10 ★ FINANCIAL TIMES Tuesday4 February 2020
Letters
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to the FT Editorial Complaints Commissioner: [email protected]The new strain of coronavirus originat-
ing from the Chinese city of Wuhan has
rattled markets as much as it has global
health authorities. Chinese stocks
opened 9 per cent lower yesterday
morning, the worst opening for 15
years. Equity prices worldwide have
felt the aftershocks and the long term
yield on US treasuries briefly fell below
the short term yield — a potential
warning signal of global recession.
Not even trained epidemiologists can
predict how the virus will spread. The
uncertainty and febrile atmosphere is
taking a financial toll. Low interest
rates, cheap money and hopes for the
global economy after the signing of a
“phase one” trade deal between the US
and China had helped bid up equity
valuations. With such optimistic pric-
ing it does not take much of a hit to con-
fidence for prices to take a dip — as they
already did after last month’s assassi-
nation of Iran’s top general by the US.
Perhaps more worrying for the global
economy and investors than the direct
impact of the virus, however, has been
the response from the Chinese authori-
ties. Shutting down large parts of what
is now, on some measures, the world’s
largest economy will have a knock-on
effect elsewhere — particularly those
countries with the strongest trade
links. Hong Kong’s main index has
fallen 5 per cent over the last five trad-
ing days while the main Taiwanese
index has fallen 7 per cent.
The virus hasnow spread further
than the much more deadly Sars virus
which similarly began in China in
- The Middle Kingdom is now a
much bigger part of the global econ-
omy. In 2002 it only accounted for 8
per cent of global gross domestic prod-
uct; now it accounts for 19 per cent. Its
role in the global economy has changed
too, with Chinese factories a key part of
global supply chains and Chinese tour-
ists a bigger proportion of global flows.
Industry, however, remains on the
frontline. Major manufacturing hubs
such as Jiangsu, Chongqing and Guang-
dong have been shut down for “non-es-
sential” businesses, prolonging a holi-
day for the lunar new year. Apple
warned about the impact of the slow-
down on its supply chainin its results
last week. Car manufacturers Toyota
and Honda have closed factories.
The knock-on effect has been easily
visible in commodity prices. Industrial
metal prices have fallen while gold has
risen. Investors are seeking the appar-
ent safety of precious metals while pre-
dicting that, with the world’s factory
shut down, there will be less demand
for raw materials. Copper prices have
fallen 11 per cent since mid January. Oil
prices have fallen by a similar amount.
Service industries will feel the effects
too. Coffee chain Starbucks and the fast
food group McDonald’s have closed
outlets in mainland China. British Air-
ways, Lufthansa and others have can-
celled flights to China. If the virus con-
tinues to spreadsimilar cancellations
and closures may be seen elsewhere.
Economists estimate the damage to
China’s GDP at around 0.5 to 1 percent-
age point in the first quarter, a substan-
tial hit to an already-slowing economy.
The spread of the epidemic amounts
to an experiment in deglobalisation.
Barriers are being put upnot to halt
trade and migration flows but to stymie
the spread of infection. The economic
effects, however, are similar:
snarled-up supply chains, lower busi-
ness confidence and less international
trade. Policymakers can provide stim-
ulus to support growth but can do little
against the shock to economies’ capac-
ity to produce goods and services. This
leaves the global economy largely at
the mercy of nature. How much worse
the impact on global growth becomes
will depend on how quickly the virus
can be contained.Beijing’s response is perhaps as damaging as the virus itself
Coronavirus has put
globalisation into reverse
UK prime minister Boris Johnson chose
to set out his negotiating strategy for
trade talks with the EU in the baroque
Painted Hall of the Old Royal Naval
College in south London. The paint-
ings, which have been called “Britain’s
Sistine Chapel”, depict the then newly-
founded country’s commercial and
military achievements in the 17th and
early 18th centuries. Among other alle-
gorical images is one of King William III
passing the “cap of liberty” to a kneel-
ing Europe.
YetMr Johnson’s speechrecalled pri-
marily a more recent and less glorious
history. Despite copious references to a
newly global Britain reaching out to
“old friends” in the Commonwealth,
the stance he set out towards the EU
evoked the flawed strategy of his pred-
ecessor Theresa May.
The speech marked the return of the
“no deal is better than a bad deal”
approach taken, at least rhetorically,
by Mrs May.
The framing, however, has changed
to become a choice between the deals
enjoyed by two of those “old friends”:
either a comprehensive Canada-style
agreement or — if that proves impossi-
ble — a bare-bones Australia-style deal.
The latter goes only slightly beyond
the World Trade Organization terms
that would have applied if the UK had
not agreed a divorce deal with the EU.
In essence, it is a euphemism for a dam-
aging “no deal” Brexit.
Whether this attitude represents a
negotiating tactic or the government’s
real intentions, it will create the kind of
uncertainty that contributed to a con-
traction in business investment and a
slowdown in growth.
Business needs clarity to plan for the
new arrangements. Mr Johnson needs
to set out which sectors he will seek to
include within a deal and which his
government believes are in “secular
decline” and could be excluded from
any agreement. Neither a Canada- nor
Australia-style approach is a favoura-
ble model, for either side. Trade with
the EU is virtually irrelevant to Aus-
tralia’s economy. The UK is much
closer than Canada to the EU, and its
economy is entangled with it.
A deal modelled along Canada lines
will be costly to the UK and raise fears
within the EU of anunfair competitor
on its doorstep.
This is precisely why the EU is insist-
ing on the UK signing up to “level play-
ing field” provisions, which would be
more stringent than those in the EU-
Canada deal.
Mr Johnson has reassured the EU
that his government has no intention of
undercutting environmental and social
protections. But trust is low. Dispute
settlement and the enforcement of the
agreement will be subject to fierce
negotiations.
As a first step, the prime minister
should be trying to restore trust by, for
example, acknowledging that the with-
drawal agreement would lead to a cus-
toms border on the Irish Sea.
The government should also make
clear that the UK will need a broader
deal than Canada’s free trade agree-
ment with the EU.
An agreement allowing for zero tar-
iffs and quotas would not be sufficient.
Crucially, it would not resolve conten-
tious disputes over fisheries, the status
to Gibraltar, the role of the European
Court of Justice and financial regula-
tion.
Achieving a more comprehensive
deal will be difficult within the current
deadline of 11 months. As negotiations
get under way, the government needs
to outline clearly the economic impact
of its preferred Canada-style agree-
ment and the Australian-style fallback.
Slogans are useful in an election cam-
paign. What business requires now is
transparency.Business and the public need to understand the economic impact
UK government must
come clean on EU trade
Last week, a 4.9 magnitude
earthquake shook the Albanian
capital Tirana. There was no damage,
but people streamed out of their
homes because the country is still
traumatised by a 6.4 magnitude
earthquake in late November that
killed 51 people and left 15,
homeless.
“The second half of the year was
dominated by earthquakes,” the
city’s mayor Erion Veliaj tells me in
his office. “Environmental, political,
diplomatic.”
The biggest earthquake of the
diplomatic kind was French president
Emmanuel Macron’s veto n Octoberi
on the opening of EU accession talks
with Albania (and North Macedonia).
As the UK extricates itself from the
EU, Albania and the other countries in
the western Balkans desperately want
to join. However, they now wonderif
they will ever be welcome in the bloc.
In the hopes of beginning accession
negotiations, Albania has been going
through ahighly complexjudicial
vetting process, which saw the ranks
of its supreme and constitutional
courts thin out, leaving them
incapable of holding trials. The
country is also pushing through a
comprehensive law on organised
crime that will ease international co-
operation in criminal cases.
North Macedonia ook the highlyt
contentious step of changing its name
to unstick a veto from Greece, only to
be stymied by Mr Macron. As the
French president seeks to reform the
EU before expanding it, those whowant to join find themselves further
away than ever.
“This is a breaking point,” a friend
tells me over a pot ofcaj mali,
mountain tea, in a downtown café.
She says she and her compatriots feel
the decision not to open the path to
negotiations was due to persistent
anti-Albanian feeling and
Islamophobia (though the country is
mixed between Catholics, Orthodox
Christians and Muslims).
Most people in the Balkans would
prefer to see their countries join the
EU for the economic opportunities
and standards of living it provides. But
for a sizeable group, the bloc,as it
wrestles with Brexit, swelling
populism, demographic anxiety and
sluggish growth, no longer represents
a dream. And with its refusal to
reward a move so groundbreaking as
changing a country’s name,it fails to
represent the values that so many
have yearned to establish in the region
since the tumultuous 1990s.
There’s a joke in the Balkans that
says if the countriesaren’t allowed to
enter the EU, citizens will join anyway
— one by one. It is happening. The
countries in the region have
collectively lost more than 400,
citizens of working age in the past five
years, according to recent research by
theRegional Cooperation Council.
While there is a palpable sense that
another era is dawning in the Balkans,
no one knows what it will look like.
“Now that it is 2020, it is our fourth
decade of transition,” Albania’s former
foreign minister Ditmir Bushati tellsme over a lunch of grilled eel and sea
bass. “That’s the same amount of time
that we had communism here. And
four decades in, there is a risk that the
EU could lose the region.”
Meanwhile, he notes, China is
quietly and steadily expanding its
influence.
Albania, like the rest of the Balkans,
has long been a site of geopolitical
competition. A century ago, Tirana
became the Albanian capital because
all of the other major cities were
occupied — in the north by Serbs and
Montenegrins, in the south by the
Greeks, and in the west by the Italians.
Today, Albania’s desire for a future
inside the EU is clear, but many of its
people feel unwanted.
The EU, says Luigi Soreca, its
ambassador to Albania, mobilised
resources after November’s
earthquake, treating the country “just
like a member state”. Emergency
funds totalling€15m ere raised. Hew
says this helped to restore the bloc’s
reputation, which had suffered after
Mr Macron’s veto. More will be
pledged at a donor conference in
Brussels later this month. But aid is
the continuation of a donor-client
relationship, not necessarily the basis
for a more equal one.
Even so, it has been crucial. Now
only a few hundred families remain
without permanent accommodation,
Mr Veliaj says. Recovery from
October’s diplomatic tremors will take
rather longer.[email protected]Albanians
wonder if the
EU will ever
welcome them
Tirana
Notebook
by Valerie Hopkins
We must make it clear
that the UK welcomesscientific understanding
The new visas to be offered on the basis
of “global talent” may be challenging to
administer, but the primary function of
this announcement must be to
counteract the atmosphere of
resentment and hostility towards
expertise that has characterised the
last three years, and to slow down the
steady drain of highly qualified
professionals that we have been
witnessing. These are people who have
plenty of options. The next step for the
government must be to demonstrate
that this is a culture where scientific
understanding is welcomed and
encouraged; and the strongest
statement of such an attitude would be
a clear commitment to recognising and
combating man-made climate change.
We know that there are places of
power where these words cannot be
spoken, but prime minister Boris
Johnson has a chance now to
demonstrate that he is his own man.
Many of us thought that these threats
would be better met by working with
others in the EU, but Brexit now offers
an opportunity to go further and faster.
The first crucial steps towards
decarbonisation were taken by Britain’s
first scientist prime minister. Further
policies in that direction can be
presented as a continuation of the
Thatcher legacy, and as an
encouragement to people of global
talent to come to a society where their
ideas will be taken seriously, and acted
upon. The country which began the
industrial revolution can take the lead
in dealing with its consequences.
Charlotte Roueché
London NW5, UKIt’s far too soon to judge
who ‘got it right’ on Brexit
Robert Tombs correctly points out, in
“The ‘damn fools’ got it right on Brexit”
(February 1), that “the overwhelming
concern of Remain voters was
economic”. But then he goes on to
argue that this concern was based on
“project fear”. His argument is highly
debatable.
The majority of economists,
including myself, believed, and still
believe, that the UK economy will fare
much worse outside the EU. Indeed, we
used to have a season ticket in Europe.
Why on earth would we want to switchto individual, and much more
expensive, tickets? That said, a valid
criticism of our economic predictions is
that these are based on models that do
not necessarily take into account
“structural change”; that is, economic
relationships that used to hold in the
past might not necessarily remain valid
after the political, social and economic
headwinds of Brexit. In any case,
Professor Tombs forgets to mention
that the so-called “project fear” was
outsmarted by the notorious (and
discredited) “£350m a week” dividend
of Brexit.
But even if we are willing to forgive
Prof Tombs for this omission, we
cannot forgive him for his core
argument. Historians consider
anathema the misguided idea that
there are right “answers” to every
historical question. With this in mind,
how is it that Prof Tombs, who signs his
op-ed as author ofThe English and their
History, rushes, even before Brexit
commences, to make the argument
that “the ‘damn fools’ got it right”?
Prof Costas Milas
Management School,
University of Liverpool, UKUnstinting praise that
masks relief all round
I am sure that I was not your only
reader who, after seeing your report
headed “Partners prepare for life after
divorce” (January 31), and noting
Frans Timmermans’ paean to Britain’s
membership of the EU, was put in
mind of that epitome of corporate
hypocrisy, the retirement function.It will be recalled how at such
events the boss will be unstinting in
praise for old Fred who is retiring,
cataloguing his many great
achievements and questioning how the
company will manage in the future
without his invaluable services. All the
time everyone stands around solemnly
recalling how Fred has always been
regarded as a thoroughgoing menace
and how they have been trying to get
rid of him for years.
John Murray
Guildford, UKLeave goodwill figure on
the sandbanks of time
Sandra Peters (Letters, January 31)
discusses the impairment of goodwill. I
would suggest that problem can be
mostly shelved.
Goodwill isnotan asset employed in
the operations of a company. When a
second company is taken over, its
working assets are integrated into the
operations of the first company, but the
balance, the goodwill, is
straightforwardly the discounted value
of future incomes less the assets
valued. But the first company had to
purchase the second company in some
way (cash, debt, shares and so on), and
those liabilities (or reduced cash
holdings) appear on the operational
balance sheet. The resulting balance
sheet then stands ready to support the
ongoing business (streams of income)
which will include the business
acquired in the second company;
balance sheet weaker, income streams
improved (or not!). This is the real
state of affairs. The value of goodwill is
irrelevant to this practical analysis.
Why is the figure for goodwill of
interest? Only as a way of judging
whether the original purchase was
appropriate and at a sensible price. But
that is a matter which is in many cases
mixed up with the other operations of
the company, and it is difficult to avoid
the conclusion that all impairment
tests are likely to be of poor quality.
Why not just leave the figure for
goodwill on the sandbanks of time,
with a comment when some relevant
insight occurs? Most discussions on
goodwill can then be abandoned, with
a great saving in time and mental
effort.
David Damant
Stamford, Lincs, UK
Member IASC Board 1986-2000; Chair,
Consultative Advisory Group, IAASB
2004-Your article “WHO declares
international emergency over
coronavirus” (FT.com, January 31)
reports Tedros Adhanom Ghebreyesus,
the World Health Organization
director-general, emphasising that “our
greatest concern is the potential for the
virus to spread to countries with
weaker health systems”.
Hopefully this epidemic will finally
bring it to government attention that
the UK currently employs more than
66,000 doctors from outside the EU,
mostly from low and middle income
countries (LAMICs), which have much
lower doctor/population ratios than
our own, whose populations suffer a
much greater disease burden, and
whose health systems would be far
stronger if the UK had not engaged in
active recruitment of their health staffover many years, and indeed is still
doing so.
The UK is a signatory to the WHO
Code of Practice on the International
Recruitment of Health Personnel
2010, which recommends that member
states discourage active recruitment
from LAMICs facing critical shortages
of health workers (and never recruit
from the 57 poorest countries, from
which we currently employ about
33,000 doctors), and create their own
sustainable health workforce.
The numbers returning to their
source countries after specialist
training in the UK is extremely small,
totalling only 175 over the past five
years. Low and middle income
countries will have continued difficulty
containing serious epidemics without a
greatly strengthened workforce, but atpresent our health worker recruitment
from LAMIC continues to cause serious
damage to their health systems.
It is high time for the UK to
implement the WHO Code of Practice
not to recruit from low and middle
income countries, and indeed to give
adequate recompense, not only for the
training costs but also the wider
opportunity costs of lost clinical
training, research and policy expertise,
to those source countries whose
healthcare staff we have actively
recruited, and thus stop hindering the
longstanding efforts of those countries
to strengthen their health systems.
Rachel Jenkins
Moccas, Herefordshire, UK
Professor Emeritus, King's College
London; Director, WHO Collaborating
CentreWe weaken poor countries’ health systems
‘I don’t see why we should follow the
rules of our biggest trading partner’Budget will not provide
the stimulus that Indiaso desperately needs
I refer to Amy Kazmin’s incisive report
“Indian markets tumble after budget
disappoints” (FT.com, February 1).
The Indian economy has been gasping
for the last two years. Gross domestic
product growth rates have declined
from 8 per cent to about 4.5 per cent.
Unemployment is running amok at
over 6 per cent. Consumption is falling
in every sector, be it cars, houses, two-
wheelers and so on. Companies are
laying off hundreds to thousands of
workers.
Note that this comes as the IMF
lowered its growth forecast or thef
world and mainly blamed a slowing
Indian economy, which is struggling
with declining consumption and
investments, budget deficits and delays
in making structural reforms. The
Indian slowdown is creating a global
drag on growth and “accounts for the
lion’s share of the downward revisions”,
the IMF said.
So it was widely expected that the
Indian budget would be vibrant and
revive demand and investment.
Unfortunately Nirmala Sitharaman,
the finance minister, has presented a
pedantic budget, which will not
provide the desperately needed
stimulus to the economy. The Sensex
Market Index fell by 1,000 points,
underscoring the lack of confidence in
the new budget proposals. A golden
opportunity to boost the economy,
provide jobs and eradicate the mood of
economic despondency in the country
has been squandered.
Rajendra Aneja
Aneja Management Consultants,
Mumbai, IndiaTrump is right about
China and Huawei
I have lived and worked in Asia since
1980 and one of the first countries I
went on business was China. It was a
very different country then from the
modern facade today and its
breakneck development since. This
masks the mindset and determination
of the Chinese Communist party to rule
and dominate. The arrival of Huawei is
nothing less than a Trojan Horse. Once
in, it will do untold damage.
The belief that there is a way to
control, or manage,Huawei s an errori
of biblical proportions. Denials that
Huawei is a tame provider of 5G
infrastructure withoutde facto
allegiance to the Communist party is
flawed. The owner and senior
management are “card-carrying”
members of the Communist party, and
the laws in China require any company
to provide any data they require or
request. If Beijing calls they pick up the
phone.
If UK prime minister Boris Johnson
or his cohorts think otherwise, they are
fooling themselves. Long after Mr
Johnson has been consigned to history
others will be left to try to protect the
country from the damage done by this
decision.
For the sake of a year’s delay in
rolling out a 5G system in the country
this is a small price for sovereignty to
be protected. I am not a believer in the
occupant of the White House, but on
China he is right and you, Mr Johnson,
are wrong to give or allow any role to
Huawei.
David M Dixon
Central, Hong KongFEBRUARY 4 2020 Section:Features Time: 3/2/2020- 18:34 User:alistair.hayes Page Name:LEADER, Part,Page,Edition:LON, 10, 1