Comment

Russia’s War in Ukraine changed many assumptions held by European governments, but Judy Dempsey asks is Europe prepared to embrace significant strategic issues that will change the status quo? Russia’s full-scale invasion of Ukraine in February could radically re-shape the European Union.  And it’s about time.  For too long, the EU and most member states were content in the comfort zone that did not have to deal with issues that would fundamentally change their way of doing things. These included energy, security, the future of enlargement and Russia. Until Russia’s second invasion of Ukraine, there was a tactic consensus that Europe could continue along the path of perceiving Eastern Europe through the prism of Russia and depending on Russian energy. The EU accepted the independence of Ukraine, Moldova and Georgia, not to mention Belarus. However, among many big member states, their sovereignty and independence were ambiguous.  While it was never publicly stated, this part of Europe, whose history and culture are unknown to many EU member states, was considered in Russia’s sphere of influence. In several ways, Russia’s all-out attack on Ukraine has changed that perception. First is the energy issue. It is only a matter of time before Europe will wean itself off Russian gas and oil. This dependence had given President Vladimir Putin immense leverage and blackmail over several EU countries, particularly Germany.  The EU, and German Chancellor Scholz’s Green coalition partners, say they now want to become independent from Russian energy as soon as possible. Despite the considerable pressure from German industry and its business lobbies tied to Russia, who wish to retain the status quo with Moscow, don’t underestimate this goal.  The reality is that Russia’s war in Ukraine has become the catalyst for speeding up Europe’s transition to renewable energy and alternative sources of supplies. As dependence on Russian gas decreases, so will the Kremlin’s geopolitical influence. Another impact of Russia’s aggression is security. Neutral Finland and Sweden are poised to join NATO. These two countries that have long cherished their neutrality now recognise that their security needs to be boosted. Joining NATO would fill a big security vacuum in Northern Europe, where Denmark and Norway are members of the US-led military alliance. The Baltic (NATO member) States will be more than reassured with Finland and Sweden on board. In short, Putin’s aggression in Ukraine has given NATO and the transatlantic alliance a new lease of life. It is changing the geo-security architecture of Europe. It will be interesting to see how Ireland deals with its long-standing neutrality stance.  Another big issue is enlargement that is tied to the future direction of Europe. President Emmanuel Macron’s speech at the conclusion of the Future of Europe conference set out how to make the EU more efficient by having a qualified majority voting system for certain policy issues and having a much closer, structural relationship with Eastern Europe.  But what about making the EU more politically integrated? This would require a treaty change that several member states oppose. However, this is where the war in Ukraine comes into play. European governments cannot retain the status quo when its own security and that of its eastern neighbours are at stake.  For a union with ambitions to be a global player, muddling through is no longer an option. It’s going to require a major shift in the mindset of EU countries to end Europe’s comfort zone that, until now, didn’t take its – nor Eastern Europe’s – security vulnerability seriously.  If it doesn’t make that shift, Europe will fail to use the war in Ukraine to develop a strong, integrated and secure Europe – with Eastern Europe as part of that house.  Judy Dempsey is a Non-Resident Senior Fellow at Carnegie Europe and Editor-in-Chief of Strategic Europe.

Where can small businesses find the advice they need to keep growing? Trusted advisers, says Emma Jones.  My company solves problems for small businesses based on data sets and evidence that guides businesses from different localities and sectors to support that is proven to work for their peers. We shortcut a founder’s route to success through pointing them to the right intervention for their business, at the right time, boosting productivity by saving valuable hours searching for relevant advice.    One factor that has aided the move towards standardised and personalised advice is the number of businesses now operating on common platforms.  Take the e-commerce sector as an example: most online sellers use the same ‘stack’ of technologies, whether that is Big Commerce for sales, Facebook to drive advertising, or Google Analytics to measure results.  This means smart data companies can show a founder if they are selling more or less – or paying more or less for those sales – than competitors.  With insight in hand, a founder then wants advice on how to improve and get into the top tier of performers. Business owners want to simply be told ‘how’ and ‘where’ to spend their time and money. They are willing to share data on key company metrics in return for advice on how they can perform better.  This is where the role of trusted advisers comes in.  With a foundation of data, advisers can guide a business owner through a personalised support journey, with in-built accountability as the adviser takes on the role of a coach in setting out milestones for the business to deliver.  There is a key role for accountants in this as managing or raising money is integral to business progression. While we want to connect small business owners with the right support, we also want to connect them to the trusted experts who can help them to do the jobs that need to be done to spur growth.  Guiding business owners to make the right moves, based on data and insight, and connecting them to the right advisers can help to boost their efficiency, potentially delivering a similar benefit to the wider economy.  Emma Jones is Founder of Enterprise Nation.

The war in Ukraine will profoundly impact the defensive stance of the EU’s neutral countries. Russian President Vladimir Putin’s decision to invade Ukraine is changing Europe in ways the Kremlin did not build into its calculations when it sought to conquer its western neighbour.  NATO, the EU and the United States are united in their agreement over an unprecedented, punitive package of sanctions against Russia.  Individual NATO members are sending lethal weapons to Ukraine. NATO, which has boosted its defences in Poland, the Baltic States and Romania, has ruled out a no-fly zone over Ukraine. It fears retaliation from Putin, even the threat of a nuclear strike. Meanwhile, Europe has opened its doors to refugees. No more squabbling over who to admit or how many numbers will flow into each country compared to 2015, when former German Chancellor Angela Merkel gave shelter to over one million Syrian refugees fleeing the war. Germany has thrown away its ‘rule book’. The belief that wandel durch handel (change through trade) would bring Russia closer to Europe is over.  Social Democrat Chancellor Olaf Scholz has reached a Zeitenwende — a turning point — not only regarding Russia, but domestically as well. German defence spending has risen to two percent of gross domestic product, equivalent to about €100 billion a year. The anti-American and pacifist wings in Scholz’s party are also toeing the new line — for now. As for the EU, its foreign policy chief, Josip Borrell, said the bloc would send weapons to Ukraine. What a turnaround for a soft power organisation built on a peace project. This may see the EU transition from a soft power provider to a hard power player as it now urgently reassesses its security and defence stance.  This is where the neutral countries of Ireland, Finland, Sweden, Austria and Malta face challenging debates and decisions. All have signed up to the EU’s Common Security and Defence Policy. With the exception of Denmark and Malta, they are participants in the EU’s Permanent Structured Cooperation (PESCO), aimed at increasing defence cooperation among the member states. They benefit from the decades-long US policy of guaranteeing the security umbrella for its NATO allies in Europe. Somehow, the neutral countries are having their cake and eating it too, but for how much longer? Russia’s attack on Ukraine changes everything about the future role of Europe’s security and defence policy. This was confirmed during the informal summit of EU leaders in Versailles in March. Europe has to take defence seriously.  Neutral Finland and Sweden already cooperate very closely with NATO. Russia’s invasion is leading to intense debates about whether both should now join the organisation.  As for Ireland? The war in Ukraine is linked to the security of all of Europe, forcing neutral countries to confront the reasons for their continued neutrality.  Maintaining neutrality at a time when Europe’s security architecture and the post-Cold War era is being threatened is no longer a luxury monopolised by pacifists, or those who link neutrality to sovereignty. It is about providing security to Europe’s citizens and how to do it collectively.  Taoiseach Micheál Martin has said discussions about military neutrality are for another day. Neutrality, he said, “is not in any shape or form hindering what needs to be done and what has to be done in respect of Ukraine”.  Neale Richmond, Fine Gael TD, has described the neutrality policy as “morally degenerate,” calling for a “long-overdue, serious and realistic conversation” about it.  Tánaiste Leo Varadkar has attempted to straddle both sides here. “This does require us to think about our security policy,” he has said. “I don’t see us applying to join NATO, but I do see us getting more involved in European defence.” Martin did later concede: “The order has been turned upside down by President Putin.” Neutral Ireland – and the rest of the EU – now must draw the consequences. Judy Dempsey is a Non-Resident Senior Fellow at Carnegie Europe and Editor-in-Chief of Strategic Europe.

Overdone stimulus at the height of the pandemic, supply chain disruption and Russia’s Ukraine invasion are all fuelling spiralling inflation. Central banks need to work harder to find the economic sweet spot, writes Cormac Lucey. Two years ago, as COVID-19 was first running rampant worldwide, our economic authorities resolved to prevent the resulting shutdowns from turning into economic depression by unleashing an unparalleled level of economic stimulus.  In the UK, the budget deficit shot up to 15 percent of GDP. In Ireland, the deficit approached 10 percent of modified gross national income. This fiscal support was accompanied by strong monetary stimulus.  Whereas UK broad money grew by six percent in the two years to June 2019, it rose by 22 percent in the two years to June 2021. The equivalent figures for the Eurozone were nine and 18 percent, respectively.  While a medical nightmare was unfolding for our health services from March 2020, from an equity investor’s perspective, the 18 months that followed represented a sweet spot, as authorities stuffed economic stimulus into their economies and asset prices were the first beneficiaries.  Since April 2020, UK stock prices (as represented by the FT 100 index) have risen by over 35 percent, while Irish shares (Iseq index) have jumped by over 40 percent. What’s bad for Main Street is often good for Wall Street.  Now, as the COVID-19 threat recedes, this threatens to go into sharp reverse. What’s good for Main Street risks being bad for Wall Street.  Sharp rises in inflation across the developed world are forcing central banks into withdrawing monetary stimulus and pushing interest rate increases. What lies behind this sudden burst in inflation?  First, levels of policy stimulus were overdone in some parts of the world. Whereas the growth in two-year money supply figures referenced above was nine percent in the Eurozone and 16 percent in the UK, it was 25 percent in the US. Guess who has the biggest inflation problem?  It is also notable that there is little or no marked inflation problem in South-East Asia, where the COVID-19-induced increase in money supply was minimal.  Second, supply chain problems, especially energy, have contributed significantly to recent inflation readings. Eurozone inflation in the 12 months to January was 5.1 percent. Excluding energy, it would have been just 2.6 percent.  Sharply rising energy prices are a symptom of the West shutting down conventional carbon-based sources of supply before alternative sources are ready to take up the slack.  This shortage has been aggravated by sanctions imposed on Russia following its invasion of Ukraine. Over time, we should expect supply chain problems to be fixed and higher energy prices to be their own cure, suppressing demand and allowing for price stabilisation and reductions. The financial sweet spot of two years ago risks becoming a sour spot as central bankers rush to restore their credibility in the face of ever-higher inflation readings.  Jerome Powell, Chair of the US Federal Reserve, said recently, “The [Federal Open Market] Committee is determined to take the measures necessary to restore price stability. The American economy is very strong and well-positioned to handle tighter monetary policy.’’  Well, over fifty years ago, the then-Chair of the Federal Reserve, William McChesney Martin, said the central bank’s job was to “take away the punch bowl just when the party gets going.” His successors may not just have to take away the punch bowl, but also shove partygoers into a cold shower. There is a real danger that an already slowing US economy could be pushed into a recession by aggressive central bank tightening. Europe would be unlikely to escape the resulting economic fallout.  Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland.

The high street is firmly back on the business agenda for UK entrepreneurs keen to boost visibility and engagement with customers, influencers and the media. Customers are buying and UK businesses are using every channel at their disposal to service demand while being in the spaces and places of the target shopper.  Because founders come looking for content and support on topics from raising money to hiring staff, Enterprise Nation is able to track sentiment and trends. Right now, the prevailing topic is how to service customer demand.  Customers, both large and small, are actively shopping both online and off line. Consumers are heading out in search of new experiences and products, and big brands – including corporates and government – are buying from small firms offering the niche services they are after.  Entrepreneurial founders are intent on servicing this demand regardless of the rising cost of doing business. There are three ways in which we are seeing this trend materialise:  E-commerce There are many platforms from which small businesses can sell both within the UK and overseas. Amazon has long had a position of strength in enabling spare room start-ups and growth companies to reach customers across the globe. The e-commerce giant is now being joined in a busy market by new platforms, such as Faire.com, which connect retailers to wholesalers, high street brands like John Lewis and Joules, who are starting their own marketplaces stocked with products from small businesses, and emerging sector-specific niche platforms, such as Glassette.com for homewares. All offer small businesses a rapid route to market, with payment solutions such as Klarna enabling a straightforward sales process for the customer.  Pop-up retail In order to meet customers, buyers, influencers and journalists on the High Street, small businesses are testing physical retail locations and bringing their brand into the real world. Property operators, including Sook, SituLive and Space and People, are making physical retail a viable option for the smallest of companies by allowing them to rent space by the hour, and on a budget. In-person events After a two-year hiatus, physical events are making a comeback, with the number of live business gatherings listed on our platform doubling in the past two months. As a result, we’re also seeing the return of the serendipitous meeting during the workday coffee break, or after-work drink, once again opening up new opportunities for the hustling entrepreneur.  Small businesses are powering on all cylinders and are staying updated on the techniques that will help them reach more customers effectively and efficiently. Doing so will deliver revenue, economic growth, and a vibrant business community successfully servicing market demand in entrepreneurial style.   Emma Jones is the Founder of Enterprise Nation, a business support platform and provider that operates in the UK and Ireland.

The unsettling effect of the pandemic on the job market is being felt as much in the US as in Ireland, as employers grapple to attract candidates with the skills they need to stay competitive, writes Dr Brian Keegan. People are harder to manage. It’s a stark realisation, expressed by a very senior Irish Chartered Accountant at a Fortune 500 company.   The pandemic may have been the great leveller across the world, but the process of recovery will not be as homogenised.   Just as in Ireland, the US has been scarred socially and commercially by the misery of COVID-19.  Within some sectors of American industry, huge resources are being devoted to little else besides hiring.   The unsettling effect of the pandemic on workers is prompting, not just career change, but location change. From the employer perspective, the traditional skill sets, which might once have automatically qualified people for well-paid employment, are changing.   Anecdotally at least, from the many members I spoke to during the Institute’s St Patrick’s day delegation to the US, led by our President Paul Henry, the most sought-after skill is project management — with specialisation in finance or data analysis an added bonus.   Educational establishments are already picking up on this shift. One Ivy League university is developing micro-certification, which is an accreditation for completing very short courses in high-demand skill sets like data mining. This isn’t merely reflecting the state of the job market, but changes in corporate strategies. Progressive industries have had a digital strategy as a priority for several years. This is now morphing into a “mobile first” strategy.  The pandemic has fostered recognition that consumer and brand loyalty is not merely built by online capability but by ease of access. This means getting your customer order capture and service delivery platforms onto mobile phones.   There is less sense of urgency over resolving supply chain issues. The prevailing sentiment is that, if the pandemic proved anything from a commercial standpoint, it is that supply chain issues can be worked out no matter how severely they appear to have been disrupted in the first instance.   Efficiencies in purchasing and supply need the clever use of data, and data usage brings risks and challenges all its own. There seems to be a view that systems don’t have to be 100 percent secure, just more secure than those of competitors.   As one US-based member in a national leadership role in IT suggested, every system is breakable. The trick is to ensure that yours isn’t the easiest one to break. Despite the staffing challenges, the common thread running through all these observations is relentless expansion. The ‘animal spirits’ which the great economist JM Keynes credited as the prime mover of economic activity are being boosted by an overwhelming sense of relief that the pandemic may now, in fact, be over.   This sense of relief is dangerous. Tragically, we have jumped out of the frying pan of the pandemic into the fire of war in Europe.   Not to diminish the horrible loss of life, the evil and unjustifiable attack by Russia on Ukraine may well cause even greater economic disruption across Europe than the pandemic.  Grain will be scarcer because Ukraine was the breadbasket of central Europe. The worldwide shortage of microprocessors will be exacerbated because key elements in their manufacture, notably Neon, were major exports from a stable and increasingly prosperous pre-war Ukraine.   The West has correctly chosen to punish Russia for its actions with sanctions, but effective sanctions cut both ways. The commercial priorities we had planned as we recover from the pandemic will have to change to reflect the invasion of Ukraine. The only saving grace is that people, though they may well indeed be harder to manage, are adaptable. Dr Brian Keegan is Director of Advocacy and Voice at Chartered Accountants Ireland.