determined contributions. The transport sector is being decarbonised by the industrial sector, and as the chairman said earlier, the gas expansion plan of the Nigerian Ministry of Petroleum Resources is all part of us routing our nationally determined contributions.”

‘This is why at the President’s heart is the need to reduce energy related carbon emissions to limit climate change. To meet the goals of the Paris Agreement, which Nigeria at least subscribed over the next decade, every aspect of the national energy system is expected to be affected by changes in climate and energy policy, financing, continuous technological advancements, and shifts in energy supplies, and demand.”

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Mubadala Investment Company and Interogo Holding are poised to take stakes in CityFibre which could value the company at £2 billion.

The debt issue and the stake sale could give CityFibre an additional £1 billion to fund its wholesale metro fibre deployment.

CityFibre is planning to invest nearly £4 billion in a fibre network by 2025 and aims to address around a third of the UK market which includes around 8 million UK homes, 800,000 businesses, 400,000 public sector sites and 250,000 5G access points.

According to the company, it ended 2020 with more than twice the number of connections sold on its network at 25,158 compared with the previous year.

Earlier this month, UK telecom giant Vodafone announced that it would reintroduce European roaming fees for new and upgrading British customers in January. Roaming charges were discontinued earlier in the EU, however, since the UK is not a part of the EU anymore, telcos in the UK would look to bring back such charges.

In this regard, Vodafone’s UK Chief Executive Ahmed Essam said the majority of its customers were not regular roamers. According to him, fewer than half roamed beyond Ireland in 2019 – and they were paying for something they didn’t use.

“So, we think it’s fairer to give people more choice over what they pay for, either opting into a price plan that includes free roaming, or paying for roaming only when they roam,” he said.

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Deviating from the deal’s North Ireland protocol is quite risky. When conceived, its aim was to prevent Brexit from disrupting the peace brought to Northern Ireland by the US-brokered 1998 agreement that ended three decades of sectarian conflict. Britain’s chief Brexit negotiator is due to update the parliament in the next two days and will present a fresh paper on Brexit to lawmakers in what could be a critical moment in five years.

The plans are being worked on in Downing street and according to reports, Frost told lawmakers the protocol was not sustainable in its current situation and if an agreement couldn’t be reached, then London would consider all its options, including a unilateral option through Article 16 of the protocol.

Frost told the media, “All options are on the table. We’ve said it’s not sustainable in the way it’s working at the moment, things have got to change.” He also mentioned that it was not clear if a fundamental rebalancing of the protocol was possible at this point. Brussels is also expecting that Frost will push for a deviation from the protocol unless the EU agrees to compromise.

Experts say that Britain will go beyond its demands for changes to veterinary rules. An EU diplomat and a senior EU official said that London will have to seek to have the European Court of Justice (ECJ) removed from the arbitration process.

Keeping the harmony maintained in North Ireland while protecting the EU’s market without dividing up the UK has always been the most difficult problem since Brexit happened. Even since its exit, Prime Minister Boris Johnson has delayed the implementation of some protocol and Frost has already mentioned that it is unsustainable.

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According to the EU, the amount is owed under a series of articles that were pre-agreed as part of the Brexit withdrawal agreement.

Five years have passed since around 51.9 percent of the Brits voted to exit the European Union (EU). What followed is years of rigorous negotiations. And five years after a fractious referendum campaign Britain is still as split over Europe as ever.

Earlier this year, Bank of England (BOE) governor Andrew Bailey said that Brexit could end up costing the UK billions of dollars. The governor added that Brexit could cost the UK economy the equivalent of $109 billion.

Speaking to the House of Commons Treasury Committee, Bailey said the deal was broadly in line with what the BOE forecast in November. He said, “You’re right that the OBR, and indeed our model if you let it play out, because it affects a very long run, because of the way in which the real side of the economy adjusts – that something around 3 to 4 percent for this sort of deal is probably right.”

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