According to many reports, Italy’s ongoing political failure has potential to bring the Eurozone crashing down, which in turn could cause mass impact across the globe’s economy, both short term and long term.

In a recent turnoff events, both parties Five Star Movement and Lega Nord have been committed to the Italian government following a period of limbo since the March general election. Italy currently represents almost a fifth in the Eurozone economy and is feared as “too big to be saved.” Giuseppe Conte has been appointed the interim PM.

Below Finance Monthly has collected Your Thoughts in this financial debacle, summarising some points of expertise form top reputable sources across Europe.

Daniele Fraiette, Senior Economist, Dun & Bradstreet:

Italy’s new prime minister, Giuseppe Conte, will need to try and strike a balance between reassuring European partners about Italy’s permanence in the eurozone, and the 5SM’s and NL’s overt intolerance towards European Union rules on budgets and immigration.

In the weeks before the resolution of the crisis, Italian bond yields rose to levels only seen at the peak of the debt crisis in 2012, dragging yields on other peripheral euro-zone economies’ debt higher. The spread between Italy’s 10-year government bonds and Germany’s equivalent-maturity bonds also soared, passing the 330 basis point mark. The political vacuum seems now to have been filled; however, the spread remains at levels which signal significant market concerns around the country. The end of the ECB’s bond-buying is an additional factor of concern as they could prompt a significant increase in Italy’s borrowing costs.

Italy’s overall macroeconomic environment has improved remarkably over the past years: real GDP grew by 1.5% in 2017 and looks set to expand further in the 2018-19 period, the current account surplus currently stands at around 3% of GDP and its debt service cost has dropped to below 4% of GDP, down from above 6% before the introduction for the single currency. However, at 132% of GDP, Italy’s stock of public debt is huge, and the ongoing political turmoil poses a threat to the country’s stability. Indeed, should the political crisis morph into a sovereign debt crisis, debt costs would soar and debt service become unsustainable.

If Italy defaulted on its debt (which is not Dun & Bradstreet’s baseline scenario given Italy’s strong domestic investor base), the survival of the eurozone would be irreparably compromised. There is also a risk that concerns over a possible referendum on the euro, repeatedly contemplated by the 5SM and the NL but eventually scrapped from their election manifestos, could trigger a flight of deposits from Italian banks, many of which remain saddled with high levels of non-performing loans.

Although the darkest hour of Italy’s politics seems to be over, tensions between the Italian government and the EU, as well as within the government itself, are highly likely to persist; political uncertainty will likely remain elevated in the quarters ahead and the risk of early elections constantly looming.

Roberto Sparano, Globalaw:

After the longest political crisis in Italian history, a new cabinet of ministers was appointed on Saturday. Technically, the new government needs the confidence vote of both chambers of the Italian parliament, but it seems likely that the vote will go in favour of the odd alliance between the 5stars movement and the Lega.

In the closing moments of his BBC TV commentary for the 1966 FIFA World Cup Final, Kenneth Wolstenholme said "They think it's all over," but in reality it was not! This is, more or less, what is happening now. Most Italians are happy that it is over and we are back to normal, however, in realty this is only the beginning.

Local elections are scheduled for the 10^th of June, and both the Lega and M5S will campaign on different and opposite barricades. Campaigns can easily turn ugly in Italy, and the first objective of the new government will be to survive these next few weeks without any major clash between the two parties.

In fact, the new local elections will be the first referendum against Europe and the Eurozone.

As Italians, we always have difficulty owning up to our responsibilities, that is the way we are, and we have become experts in the art of shifting the blame onto others. Germany has, for many reasons, been the perfect target since the end of WWII.

The notion of external control was actually one of the factors that convinced Italian lawmakers and politicians to join the European Union in the first place. This is because, if anything goes wrong, or is hard to swallow and unpopular, the blame falls on the EU as an external body- and obviously the Germans!

This may be a hopeless situation... but it is not serious, like in the 1965 movie directed by Reinhardt.

I do not think that the Eurosceptic have been strengthened from the last Italian elections. The truth is that most people are not ashamed to feel anti-EU (given that the EU has served as a punching ball and a symbolic cradle-of-all-evil over the past decades). Two non-traditional political movements are only going to cash in on this feeling.

Italy’s political climate will have a consequential effect on the Eurozone and the European Union. I am convinced that the Lega is aware that we cannot leave the EU or the Euro (I cannot speak for the M5S since I do not think they have any policy or line at all), but they are also aware that the other Euro partners cannot afford Italy’s break from the Euro or the EU.

The current anti-European feeling will undoubtedly be used as a bargaining chip for other purposes, for example, to stop immigration or, even better, to accelerate the process of moving immigrants from Italy. If Germany and the EU play this the hard way it could be fun to watch, although, as an Italian, it will be painful. On the flip side, it could be the perfect opportunity to change the EU, although, while Lega and M5S are calling for a new and stronger Europe, nobody knows (including Lega and M5S) what a “stronger Europe” really means.  My idea of a stronger Europe … I fear it is exactly the opposite of the idea of the Lega.

The situation is unpredictable, some of the measures that form part of the “Contract” between Lega and M5S could have a beneficial impact on our economy, although the Italian debt will skyrocket and in the long term, this would have a devastating effect.

The real problem will be the Italian State rating and the Italian bank rating. If the new government leads to a downgrading, the ECB will not be allowed to acquire our State bonds. Due to this, quantative easing measures will cease to help our growth, and the banks will collapse.

Italian economics are already not brilliant (that is lawyerlish for awful). We are the slowest growing European member, our private sector has never driven, and our banks … well our banks are declining.

We are already a supermarket for foreign corporations; Chinese, Indian, USA and other European companies have already acquired most of the jewels of the crown in terms of brand know-how, and excellence. Despite this, if anything goes wrong, we will become a discount or outlet!

On the other hand, our history shows that Italy always manages to survive, after all, on April 25^th each year we celebrate the victory against nazi-fascism in WWII.

Giuliano Noci, Professor of Strategy and Marketing, Politecnico di Milano School of Management:

Following a week of political uncertainty in Italy, international financial markets are recovering well. Analysts expect that the announcement of a new government and the unlikelihood of fresh elections indicate that no further disruption will occur.

However, the root causes of how Italy landed in this particular political situation – where the young Five Star movement and Matteo Salvini’s League won more than half the votes in parliament – must not be ignored.

Both parties – although internationally scorned for Eurosceptic views – were able to gain the support of the Italian population, playing on both their emotions and feelings of insecurity. Both delivered well-designed storytelling campaigns via social media rather than mainstream media – a technique neglected by other parties.

The population’s insecurity has two main manifestations. Firstly, the feeling that the EU did not do enough to help Italy during the mass immigration of refugees of Syrian war. Secondly, the sense that the EU is failing Italy in important economic areas. Five Star promised a basic income for the unemployed whilst they train and upskill, and the League pledged to reduce the burden of fiscal taxation on companies by introducing a flat tax system.

So, are the parties reaching the core of Italy’s problems and setting out the right solutions? This is a question which deserves careful consideration. In my opinion, the parties were wrong to use aggressive tactics to fuel the debate about whether to remain in the EU. However, they were very right to suggest that the European Union must significantly change the rules of the game. We are seeing problems not only in Italy, but in Greece, Spain and perhaps even France in the imminent future.

These are signs that the Eurozone is not working, which is most likely because the Euro project is incomplete. Although we have a unique currency, there is no unique system for managing the risk of banks or the unbalanced, heterogenous economic systems of each country.

In the long run, a lack of reforms will create a bigger problem for the Eurogroup than Italy’s political situation. Change must come from within the EU following this situation and discussions of structural reforms in the banking sectors, as well as a safety net fund, must begin.

If no change occurs, the 2019 EU elections are likely to be just as complex as Italy’s.

Stephen Jones, Chief Investment Officer, Kames Capital:

Following Macron’s victory, the eurozone was the ‘good news’ story of 2017 as the area’s economy burst into life and global investors returned in droves. This year has seen economic momentum collapse sharply and, perhaps more than coincidentally, populist pressures have brought the fault lines back to the fore. For the moment this is an Italian issue but these pressures exist in most eurozone nations.

Equity markets have weakened on these changes but Italian worries have largely reinforced a trend already in place. Elevated ratings, and analysts offering a very rosy earnings outlook, left markets vulnerable to poor news and a variety of geo-political developments have emerged to offer that challenge; fat profits were there to be taken.

These risk markets setbacks have, however, taken the steam out of rising short rate and long yield forecasts and will probably succeed in ensuring that quantitative easing is continued in Europe for longer than might otherwise have been the case. When the dust settles, this should underpin equity markets, allowing progress to be made afresh and from safer levels; the positive earnings outlook offered by analysts have good real-world support.

However, to be clear, this supposes that Italy stops short of turning a drama into a crisis. Those of us of a certain vintage know well enough that Italian politics are not to be trusted.

Jordan Hiscott, Chief Trader, ayondo markets:

I was recently asked If I thought the current situation in Italy, in regard to potentially leaving the EU, was a black swan event. My response was no; a grey swan would be a much more suitable adjective to describe Italy in its current state. The ultimate definition of this would be a risk event that can be anticipated to a certain degree but still considered unlikely. A black swan being an event that is not anticipated in the slightest.

Italy has the third largest economy in the Eurozone and this political turmoil, of once again populist vote, threatens the unity of the bloc. But the situation is further exacerbated by the perilous state of Italian banks. Indeed, this is nothing new and they have been in the poor shape for a while, and the only surprising part to me is that the market hasn’t been paying attention to this, until now.

The culmination of the situation is we now have a perfect storm. Another type of a coalition government has been formed and the cynic in me looks at Italian politics on a historical basis and questions if this is this indeed the end of an unstable ruling government or in the colloquial sense, papering over the cracks? This is coupled with a worsening financial situation for the nation’s major banks. The move on Italian two-year treasury yields last week was nothing short of astounding, with the range and volatility more akin to a cryptocurrency than of a bond from a first world country.

The Italian stock market is now almost completely unchanged on a five-day basis, given it was down over 7% at once stage last week.  In addition, to confirm this, EURUSD has moved from a low of 1.1520 last week to 1.1750. The next move will be key, but from my perspective I’m finding it hard to feel positive, even from a mean reversion perspective, for the pair, given the length and weighted negative implications surrounding Italy at present.

April LaRusse, ‎Fixed Income Product Specialist, Insight Investment:

In contrast to the European sovereign crisis, Italy is now an idiosyncratic story. Across Europe, the previous crisis hit countries such as Spain, Greece and Portugal are all on an improving path, reaping the rewards of structural reforms implemented after the crisis. In Italy, pension reforms were certainly a positive step, but the country failed to undertake the deeper changes needed to sustainably raise potential growth.

The two key parties are proposing a range of expansionary fiscal measures, cutting both income and corporate taxes and proposing a minimum citizens income of €780 per month. Although more controversial measures, such as asking the European Central Bank (ECB) to write off up to €250bn of Italian debt, have been dropped, investors will be well aware that these were considered serious policy proposals by elements of the new government.

Debt/GDP will start to rise once again and credit rating agencies are likely to start to downgrade Italian debt, in contrast to the rest of Europe where credit ratings are improving. This leaves us cautious on Italian spreads, especially in an environment where we believe the ECB will be winding down its quantitative easing purchases.

David Jones, Chief Market Strategist, Capital.com:

There is a familiar feel to the catalyst behind the increased levels of volatility that traders and investors have seen across all markets, leaving some wondering if we are going to have another Eurozone crisis along the lines of that involving Greece from 2016. At this stage that does seem like an overly-pessimistic view, but it’s not hard to understand why safe-haven buying is the order of the day.

An oft-repeated phrase from past Eurozone crises was “kicking the can down the road”, referring to deferring that country’s debt obligations. This time around it feels as if the political can, rather than the financial one is being kicked into the long grass - and this is what is spooking markets. One of the main worries for traders is another election in a few months could result in a populist government that wants to renegotiate Italy’s debt with the EU. This is running at around 130% of the country’s GDP - the second highest level after, you guessed it, Greece.

The obviously immediate casualty was the euro. It had hit a three-year high against the US dollar as recently as February this year. Since then it’s dropped back by around 8% to its lowest level since last July. There is a double-whammy behind traders’ decisions to sell euros. Clearly any uncertainty about Italy’s debt repayments and the country's commitment to the single currency doesn’t inspire confidence - plus this year already we have seen a resurgence in popularity for the US dollar after its slide in 2017 was the worst performance for more than a decade. It can always be argued that the market reaction is overdone - but whilst Italy’s political future remains uncertain, it’s a brave trader who calls the bottom of this slide.

European stock markets have also been hit. The Italian market is the obvious biggest casualty and is now down by 13% in just one month - but the German and UK markets are also lower as investors adopt the familiar “risk-off” approach at the slightest whiff of a possible euro crisis. Many world stock markets already had some fragility when it comes to investor sentiment after the sharp falls seen in February and an ever-increasing oil price - it is difficult to see these recent losses being made back quickly.

While some sort of “dead cat bounce” can’t be ruled out in the days ahead, as long as this political can-kicking continues, then investors are likely to remain cautious about taking on risk - so it could be a summer of European-inspired volatility across all asset types.

Tertius Bonnin, Investment Analyst, EQ Investors:

This had been a slow moving car crash in which the signs have been there for all to see; populist parties were the clear winners of the March election (nearly three months ago) and the two largest parties, the Five Star Movement and the Northern League, had been negotiating a framework for co-governance since. Surprisingly, a number of market participants had expressed that they didn’t anticipate the “change” in attitude of the two famously Eurosceptic parties towards the euro. It should be noted that Italy isn’t new to political uncertainty, with Italian voters seeing 62 governments since 1946.

The Italian President’s veto of the proposed finance minister, Paolo Savona, and the subsequent increase in the probability of another election caused a kneejerk reaction in the markets on Monday. These moves spilled into the Tuesday session as the Monday was a bank holiday in the US and UK. Trading volumes on the Monday were therefore relatively thin in comparison. Tuesday saw huge spikes in key barometers of relative risk such as the Italian-German government bond spread (difference in yield) and the Italian two year bond yield. Global banking stocks, considered most sensitive to a change in economic activity, also sold off. Despite the so called PIGS (Portugal, Italy, Greece and Spain) taking significant knocks, investors in relatively safe government bonds (German bunds, UK gilts and US treasuries) benefited from a “flight to safety” whereby panicked investors moved capital into less risky assets.

There had briefly been calls by the Five Star Movement’s leader to impeach President Mattarella. Under Article 90 of the Italian constitution, parliament may demand the president to step down after securing a simple majority. Italy’s constitutional court would theoretically then decide whether or not to impeach Mr Mattarella. Given the president had not violated any Italian laws, this route appeared relatively futile. On this impasse, the populist coalition appeared to have collapsed and the market took a collective sigh of relief as the Italian President moved to appoint ex-IMF director Carlo Cottarelli to run a short-term technocratic administration until the next set of elections. It should be noted that the Five Star Movement, the Northern League and Berlusconi’s party all said they would have vetoed this.

It is likely this development fed into the Northern League’s decision to call for fresh elections at a political rally, having seen an uplift of circa 8% in opinion polling. Investors once again panicked that the risk of future elections had the potential to not only reinforce the populist parties’ positions in both parliamentary chambers, but become a de facto referendum on Italy’s euro membership. After 2017 being relatively benign year for political risk, investors had been caught asleep at the wheel in terms of pricing in uncertainty in the political sphere.

By Friday the situation had turned around once again after the Italian President provided more time for the Five Star and Northern League parties to form a government; the former designate Prime Minister Giuseppe Conte was sworn into office while the key Finance Minister role went to a seemingly more pro-European, Giovanni Tria, who headed the Economy Faculty at Rome’s Tor Vergata University. Paolo Savona, the former candidate vetoed for this position will now serve as Minister for European Affairs in a sign that the new administration’s focus will be on fiscal expansion plans and rolling back reforms, rather than investor angst around fresh elections and euro membership. This rollercoaster ride in political uncertainty has been tracked by the spike in yield of the supposedly risk-free Italian government bond.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

Brexit is edging closer every day, and equally everyday risk and opportunity float in a volatile sea of decisions for every business. Below Luke Davis, CEO and Founder of IW Capital, talks Finance Monthly through the complexities of alternative finance post-Brexit.

With a new tax year now underway, the first two weeks of April have also brought the revelation that investment spending in the UK grew more than in any G7 country in the lead up to 2018. Following outstandingly favourable conditions for British business in 2017, the first quarter of 2018 has held form for the new tax year. With the first round of Brexit terms agreed, and the passing of the Finance Act earlier last month, investor reactions to the events of 2018 steadily come under a time-sensitive microscope.

The government crack-down on asset-backed EIS opportunities and the significant expansion of new-age sectors such as med-tech, biotech and fintech has also significantly increased the focus on investor portfolio decisions for the 2018/2019 tax year. In a recent report from Mayfair-based private equity firm IW Capital, the high net-worth facing data found that one in five UK investors were turning away from traditional stocks and shares and instead choosing to invest in to new-age tech sectors such as energy tech and med-tech. Equally significant, the doubling of the EIS investment cap for knowledge-intensive companies, and the launch of a government consultation into a knowledge-intensive fund ensures these sentiments are duly supported by the infrastructure that supports the alternative finance arena.

The research further unveils that a post-Brexit climate in the investment arena is far from a bleak one, as over seven million investors say SMEs are more attractive as a result of increased trade prospects on the back of Brexit. Furthermore, over a quarter of investors say that they feel more encouraged to invest in SMEs after the formalization of Brexit has run its course.

This data comes amidst a more cautious outlook from the UK’s SME business leaders who previously predicted that smaller business would suffer a slow-down in the post-Brexit business climate. Seventy-five percent of small business owners said that they faced rising business costs, while the Federation of Small Businesses Quarterly Confidence Index also reported negative figures for the second time in five years.

Investors, on the other hand, have maintained a firm and optimistic perspective on both pre-and post-Brexit investment agendas in relation to the UK private sector. While the disparity between investors’ positive outlook and SME leaders’ scepticism reflects the UK market’s preparation process for Brexit, the discord also presents an opportunity for leaders on both sides of the investment spectrum to develop a symbiotic relationship.

Supported by one in five investors believing that Brexit will lead to higher quality and more frequent deal flow, and almost a third predicting that Brexit will improve SME productivity, the UK’s upcoming exit is an opportunity to drive new trading opportunities that could mean more SMEs seeing beyond Europe and proactively engaging more with the rest of the world. Moreover, many retail investors are keen to allocate funds in high-growth UK companies, and now have a much stronger chance of doing so due to the ongoing disintermediation of the alternative finance industry.

In order to leverage the growth in opportunities investors—particularly those in the alternative investment space—must transfer their optimism to SME business leaders. Government regulations on EIS investments, and other fiscal adjustments made in the Chancellor’s 2017 Autumn Budget, further provide a pre-and post- Brexit roadmap that can bring investors and business owners closer together. With this infrastructure in place, closing the disparity in Brexit perspective hinges on transmitting not only resources, but confidence. While many see Brexit as a challenge to both business leaders and investors, it is much more likely to provide opportunity instead.

BDRC published its quarterly SME Finance Monitor. The largest and most frequent study of its kind in the UK, research findings have been gathered across 27 waves of interviews since 2011 and are based on more than 130,000 interviews with SMEs.

The data to year ending Q4 2017 published provides further updates on the period following the General Election and as negotiations over Brexit continue. Current demand for finance remains limited, but ambitious SMEs are more likely to be financially engaged.

Shiona Davies, Director at BDRC, commented: “There have been no dramatic market changes in SME sentiment since the referendum. Whilst there are some increased concerns about the economy and political uncertainty, larger SMEs in particular are more likely to be planning to grow and to be using finance, as are those SMEs with a long-term objective to be a bigger business.”

“4 in 10 SMEs are planning business activities that might benefit from funding, but SMEs are as likely to think they would fund a business opportunity themselves as approach a bank for funding. Awareness of equity finance, which could provide longer term funding, appears limited even amongst larger SMEs. For those who do apply for a loan or overdraft, success rates remain high. However, first time applicants’ success rates are currently lower than in 2015, albeit still higher than they were in 2012. Additionally, fewer SMEs who are not currently using finance show any appetite to do so.”

Key findings

Use of (and demand for) finance remains limited, as self-reliant SMEs use trade credit, credit balances and financial support from directors in addition to external finance. Awareness and use of longer term equity finance is also limited.

• In 2017, 8 in 10 SMEs (82%) were profitable and 42% reported having grown, both little changed from 2016.
• 38% were using some form of external finance, but more (47%) met the definition of a ‘Permanent non-borrower’ with little apparent appetite for finance, similar to 2016.
• 7 in 10 SMEs (70%) would rather grow more slowly than borrow to grow faster and this has changed little over time.
• Fewer SMEs in 2017 were ‘happy to borrow to help the business grow’ (34% in 2017, down from 45% in 2016) and the proportion of SMEs who are not using finance but would be willing to do so in future has declined over time (24% of all SMEs in 2015 to 16% in 2017).
• A third of SMEs (35%) received trade credit and 25% hold more than £10,000 in credit balances. In both cases, most of those with trade credit or credit balances say it reduces their need for finance.
• 29% have received an injection of personal funds from the owner/director. Given a (hypothetical) opportunity that would require finance to achieve, 39% said the directors or the business would provide the funding, compared to 37% who would approach their bank for funding. 1 in 5 SMEs (19%) would not take up the opportunity because of concerns over the risks associated with debt.
• In 2017, 5% of SMEs reported making a new or renewed loan or overdraft application in the 12 months prior to interview. This was unchanged from 2016 and remains at half the level reported in 2012 (when 11% of SMEs had made such an application).
• Overall, 15% of SMEs in 2017 reported any kind of borrowing ‘event’, and 2% had wanted to apply but something stopped them (the Would-be seekers). The Happy non-seekers (83% of all SMEs) remained the largest group, in line with 2016.
• In a new question for H2 2017, 62% of SME companies said that equity finance was a form of funding that they knew nothing about. Larger SMEs were somewhat more aware, but even amongst those with 50-249 employees, 52% knew little about this form of finance with just 6% of them using or considering using it. 1 in 5 companies were aware of equity finance, but thought it was not a suitable form of finance for them – this varied little by size of company.

Whilst appetite for finance remains limited, a consistent 8 in 10 of those who did apply for a loan or overdraft were successful – although those applying for new money for the first time were somewhat less likely to be successful than in other recent periods.

• 80% of all loan and overdraft applications made in the last 18 months (to Q4 2017) were successful, in line with other recent periods.
• Almost all renewals in this period were successful (97%).
• Applications for new money on loan or overdraft have always had a lower success rate than renewals. For the 18 months to Q4 2017, 63% of applications were successful. This was lower than was seen in the 18 months to Q4 2015 (when 70% of new money applications were successful) but remained ahead of the 49% who were successful in the 18 months to Q4 2013.
• Success rates for new money applied for by those who had borrowed before was stable (78%), so this decline in new money success rates was due to a lower success rate for first time applicants (currently 50% compared to a success rate of 60% for applications made in the 18 months to Q4 2015). However, as with overall success rates, this is higher than was seen in the 18 months to Q4 2012 and to Q4 2013 when 4 in 10 first time applicants were successful.

Looking forward, whilst more SMEs with employees are planning to grow, there are some concerns about the economic and political climate. Future demand for finance remains stable, but it’s worth noting that a quarter of SMEs are ‘Ambitious risk takers’ with a greater engagement with finance and 4 in 10 SMEs are planning a business activity that might require funding.

• 45% of SMEs in 2017 were planning to grow. This is somewhat lower than the 49% planning to grow in 2012, due to declining levels of growth amongst 0 employee SMEs (46% to 41% over this period). Growth aspirations amongst SMEs with employees was in line with, or higher than, their aspirations in 2012.
• The top 3 barriers to running the business remained “legislation and regulation” (15% in Q4 2017), “political uncertainty” (15%) and the “current economic climate” (14%). 29% of SMEs mentioned at least one of these as a barrier in 2017, up from 22% in 2016.
• 12% of SMEs in 2017 were planning to apply for finance, unchanged from 2016 but increasing quarter by quarter from 10% in Q1 to 14% in Q4 2017. Confidence that the bank would agree to lend was somewhat lower in 2017 at 50% and remained below the actual success rates achieved. Most of those planning to apply were already using finance.
• 27% of SMEs in H2 2017 agreed that they both wanted to become a much bigger business and that they were prepared to take risks to succeed. These were more likely to be younger, innovative businesses that were, in turn, more likely to use and to apply for finance. A willingness to borrow to grow was a key predictor of being one of these ‘Ambitious risk takers’.
• 42% of SMEs in H2 2017 were planning to undertake one or more business activities that might require funding, including 19% planning to take on more staff, 17% planning to invest in plant and machinery and 16% planning to develop a new product or service. Larger and younger SMEs were more likely to be planning such activities, as were those planning to grow overall (61%). 19% of those planning any of these activities was also planning to apply for finance, compared to 8% of SMEs with no activities planned.

(Source: Farrer Kane)

Protagonist of this week's news, Alexander Nix is the executive at the centre of the Cambridge Analytica and Facebook controversy surrounding political campaign influence, sly data based marketing and supposed behind-our-backs data harvesting through everyone's favourite social media platform.

In this video CEO Today delves in to the life of Alexander Nix, a very private individual, listing some hobbies, interests and much of what he's been up to to get where he is today.

Dun & Bradstreet and the Small BusinessResearch Centre have revealed a community of small and medium enterprises (SMEs) who are confident that the UK is a great place to start a small business (72%), but face a plethora of challenges in a rapidly changing political, regulatory and economic landscape. The study found that UK SMEs see late payments, uncertainty around Brexit and a fluctuating pound as potentially detrimental to growth, with 54% confident about future success.

Although keeping ahead of the competition and attracting new customers remains a key priority, SMEs are concerned about the impact of Brexit: almost one in three respondents (32%) said it has affected their confidence negatively. A third (35%) of those surveyed have cancelled or postponed expansion plans as a direct result of the Brexit vote, while 34% admit that they have rewritten their business plan in response to the ongoing economic and political uncertainty.

In this time of heightened uncertainty, over a quarter (26%) of SMEs also highlighted timely payments as the most critical factor for financial success. Respondents indicated that at any one time, they are owed an average of £63,881 in late payments, with 11% saying they are owed between £100,000 and £250,000. The consequences of late payments include cash flow difficulties (35%), delayed payments to suppliers (29%) and reduced profit performance (24%). Some respondents have even had to dip into their personal savings to cover the shortfall. And the problem is growing - more than half (51%) of SMEs say late payments are more of a problem than three years ago, with 58% going as far as to say this issue is putting their business at risk of failure.

“Late payment of debts is a perennial challenge for SMEs” explains Professor Robert Blackburn from Kingston University’s Small Business Research Centre, “This seems to worsen during difficult economic times. Although many SMEs are able to tighten their belts during an economic slowdown, late payment adds further pressure on cash flow.”

While SMEs face many challenges in the current environment, the study revealed a positive outlook amongst the small businesses surveyed. Even with the backdrop of unprecedented turbulence, most SMEs still have a clear business strategy prepared (70%). And they believe their business has a bright future in the UK, with three quarters (75%) saying they are confident they can achieve financial growth in the next five years.

“It was reassuring that the majority of respondents still think Britain is a great place to start a small business, and most believe they’ll enjoy success in the coming years.” says Edward Thorne, UK Managing Director of Dun & Bradstreet. “There’s no doubt there will be bumps along the road, but this is positive news for the overall health of the UK business environment.”

(Source: D&B)

Mid-market businesses are bracing themselves for the impact of Brexit and looking beyond Europe to shore up their future success, according to research from Mills & Reeve.

The study, Defying Gravity - based on the opinions of 500 leaders of medium-sized businesses – reveals that mid-market businesses remain confident in their growth prospects despite feeling the fallout of the vote already, and are overhauling their strategies in preparation for Britain’s EU exit.

Over 60% of mid-market business leaders plan to increase investment in exports beyond the EU in response to Brexit.

The research reveals that mid-market businesses are feeling bullish despite the unstable landscape, with 83% planning to increase turnover this financial year (2017/2018) by an average of 22%.

However, mid-market businesses are facing some serious challenges, and many are already feeling the repercussions of the Brexit vote. More than half of businesses report falling demand, and over half have experienced increased issues with late payment following the referendum result in 2016.

But the more substantial hurdles still lie ahead. With 60% of mid-market leaders saying that single market access is ‘critical’, leaders believe that failing to reach a deal with the EU would cause significant damage to their business.

And whatever the outcome, businesses are preparing for tough times ahead: 61% expect the administrative burden of regulatory or legislative change to cost their business significant time and money. There are also fears of increased talent shortages once Britain leaves the EU. Sixty seven percent of technology company leaders believe that the UK’s departure from the EU poses a serious threat to recruitment and retention of specialists.

Claire Clarke, managing partner at Mills & Reeve, comments: “Although Britain has not yet made its exit from the EU, mid-market businesses have been feeling the effects of Brexit since the referendum results were announced. But our research shows that business leaders are finding ways to meet the challenge and actively adjusting their strategies to deal with the fallout.

“Despite current uncertainties surrounding Brexit, it’s encouraging to see leaders remaining buoyant and setting their sights high for the future. This confident but flexible approach will help mid-market businesses keep their position as the driving force of the British economy.”

Tom Pickthorn, Head of International at Mills & Reeve, adds: “The fact that so many mid-market businesses are keen to increase their investments in exports beyond the EU in response to Brexit is very encouraging. Future economic growth will be driven by emerging market economies rather than European countries, so businesses that are willing to look further afield can expect to be rewarded for their efforts.

“Although Brexit is presenting challenges, it may also be prompting an important expansion of horizons. This is good news for the mid-market, and good news for the UK as a whole.”

(Source: Mills & Reeve)

If the UK leaves the EU in 2019 with no deal permitting access to the single market and customs union, it could cost the economy £237,823 every minute of every day in lost economic output by 2020.

It’s not just at home where the pinch will be felt, with the cost to the EU itself £189,307 every 60 seconds. Although this will be shouldered across all the remaining 27 nations.

While the economic picture continues to look bleak for the next two years and further into the future, the current position also makes for difficult reading when viewed as a 60-second economic snapshot.

As we currently stand, the gross Government debt is increasing by £129,566 every minute. However, even the government’s spending commitments look relatively small next to the UK pension deficit, which grows by an eye watering £922,849 every 60 seconds.

It’s not just the Government itself that’s feeling the squeeze. Specifically, every minute the NHS spends £229,284. As the NHS is gripped by another winter crisis, the scale of the financial challenge that needs to be met can be seen starkly when figures are looked at minute by minute.

Most notably, to meet requirements in 2020, the Government will need to pump an extra £57,234 of funds into the NHS every minute of every day just to keep it going. A much higher figure than the additional £7,991 every 60 seconds promised during the Brexit referendum.

Every minute, the UK Government also spends £78,006 on Education, £17,503 on the Police and £66,780 on Defence.

As the government and public services try to make ends meet, the financial situation of many families is also getting harder. The combined expenditure of UK households on food is £152,706 per minute, whilst UK households spend £194,916 collectively per minute on energy and fuel.

Food bill increases come at time when many families are already struggling with significant debts. Per minute across the UK £94,910 is spent repaying personal debts. The need to purchase big ticket items is also driving up financial commitments for families with £60,312 of consumer car credit issued every 60 seconds and mortgage debt increasing by £47,716 each minute.

Amanda Gillam from Solution Loans, the company that compiled the research, said: “When we hear about the economy in the news, sometimes it’s extremely difficult to understand the context and how it actually impacts ordinary people.

“We wanted to break it down into a simple format and look at how much we’ll potentially lose from Brexit, as well as the current position for the Government and ordinary people. The data clearly illustrates the vast sums people and families are spending on essentials such as food, clothing, energy and health and the levels of debt we’re all facing.”

While the average UK household brings in just 5p every minute, a CEO of a FTSE 100 company would earn 170 times more at £8.50. In that same period UK MPs claim £216 in expenses and £91,324 is laundered across the UK.

(Source: Solution Loans)

Online research from Equifax, the consumer and business insights expert, reveals that 39% of Brits expect Brexit to negatively affect how they access and manage their finances.

The survey, conducted by YouGov, also highlighted the younger generations’ pessimism about Brexit with over half (56%) of 18-24 year olds believing exiting the EU will make it more difficult to access and manage their finances, compared to 30% of those 55 and over.

Of the overall 39% who think Brexit will make managing and accessing their finances more difficult, 34% believe it will make securing a loan or mortgage more difficult and 15% think it will be more difficult to get a credit card. In contrast, of the 19% of Brits who expect Brexit to have a positive impact on their ability to manage and access their finances, 9% think it will be easier to secure a loan or mortgage, and 8% think it will be easier to get a credit card.

Almost a quarter of Brits currently employed (24%) believe Brexit will worsen their employment situation, with potential job losses, pay cuts or reduced hours; only 5% of people think it will improve their employment situation. Among self-employed respondents, 26% expect Brexit to negatively impact their business, versus 8% who are positive about their business position in a post-Brexit environment.

Jake Ranson, Banking and Financial Institution expert at Equifax Ltd, said, “These findings highlight the very real consumer concerns and confusion about the impact of leaving the EU on finances. With conflicting information circulating on the issues of job security and the level of economic fallout, people are feeling very anxious. Exiting the EU is an incredibly complex process and so it’s important that people take steps to manage their finances in anticipation of unpredictable changes ahead.

“New developments in the banking sector next year, particularly Open Banking, will help people navigate the uncertain environment with new tools to manage their finances and better assess the services available to them. The industry must work together to encourage consumers to engage with these initiatives so that the full benefits are properly understood and realised.”

(Source: Equifax)

According to reports, the ‘ridiculous’ bill the UK is to pay out in order to exit the UK, otherwise known as the Brexit bill, stands at around £44 billion. That’s a lot of money, and a lot of cash, but how much cash to be exact?

Finance Monthly has worked out approximately, based on the average size of a £50 bank note, the largest readily available note in the UK, how much space £44 billion in cash takes up? We don’t really have a photo of £44 billion in cash, so we’ll have to try and compare it to something just as big. Is it the size of a football field? The size of the Louvre? The size of the moon?

Well, a classic £50 measures at 156mm x 85mm x 0.113mm and weighs about 1.1g. That’s 1,498.38 mm³ per note. There are 20 million £50s in £1 billion. 20 million £50 notes take up 29,967,600,000 mm^3, therefore 29.9676 m^3. The Brexit cash is 44 times that figure. This brings us to 1,318.5744 m^3, which rounded up is 1,318.6 m^3.

Focusing on London, the capital of British finance, Big Ben is officially marked at around 4,650 m³ for its interior. Therefore realistically, the Brexit bill cash could fill up the inside of Big Ben just over a quarter of the way up! At this point it would likely also fill the floor in the House of Commons.

It’s a stack load of cash to hand over, 10 double decker buses’ worth in fact, in terms of volume that is, not value. A London Routemaster double decker bus is worth around £349,500, so 10 of those is £3,495,000 and well, Brexit is going to cost us a little more than that.

Of course, this is all speculation, and even the figure of £44 billion is an unconfirmed unofficial number. None the less, the prospect of paying the European Union such an amount means that as Brexit has all in all been a sizeable decision from the British public, there will be a sizeable price to pay.

The year 2017 has been eventful in terms of the various socio-political and economic developments across the world.  Here is Mihir Kapadia’s quick summary of the year as it was.

The Year of Elections

After 2016 gave us Brexit and Trump, political and economic analysts across the developed world were wary about the possibility of protectionism spreading across the European continent, especially as 2017 was due series of elections in the region. With The Netherlands, France and Germany, the three big powerhouses of the European Union, going to the polls, there was a real threat of right-wing populist parties gaining prominence and altering the mainstream and liberal values of the western developed economies. The fear was legitimate, as EU sceptics appeared to be inspired by Brexit and Trump and were engaging on similar campaign promises based on nationalism and the closing of borders.

The year delivered relief across the continent, as liberal political parties emerged victorious over right-wing populists; however, the political dynamics and discourse in the region were considerably altered. Eurosceptics including Geert Wilders in The Netherlands, Marine Le Pen in France, and the Alternative for Germany (AfD) party gained mainstream prominence and considerable representation in their respective countries.

Germany is currently in a difficult spot, as none of the parties secured a working majority, Angela Merkel’s CDU has been attempting to negotiate a ‘grand coalition’, in an attempt to break the current political deadlock after coalition talks with the pro-business Free Democrats (FDP) and Greens collapsed. While brokering a grand coalition across parties in the parliament can deliver governance, it is too early to comment how strong the Chancellor’s leadership and authority would be.

Trumping the Stock Markets

 While protectionism and populist policy proposals have been part of the 'Make America Great Again' campaign slogans, the larger driver behind the 'Trumponomics' rally has been the hope that President Trump can push through policies to stimulate growth and increase corporate profits. Anticipation of infrastructure expenditures, healthcare reforms and tax cutting legislation helped rally the stock markets to a series of all-time highs. While the stock market has consistently risen strongly since November 2016, despite the fact that many of Trump’s key promises such as infrastructure spending and healthcare reforms are yet to materialise, there are increasing fears that the US stocks are being overvalued. However, these concerns have been there since 2003 when the current long equity rally began.

Meanwhile, the dollar has had a rough year, having lost about 9-10% in 2017, but Trump has probably been happy to see it fall, as it will help boost US exports.

Financial analysts observing the uptrend in the US stock market over the year have cautioned that the markets may already be overpriced. The last time the US economy had a meltdown, it was 2008 and it affected the whole world. The 2008 financial crash occurred because of fragility in the banking system due to poor mortgage lending. The US is currently trending positively on earnings, employment, wage growth, housing and GDP. These indicate no signs of an impending recession; and the Federal Reserve is likely to raise interest rates through 2017 and into 2018. Trump has been indirectly very good for the economy.

Dull year for Gold

 The significant threat globally throughout 2017 has been North Korea's aggressive stance against the US and its regional allies - South Korea and Japan. The year-long nuclear ballistic tests and provocative missile launches rattled Asian markets, but net impact was negligible and equities have risen in Asia and elsewhere. Therefore, safe-haven assets, such as Gold, received little support due to these threats.

Globally, the bullish stock market, rising interest rates and a sense of market security proved to be bad news for Gold, US-denominated assets such as Gold are influenced by the movements of the dollar, and its fortunes are also tied to the dollar among other factors. The US dollar has fallen nearly 10% year-to-date (or YTD) in 2017.

Under a bullish Federal Reserve, the commodity had already priced in the factor of interest rate hikes. Only if the actual rate of increase is lesser than expected, gold prices may benefit and see some relief going into 2018. Investors therefore will keenly observe the Fed’s tone when they discuss the interest rates for next year to understand how they would progress into 2018.

Brexit uncertainty remains

 Brexit continues to dominate the UK’s political and economic spheres and the year began with the invoking of Article 50 by Prime Minister Theresa May on 29th March 2017. Political discussion around Brexit also led the country into a snap general election in June, resulting in the Conservative Party losing their majority, and further splitting the British parliament.

Since the Brexit referendum of 2016, the pound lost 10% against the Euro and 17% against the Dollar. The fall in the value of the pound in fact worked in favour for the stock markets, with the FTSE100 (which largely comprises of exporting organisations) having reached record highs through the year. While the fall in the value of the currency may have helped British exports, the benefit stops there. Rising inflation and weak wage growth in the UK have directly affected the average British household as the period of uncertainty continues.

While Brexit is inevitable, the financial sector, which considers London to be its capital, is keen on retaining its ‘passporting rights’ - the right for a firm registered in the European Economic Area (EEA) to do business in any other EEA state without needing further authorization in each country. In fact, London has been the major focal point for this very reason – an English language capital city, ideally located between the Americas and Asia and acting as the gateway into Europe. Therefore, any indication of a ‘Hard Brexit’ – one which threatens to pull the UK out of the EU without any deal, is of a major concern for the City of London. The pound and the economy therefore are directly affected over this concern as businesses continue to operate over the period of uncertainty.  The UK also faces an upward of £40 Billion Brexit ‘divorce bill’ payable to the EU, which adds another financial liability to the process.

Eurozone recovery at its finest   

 The European Central Bank’s (ECB) president Mario Draghi has expressed the bank’s confidence over the region’s recovery, noting that the momentum has been robust, as GDP has risen for 18 straight quarters. The central bank attributed the overall success this year to improved employment figures in the single bloc, while noting that inflation cannot be self-sustained at this juncture. Mr Draghi used these comments to express interest and possibility for extending the timeline of the slowdown of its bond-buying program, which is slated to start from January 2018.

While the recovery has been robust, the ECB also recognises that it is vital for member states to continue a stable political and economic structure within, and reinforce each of their fiscal structures in order by focusing on both, keeping a buffer rainy-day fund while also working towards reducing debt. While these are words of wisdom for the future, Mr Draghi would also be thankful for the past year as Eurozone mitigated the rise of far right into leadership, especially in France, Netherlands and Germany – the three key powerhouses in the EU. The economy therefore was well protected this year.

10 Years of the Financial Crash

 2017 also marked the 10 years of the great financial crisis of 2008 in October, which had sent the risk assets across global stock markets and economies tumbling. The ten years since the financial crisis of 2007-08 has passed quickly and on a better note than anyone could have expected at that point of time. From the collapse of Lehman brothers in 2008 to the arrests of Irish bankers in 2016, the 2008 depression had brought in a wider understanding of the fragile western economic ecosystems. The crash was a serious wake-up call for governments across the world, thus paving way for bringing in regulatory responses to the banking practices - such as the expansion of government regulation, scrutinised lending practices, and tougher stress tests to make sure they can withstand severe downturns.

The financial crash of 2008 provided a learning opportunity to set things right, and our economic mechanisms today have certainly implemented checks and balances to be more cautious in their functionality. If the crash has taught us anything, it is that complacency can be catastrophic.

It has certainly been an interesting year, and 2018 holds more opportunities for us than ever before to learn and grow.

The swell of rumours, conjecture, and concerns surrounding Britain’s exit from the EU has, in the eight months since Article 50 was triggered, ebbed somewhat. Though many questions still remain on the pending negotiations, financial companies in London have known since last year that Brexit will change their ability to do business in the EU. As a result, hubs within the EU like Ireland, Germany, and Luxembourg have been vying for the attention of these firms—and now, one year after the Brexit vote, companies have begun making decisions.

From the beginning, Ireland has been a contender, sharing a language with the UK and many of its legal aspects, as well as having an attractive fund framework. However, Luxembourg has been mentioned in the same breath—notably by Standard Life CEO Keith Skeoch, who, CNBC reported, specified these two countries as top options for asset managers. By the latest count, there are 11 companies moving house to Ireland, 10 to Germany, and 4 to the Netherlands.

And 24 to Luxembourg.

There are perhaps many reasons for this. Ireland does speak Britain’s language, but that language happens to be the international tongue of business—and is thus, the core language spoken in Luxembourg’s finance industry, whose widespread proficiency in German and French adds extra accessibility to those markets. And while Dublin’s fund toolbox is attractive, Luxembourg’s is at least as alluring—and its Government has made it clear that this will not change. Just last year they introduced a new vehicle, the Reserved Alternative Investment Fund (RAIF), to meet customer demand for less supervision and a faster time-to-market. Again, to support these comments with numbers: Luxembourg is the second largest fund hub in the world, second only to the United States, a country whose population is 500 times bigger.

Luxembourg has also taken its own approach to attracting firms from London. Due to its size, the Grand Duchy must consider quality over quantity. In fact, having large insurance companies, fund houses, and banks putting their entire headquarters in Luxembourg’s capital city—population 100,000—wouldn’t be sustainable. So, instead, led by Finance Minister Pierre Gramegna, the country has asserted itself as a partner to London, rather than a replacement. Why not move a core part of your workforce to Luxembourg, argues Mr Gramegna, rather than the entire cohort? This may have played well with Britain-domiciled companies, whose employees probably don’t relish leaving their UK homes.

A key issue to moving part of a company is, of course, substance. Companies should know that there is a wealth of guidance out there on this topic, substance being central to this post-crisis zeitgeist.

And since we are discussing the merits of Luxembourg as a finance hub, some of the main talking points—industry veterans will be well-acquainted with them already—must be mentioned: Luxembourg has a AAA stability rating; its sovereign debt is 22.1% of its GDP and saw growth in 2016 by 3.7%; it has a highly-skilled and multilingual workforce; it is a leading European financial centre (both for cross-border fund distribution and cross-border insurance and reinsurance activities); and finally it has a predictable and competitive legal, tax, and regulatory framework.

To top it all off, you can get Bus 16 from the airport to the business district of Kirchberg in about 7 minutes. Dublin Airport to the city centre is, so I hear, up to an hour in traffic.

Website: https://home.kpmg.com/lu/en/home.html

With plenty of change coming in 2018, here Emmanuel Lumineau and Thomas Schneider, Founders of BrickVest, delve deep into the future of real estate for the coming year, prospects of growth and challenges ahead.

2017 was a strong year for the real estate industry. Despite a number of external factors that could have easily affected market performance, low interest rates remained stable and demand in real estate investment products continued to rise.

Brexit

Brexit has clearly had an effect on the UK but we believe that across Europe, there remains strong deal flow levels and investment opportunities. Our recent research¹ showed that one in three (33%) commercial real estate investors highlighted Germany as their preferred region to invest in. This is the first time that Germany has been chosen as the number one region to invest in and ahead of the UK which was selected by a quarter (27%).

The UK saw a drop from 31% in the last quarter and from 32% in the same Barometer 12 months ago. The Barometer also revealed that UK, French, German and US investors are now less favourable towards the UK since last year. 45% of UK, nearly a quarter (21%) of US, a fifth (19%) of French and 18% of German investors suggested they favour the UK this quarter, representing a decrease from last year across the board from 46%, 26%, 28% and 21% respectively.

Despite investors seemingly focussing away from the UK, there has been an abundance of international capital flowing into real estate, almost every major institutional investor globally has been increasing their portfolio allocation to real estate over the last five years mainly because of lack of alternatives.

Moreover the average risk appetite of BrickVest’s investors continues to rise to 52% from 49% last quarter and from 48% this time last year, meaning a sentiment shift from low to balanced risk

Interest rates

The Bank of England’s decision to raise interest rates in the UK in November was momentous for the economy and should signal the start of a series of gradual increases. The Bank decided that inflation is potentially getting out of control and the economy now requires higher borrowing costs. In contrast, the ECB’s decision to unwind its QE programme to €30 billion a month is a glowing endorsement of healthy Eurozone growth and falling unemployment, which will more than likely mean that interest rates will stay at historic lows until at least 2019 in order to help financial markets adjust.

Increasing interest rates has a direct impact on real estate. Higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices. In a low interest rate environment, European real estate yields will continue to look attractive and real estate serves as a good alternative to fixed income.

Value in 2018

We expect to see increasing demand for real estate in 2018. Indeed our research² showed that two in five (40%) institutional investors plan to increase their allocation to European commercial real estate while 44% expect commercial property yields to increase in the next 12 months, just 22% believe they will decrease.

We believe that the best value can be found in real estate deals that are not too sensitive to price erosions. Investors should keep a close eye on the risk of high leverage and DSC ratios. We believe that the best investment options for 2018 will most likely be found in value-add real estate in combination with a conservative financing policy.

Investment strategy 2018

Given the fact that we believe demand will remain relatively high in 2018, one of the main challenges will be to find good deals.

Investors will have to find the right balance of higher leverage (due to continually low interest rates) and being able to handle potential price corrections in the event that the market cools off due to external factors such as Hard Brexit, escalation in the US vs. North Korea conflict, etc…

Institutional investors are investing in less liquid secondary and third level cities to achieve acceptable going-in cap rates (cap rates in major markets such as Paris are historically low). Investors will also be forced to look at less traditional investment products such as student housing, services apartments, and senior housing or industrial to get better returns. The overall risk of these investment is that they are in general less liquid and if the market bounces back, cap rates will also increase much faster than in downtown Paris.

In order to manage this problem, some institutional investors are now investing in real estate debt products so that they a.) have their exposure to real estate but b.) also have an achievable exit (i.e. when the loan maturity is reached). We think this might be smart strategy in 2018 given real estate prices are already very high and might fall in the long term (so no upside opportunity but also no real downside risk).

Sectors to watch

We continue to see the highest level of volatility from the office sector as many international firms put decisions on hold over their long-term office space requirements. Our research² with institutional investors highlighted that more than a third (34%) believe the biggest real estate investment opportunities will be found in the office sector and the same number in the hotel & hospitality industry over the next 12 months.

Three in ten (31%) thought the industrial sector would present the biggest commercial real estate investment opportunities over the next 12 months while one in five (19%) cited the retail & leisure sector.

Mifid II

When implemented in January 2018, revisions to the EU’s Markets in Financial Instruments Directive (MiFID II) will radically change the regulation of EU securities and derivatives markets, and will significantly impact the investment management industry. It will have a significant impact for wealth and asset managers on profitability, product offer and their distribution across Europe, operating models and pricing and costs.

As a consequence, we expect MIFID II to widen the gap between global, infrastructure-based players, and local players. Crowdfunding platform may be affected by these changes.

General Data Protection Regulation (GDPR)

GDPR comes into force on 25 May 2018 and represents the biggest change in 25 years to how businesses process personal information. The directive replaces existing data protection laws and will significantly tighten data protection compliance regulation.

Like other industries, real estate companies will have to conduct a risk analysis of all processes relevant to data protection.