18th September 2019

Written by Sabina Kadić-MacKenzie (Associate Partner)



In today's daily briefing, Sabina Kadić-MacKenzie explores the growing relationship between western Balkan states and China. A relationship that, she argues, should streamline the long-awaited accession of these countries to the EU.
















Good morning,


Queuing. A national pastime that the British have mastered over centuries, and boy are we good at it. But while we’re forming an orderly queue of well, just one, to exit the EU, a challenge is afoot for the queuing crown of Europe as the countries of the western Balkans continue their slow shuffle to EU accession. 


North Macedonia: 14 years. Serbia: 10 years. Montenegro: 11 years.  


Bosnia: Lord only knows. After formally applying in 2016 following years of constitutional reforms and engagements with the Dayton Peace Agreement, the land of blood and honey has got itself caught in a cycle of EU red tape and is yet to get its policy and political criteria responses in order.  


At whatever stage these Balkan nations are at, it’s clear that the process is less Brexit and more Banter (that’s ‘Balkan’ and ‘enter’ for those of you scratching your head). 


Yesterday European Council President, Donald Tusk, held official visits to Albania and North Macedonia to meet political leaders of the two countries on the issue of opening accession talks. Following a meeting with North Macedonian prime minister Zoran Zaev, Tusk said that EU leaders should vote in October to begin accession talks.  


This comes following a meeting of EU leaders in Helsinki to discuss the Balkan ‘queue’. Many of those waiting are of course former Yugoslav nations, which, post-conflict and decades of economic uncertainty, bring their own challenges to the bloc.  


However, the EU is coming around to the idea that after years of queue shuffling, it’s time to harness the potential of the western Balkan states. Their combined economies might have something to do with it. Projected to average 3.7 per cent for 2019–20, the rate of growth in Balkan economies outstrips that of the EU during the same period. In particular, growth is expected to accelerate in Bosnia and Kosovo. 


But there’s another reason for haste. As well as believing that the enlargement of the EU will allow them to export stability, democracy, and economic development to their neighbours, EU leaders are also looking over their shoulders as China marches towards them. 


Whilst my colleague Aidan Reid wrote yesterday that China’s seemingly unstoppable economic rise has in fact started to slow, this isn’t the case in the Balkans. Chinese  “chequebook diplomacy” (or should that be “debt trap”?) means that, as of 2018, Montenegro owes almost 40% of its debt to China, followed by North Macedonia (20%), Bosnia (14%), and Serbia (12%).  


But back to ‘Banter’ and it’s clear that the EU’s orderly accession queue is at risk. Shackled by its red tape, the EU is unable to meet the frustrated demands of the once patient – and previously rather desperate - western Balkans. Unless it moves quickly the risk is that its accession routes will be undermined, and its queue will descend into chaos. 


Worse still, the queue could reform elsewhere – namely at Beijing’s door with hands held out. And once that door swings open, the EU will have bigger problems than who is in and who is out. 


News


Spain is heading to its fourth general election in four years after the socialist prime minister failed to secure the backing of one of the main opposition parties, Podemos. The next election is due to take place on 10 November. The government of Pedro Sánchez was able to form a minority government after the April election despite getting only 123 out of 350 seats in Congress.  


Israel’s legislative election took place last night. Although results are still coming in, 92% of the counted votes show Netanyahu’s Likud Party tied to centrist Benny Gantz’s Kahol Lavan Party, with each securing 32 seats in the 120-seat Knesset so far. Exit polls indicate that the latter could be slightly ahead. With these results, a coalition will be needed to form a government, something that puts Avigdor Liberman, leader of the far-right Yisrael Beitenu, in a potentially strong position.


The US reportedly identified locations in Iran from which drones and cruise missiles were launched to attack Saudi oil facilities on Saturday. This now raises the risk of a coordinated response from the US and Saudi Arabia, something that would further disrupt oil markets globally. 



Business & Economy


WeWork officially delayed its IPO amid a lack of investor interest. The valuation of the company dropped as low as to $5-10bn from an initial $47bn, driven by concerns over the company’s operating losses and the sway its CEO, Adam Neumann, has over the company. WeWork had planned to start the IPO preparation process as early as Monday morning, and to price and list its shares next week, but according to the Wall Street Journal, this is now not going to happen until at least mid-October. The company is at a crossroad: it must launch its IPO by the end of the year to qualify for a $6bn loan that it needs to fund an aggressive expansion programme, but accelerating the process will likely damage its post-IPO prospects. 


The Fed will conclude its latest policy meeting today, in a context of conflicting economic data, pressure from the president for steep interest rate cuts and unexpectedly confronted with high overnight borrowing costs. As a result, it is widely expected that the Fed will cut its key overnight lending rate by 0.25% to 1.75%, which would be the second rate cut this year. 


Thomas Cook filed for bankruptcy protection in the US, a move that gives the holiday planner extra time to secure an agreement on a crucial rescue deal that is now worth £1.1 billion, up from an original sum of £750 million. The rescue, which involves a debt-for-equity swap, would save Thomas Cook from bankruptcy, but is expected to wipe out ordinary shareholders. 


Markets


What happened yesterday?


Stocks in the UK are set to fall at the open today as investors eye key UK inflation data and the latest policy announcement from the Federal Reserve. The FTSE 100 is expected to open 10 points lower at 7,310. 


Meanwhile, European stocks changed little on Tuesday as financial markets remained steady following the weekend's attacks on key Saudi oil processing facilities. Nonetheless, investors will look closely towards the US as the Federal Reserve's policy decision is scheduled for later today. By the end of trading yesterday, the pan European Stoxx 600 index was down by just 0.05% at 389.93 as Germany's Dax dipped 0.06% to 12,372.61 and France's CAC 40 rose 0.24% to 5,615.51. 


Across the Atlantic, US stocks closed higher as crude oil futures fell lower amid reports that Saudi oil output could be fully restored as quickly as had originally been anticipated. The Dow Jones Industrial Average was up 0.13% at 27,110.80, while the S&P 500 was 0.26% stronger at 3,005.70 and the Nasdaq Composite was 0.40% firmer at 8,186.02. 


Whats happening today?


Finals

Avingtrans Pan African


Interims

Accesso Tech Attraqt Group Bonhill Group Cello Health Clearstar Di Jarvis Securities Judges Scientfc Keywords Studio Maxcyte (Di) Pendragon Strix Group Walcom Warpaint London Yu Group


Interim Dividend Payment Date

Tullow Oil Witan


Final Dividend Payment Date

Cohort


Columns of Note


Writing for the Financial Times, Anjana Ahuja argues that replying to alien contact would be “madness on a galactic scale”. If we were to be contacted, it would be from a lifeform in a position of technological, if not intellectual, superiority. The stakes are raised as China, India and the US compete to expand their space exploration programmes, something that could result in one of these nations stealing the initiative. As Ahuja says, what more dramatic way for a strongman to show he is king of this world than by controlling the first contact with another?


In Bloomberg, Matt Levine writes on the imperative need of SoftBank to get new successful deals in light of the recent fiascos of WeWork, Uber and Slack. The fund has been observed to operate a similar pattern: it buys stakes at later rounds of a startup’s funding, lists the company a year or two later, and then books the mark-to-market gains. It sounds simple, but one must consider that SoftBank, like most pre-IPO investors, is generally locked in and can’t cash out that profit for at least a year. If we consider that IPO shares have a tendency to perform badly in their first year, this is not ideal. But there is a strategy: to weather the losses, the fund has in the past booked gains by bringing its next hot offering to market. That means that as long as there’s a healthy flow of IPOs each quarter, the pain from public-market declines can be ignored. But with WeWork’s IPO now out of sight, the Vision Fund has run into trouble. 


Did you know?


Homework was extremely controversial in the 18th and early 20th centuries. In 1901, California even banned homework for everybody under the age of 15.


Parliamentary highlights


Today


House of Commons

No business due to prorogation. Will next sit on Monday 14 October.


House of Lords

No business due to prorogation. Will next sit on Monday 14 October.


Scottish Parliament Portfolio Questions Education & Skills  Health & Sport Scottish Conservative debate Mismanagement of NHS Construction Projects Restoring Trust in Criminal Sentencing Members Business debate CHAS, Keeping the Joy Alive


TOMORROW


House of Commons No business due to prorogation. The House will next sit on Monday 14th October. House of Lords No business due to prorogation. The House will next sit on Monday 14th October. Scottish Parliament

First Minister questions Stigma surrounding HIV anti-Drug driving enforcement

Member's Business Social Security Scotland First Anniversary

Portfolio questions Communities and Local Government

Ministerial Statement Getting It Right for Every Child – Practice Development Panel’s report