Category Archives: European Union

(ECB) Euro area banks have overall comfortable liquidity positions, but some vulnerabilities require further attention, ECB finds

(ECB)

  • Banks showed adequate liquidity reserves to withstand stress
  • Exercise assessed banks’ ability to handle hypothetical liquidity shocks lasting six months
  • Detected vulnerabilities requiring supervisory follow up relate in particular to foreign currencies, data quality and collateral management
  • Findings to enter annual supervisory review

The vast majority of banks directly supervised by the European Central Bank (ECB) have overall comfortable liquidity positions despite some vulnerabilities requiring further attention, according to the results of the 2019 supervisory stress test.

The shocks simulated in the exercise were calibrated on the basis of supervisory experience gained in recent crisis episodes, without any reference to monetary policy decisions. The sensitivity analysis focussed solely on the potential impact of idiosyncratic liquidity shocks on individual banks. It did not assess the potential causes of these shocks or the impact of wider market turbulence.

The results of the exercise are broadly positive: about half of the 103 banks that took part in the exercise reported a “survival period” of more than six months under an adverse shock and more than four months under an extreme shock. The “survival period” is defined as the number of days a bank can continue to operate using available cash and collateral without access to funding markets.

The six-month time horizon exceeds the period covered by the liquidity coverage ratio, which requires banks to hold a sufficient reserve of high-quality liquid assets to allow them to survive a period of significant liquidity stress lasting 30 calendar days. Long survival periods under the severe shocks envisaged by the exercise would leave banks significant time to deploy their contingency funding plans.

Euro area subsidiaries of significant institutions as well as banks undergoing mergers or restructuring were excluded from the sample.

Universal banks and global systemically important banks would generally be affected more severely than others by idiosyncratic liquidity shocks as they typically rely on less stable funding sources – such as wholesale and corporate deposits, which were subject to higher outflow rates in the exercise. Retail banks would be affected less strongly, given their more stable deposit base.

Based on the findings of the exercise, the ECB will require banks to follow up mainly in the following areas where vulnerabilities were identified:

  • Survival periods calculated on the basis of cash flows in foreign currencies are often shorter than those reported at the consolidated level. Several banks make recourse to short term wholesale funding denominated in such currencies and some of them may be overly reliant on the continued functioning of the foreign exchange swap market.
  • When considered on a stand-alone basis, subsidiaries of euro area banks domiciled outside the euro area typically display shorter survival periods than those within. While it is common for subsidiaries to rely on intragroup funding and/or funding from the parent, this may expose some banks to ring-fencing risk in foreign jurisdictions.
  • Certain regulatory “optimisation strategies” revealed in the exercise will be discussed with the banks in the context of the supervisory dialogue.
  • Many banks would be able to mobilise collateral in addition to readily available liquidity buffers to secure extra funding in times of need. However, collateral management practices – which are critical in the event of a liquidity crisis – would benefit from further improvement in some banks.
  • Banks may underestimate the negative impact on liquidity that could result from a credit rating downgrade. Banks with recent experience of managing liquidity under stressed conditions were able to provide higher-quality data in this context.

Most banks delivered the requested information in a timely manner. At the same time, the test helped uncover data quality issues related to the liquidity reporting of a number of banks. The findings will help to improve the quality of supervisory information in the future.

Supervisors will discuss the conclusions individually with the banks as part of the annual supervisory review and evaluation process. The results will not directly affect supervisory capital requirements. They will, however, inform the assessment of banks’ governance and liquidity risk management.

(Echos) BCE : Jean-Claude Trichet prend la défense de Mario Draghi

(Echos) Le prédécesseur de Mario Draghi à la tête de la Banque centrale européenne estime que les critiques contre l’Italien ne rendent pas justice au bilan de l’institution.

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Jean-Claude Trichet a été président de la BCE de 2003 à 2011.

ShutterstockPar Étienne GoetzPublié le 14 oct. 2019 à 10h59

Face aux violentes attaques contre Mario Draghi, l’ancien président de la Banque centrale européenne, Jean-Claude Trichet, défend le bilan l’institution. Dans une tribune publiée par le « Financial Times » , le Français exprime son désaccord avec les critiques émises par un groupe d’anciens banquiers centraux. « Là où ils ne voient que du négatif, je vois succès, continuité, des défis sans précédent et la question des limites de la politique monétaire ».

Jean-Claude Trichet rappelle que depuis sa création la BCE a assuré la stabilité des prix, son principal mandat, bien mieux que n’importe quelle autre banque centrale nationale auparavant. L’institut d’émission a par ailleurs permis à la zone euro de traverser la pire crise depuis la seconde guerre mondiale. Enfin, l’euro jouit d’une exceptionnelle adhésion de la part de la population. « Si ces succès ne sont pas dus à l’action de la BCE, à qui doit-on en attribuer le mérite ? », se demande-t-il.

Un groupe d’anciens banquiers centraux a diffusé récemment un mémo dans lequel il jugeait les dernières mesures de soutien prises par la BCE fondées sur le mauvais diagnostic et inefficaces. Surtout, ils accusent la banque centrale, via ses rachats de dette publique , de financer directement les Etats, ce qui est interdit par les traités.

Relance des achats d’actifs

Mi-septembre, Mario Draghi a annoncé le redémarrage des achats d’actifs à partir de novembre au rythme mensuel de 20 milliards d’euros. Il a par ailleurs enfoncé le taux de dépôt encore un peu plus loin en territoire négatif, tout en instaurant un système de paliers pour alléger la facture des banques.

Au lendemain de ces annonces, le président de la Bundesbank Jens Weidmann et le gouverneur de la banque centrale néerlandais Klaas Knot avaient publiquement fait part de leur opposition à ces mesures. L’Allemand via une interview dans le tabloïd Bild qui pour l’occasion avait renommé l’Italien « comte Draghila ». Fait inédit, le néerlandais avait publié un communiqué officiel.

Publier les noms

Dans une interview exclusive aux « Echos », l’ancien économiste en chef de la BCE s’est montré effaré par ces attaques. « L’agitation qui a suivi la réunion de septembre dépasse tout ce que j’ai connu en huit ans. Le fait qu’un gouverneur publie un communiqué pour critiquer la décision me semble tout à fait inapproprié. Chacun doit garder son sang-froid », a-t-il raconté.

Pour éviter ce type de tensions, il recommande de prendre exemple sur la Réserve Fédérale américaine : « je suis favorable à ce que l’on publie les noms de ceux qui se sont prononcés pour ou contre les décisions ». Il se dit aussi choqué du nombre d’informations qui ont fuité dans la presse ces dernières années.

(BBC) Brexit: Donald Tusk receives ‘promising signals’ from Irish PM

(BBC)

Donald Tusk
Image captionDonald Tusk said there was no guarantee of a deal, but even the “slightest chance” had to be pursued

European Council President Donald Tusk has said he received “promising signals” from Irish PM Leo Varadkar that a Brexit deal is still possible.

His comments came as Brexit Secretary Steve Barclay and EU chief negotiator Michel Barnier resumed talks.

Afterwards, Mr Barnier likened Brexit to “climbing a mountain”.

The UK is due to leave the EU at 23:00 GMT on 31 October, with a crunch EU summit scheduled to take place on 17 and 18 October.

This is seen as the last chance for the UK and the EU to agree a deal ahead of the Brexit deadline.

Following his “technical” discussion with Mr Barclay in Brussels, Mr Barnier told reporters: “Be patient.”

He added: “Brexit is like climbing a mountain. We need vigilance, determination and patience.”

BBC Brussels correspondent Adam Fleming said he suspected the best outcome for the UK that could emerge from the Barclay-Barnier meeting would be the EU agreeing to restart fuller and “more intense” negotiations.

Earlier this week, several senior EU figures played down the chances of Brexit happening with a deal agreed to by both sides.

But on Thursday, UK Prime Minister Boris Johnson and Mr Varadkar held a one-to-one discussion – described by both as “very positive and very promising” – at Thornton Manor, Merseyside.

Mr Varadkar told reporters talks were at a “very sensitive stage” but he was now “convinced” the UK wanted a deal, adding: “I do see a pathway towards an agreement in the coming weeks.”

Steve Barclay and Michel Barnier
Image captionSteve Barclay and Michel Barnier met following talks on Thursday between Boris Johnson and Leo Varadkar

But he refused to be drawn on what “concessions” had been made by either side during his meeting with Mr Johnson, while Downing Street has not commented on Irish press reports suggesting “significant movement” on the UK prime minister’s part.

Speaking on a visit to Cyprus, Mr Tusk said the UK had not “come forward with a workable, realistic proposal”, but added he had received “promising signals” from Mr Varadkar that a deal was still possible.

“Of course there is no guarantee of success and time is practically up but even the slightest chance must be used,” he added. “A no-deal Brexit will never be the choice of the EU.”

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Analysis box by Laura Kuenssberg, political editor

“No one’s cracking open the champagne… don’t even pour a pint of warm Guinness,” joked one of the few people familiar with what actually happened on Thursday after talks between Boris Johnson and Leo Varadkar.

Nothing that happened in the privacy of a country house wedding venue on the Wirral means there will be a deal with the EU in the next seven days.

Nothing has made the obstacles in the way of reaching an agreement magically disappear.

But something has changed.

After days of various EU players publicly scorning the UK’s proposals, explaining the objections and lamenting the weaknesses, there is a tangible willingness, on the bloc’s side at least, to see seriously if they can work.

We’ve discussed here so many times why Ireland’s attitude matters so much, so the very public positivity from Mr Varadkar – his “maybe”, instead of “no” to Mr Johnson’s proposals – is extremely important.

Read more from Laura

Listen to Brexitcast

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The issue of Northern Ireland’s consent – and how it is achieved – for post-Brexit arrangements has emerged as a key factor in negotiations.

But Northern Ireland Secretary Julian Smith said there were “a range of options” for finding consent for the proposals.

He also denied any “one community” would have a veto over Brexit plans, following concern from some NI parties that the PM’s proposals could give the Democratic Unionist Party exactly that.

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A lorry is passing a sign on a main road outside Newry, Northern Ireland

What are the PM’s border plans?

Under Mr Johnson’s proposals, which he calls a “broad landing zone” for a new deal with the EU:

  • Northern Ireland would leave the EU’s customs union alongside the rest of the UK, at the start of 2021
  • But Northern Ireland would continue to apply EU legislation relating to agricultural and other products, if the Northern Ireland Assembly approves
  • This arrangement could, in theory, continue indefinitely, but the consent of Northern Ireland’s politicians would have to be sought every four years
  • Customs checks on goods traded between the UK and EU would be “decentralised”, with paperwork submitted electronically and only a “very small number” of physical checks
  • These checks should take place away from the border itself, at business premises or at “other points in the supply chain”
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With three weeks to go until the Brexit deadline, the prime minister continues to insist the UK will leave the EU with or without a deal at the end of the month.

That is despite the so-called Benn Act – passed by MPs last month – demanding he request a delay to the Article 50 deadline from the EU until January 2020 if a deal has not been agreed before 19 October.

Should any new deal be reached between the EU and UK, it will still have to be approved by MPs in Parliament.

(EUobserver) European Jews call for ‘united front’ after German attack

(EUobserver) Jewish leaders have raised alarm on the climate of hate in Europe after an antisemitic attack in Germany killed two people on Wednesday (9 October).

“Unfortunately the time has come when all Jewish places of worship and Jewish communal sites [in Germany] need to have enhanced round-the-clock security provided by state security services,” Ronald Lauder, the president of the World Jewish Congress in Geneva, said.

(Reuters) EU warns of 5G cybersecurity risks, stops short of singling out China

(Reuters) BRUSSELS (Reuters) – The European Union warned on Wednesday of the risk of increased cyber attacks by state-backed entities but refrained from singling out China and its telecoms equipment market leader Huawei Technologies as threats.

The comments came in a report prepared by EU member states on cybersecurity risks to next-generation 5G mobile networks seen as crucial to the bloc’s competitiveness in an increasingly networked world.

The authors chose to ignore calls by the United States to ban Huawei’s equipment, drawing a welcome from the Shenzen-based company after it faced U.S. accusations that its gear could be used by China for spying.

“Among the various potential actors, non-EU states or state-backed are considered as the most serious ones and the most likely to target 5G networks,” the European Commission and Finland, which currently holds the rotating EU presidency, said in a joint statement.

“In this context of increased exposure to attacks facilitated by suppliers, the risk profile of individual suppliers will become particularly important, including the likelihood of the supplier being subject to interference from a non-EU country,” they said.

Huawei, which competes with Finland’s Nokia and Sweden’s Ericsson, said it stood ready to work with its European partners on 5G network security. It has always denied its equipment can be used for spying.

“This exercise is an important step toward developing a common approach to cybersecurity and delivering safe networks for the 5G era,” a Huawei spokesman said.

“We are pleased to note that the EU delivered on its commitment to take an evidence-based approach, thoroughly analyzing risks rather than targeting specific countries or actors.”

Tom Ridge, a former U.S. secretary of homeland security, took a different view of the report. He said Huawei’s close ties to the Chinese government meant it would have to comply with legislation requiring it to assist with intelligence gathering.

“If countries needed more reason to implement stricter security measures to protect 5G networks, this comprehensive risk assessment is it,” said Ridge, a member of the advisory board of Global Cyber Policy Watch.

Fifth-generation networks will hook up billions of devices, sensors and cameras in ‘smart’ cities, homes and offices. With that ubiquity, security becomes an even more pressing need than in existing networks.

“5G security requires that networks are built leveraging the most advanced security features, selecting vendors that are trustworthy and transparent,” a Nokia spokesperson said, adding that the company was the only global vendor capable of providing all the building blocks for secure 5G networks.

EU members have differed on how to treat Huawei, with Britain, a close U.S. ally, leaning toward excluding it from critical parts of networks. Germany is meanwhile creating a level playing field in which all 5G vendors should prove they are trustworthy.

OVER-DEPENDENCE

The report warned against over-dependence on one telecoms equipment supplier.

“A major dependency on a single supplier increases the exposure to a potential supply interruption, resulting for instance from a commercial failure, and its consequences,” it said.

European network operators, including Germany’s Deutsche Telekom typically have multi-vendor strategies that they say reduce the security risks that might arise from relying too heavily on a single provider.

“The Commission’s 5G assessment recognizes security isn’t just a supplier issue,” said Alex Sinclair, chief technology officer of the GSMA, a global mobile-industry trade group.

“We all have a role to play – from manufacturers to operators to consumers – and we are taking responsibility for our part in the security chain seriously.”FILE PHOTO: A logo of the upcoming mobile standard 5G is pictured at the Hanover trade fair, in Hanover, Germany March 31, 2019. REUTERS/Fabian Bimmer/File Photo

The EU will now seek to come up with a so-called toolbox of measures by the end of the year to address cyber security risks at national and bloc-wide level.

The European Agency for Cybersecurity is also finalizing a map of specific threats related to 5G networks.

(Mish) EU on Verge of Huge Tactical Brexit Mistake

(Mish)

Mish

For a while it appeared the EU was ready to negotiate with Johnson. Perhaps appearances were deceiving.

Only Way to Bridge the Backstop

Last Friday, Eurointelligence commented:

We would agree that the risk of a no-deal Brexit on October 31 is vanishingly small, but risk of it happening eventually is rising. At Eurointelligence we have been warning for some time that the risks of a no-deal Brexit have been widely underestimated. But we were cautious not to elevate the no-deal scenario to becoming our baseline.

If the EU were to reject the current proposal flat out, that would change. The EU should consider very carefully that Johnson yesterday managed to receive support not only from the DUP, but also from the rebel Tories who lost their whip over the Benn extension legislation. The EU does not want to give Johnson a believable excuse for a no-deal Brexit: having come up with a reasonable proposal whose rejections indicates that the EU was not serious even to engage with the idea of a dual border – one for customs and one for regulation. We think that duality is not only a reasonable starting position, but in fact the only way to bridge the differences over the backstop.

The amount of trade between the UK and the EU was over £600bn. Intra-Irish trade flows were about £5bn. Should the EU really want to endanger a large portion of the £600bn on the grounds that it is possible to blame Johnson for a no-deal Brexit? That would strike us as an entirely irrational strategy.

Last Minute Magic Deals

My position has been that deals in the EU magically happen at the last second after everyone gives up on them. I also cited trade differential noting in particular German Carmakers Warn “Seismic” and “Devastating” No Deal Consequences

We have seen that time and time again, with German Chancellor Angela Merkel or someone else moving from a fixed position at the end.

It almost has to be last minute because all 27 nations have to agree to do damn near anything. It’s a fundamental flaw of the EU that cannot be fixed because all 27 nations would have to agree to fix it, and they won’t. France insists on agricultural protections and German insists on budget protections.

France Enters the Fray

After movement towards a deal last week, France seems to have hardened its position. French President Emmanuel Macron told Johnson that his offer was not even a starting point.

The Guardian reported Macron gives Johnson until end of week to overhaul Brexit plan.

In response, Johnson warned ‘Don’t Be Lured Into the Mistaken Belief that the UK is Staying in the EU’.

Foolish Notions

Unfortunately, that appears to be precisely what has happened. The EU is taking its cues from Remainers who are hopelessly splintered.

Let’s check back in with the Monday morning Eurointelligence view, emphasis mine.

This morning, the Telegraph reports that he is now preparing to launch legal action against the Benn Brexit extension bill. We don’t think that this has any chance of succeeding, but the point of this action is political: he is seeking to demonstrate that the organs of the state conspire to subvert Brexit. The article suggests that Johnson may himself give evidence to the court. What appears to be a chaotic strategy has the sole purpose to demonstrate that he is doing his best to deliver Brexit.

So this is now our most likely scenario – from today’s vantage point: the EU does not agree to a deal; Johnson is dragged kicking and screaming into an extension; he wins the ensuing elections; a no-deal Brexit follows.

Most Likely Scenario – No Deal

That is the first time Eurointrelligence has held that view.

Wolfgang Munchau writes that the EU should not dismiss the underlying idea in Boris Johnson’s offer: the separation of a customs border from the regulatory border. The proposal itself cannot be a final offer.

Munchau writes the EU can only politically agree withdrawal agreements that keep the UK aligned as closely as possible with the EU. France fears that the UK might seek a competitive advantage after Brexit. The conclusion is that the EU will always extend the Brexit deadline but, as Munchau says, that strategy is short-sighted and ultimately self-defeating.

In particular, it critically misjudges UK politics. Opinion polls continue to show a widening lead of the Tories over the opposition parties. An Opinium poll in the Observer also showed that Labour has regained its lead over the LibDems. What we think is widely underestimated in Brussels is that the current alignment in UK politics strongly favours a no-deal Brexit. The chaos in British politics is benefiting Johnson more than it benefits opposition leaders. With every court battle, we expect Johnson to consolidate his political position.

Consolidating Political Opinion

Something happened today in the UK parliament that show the extent of political power consolidation. A Tweet chain has the results.

21 Expelled Tories Will Not Let MPs Seize Control

Political Reality

  1. The rebel ex-Tories will not go along with an Parliament takeover
  2. Jo Swinson and the Liberal Democrats have repeatedly rule against a caretaker government led by Jeremy Corbyn
  3. Jeremy Corbyn refuses to support any caretaker government unless led by him
  4. There is now actually Parliament support for the deal proposed by Johnson

Note the irony of point 4.

Theresa May and the EU had a deal that Parliament would not accept. Now Johnson and Parliament has a deal that the EU will not accept.

The DUP, rebel Tories, hardline Tories, and even some Labour MPs are all willing to go along with an Irish Sea solution.

As noted in Brexit Irony: EU Rejects Its Own Proposal the EU proposed a border in the Irish Sea and Theresa May rejected that offer because DUP would not go along.

Theresa May instead accepted the worst possible deal for the UK.

Miscalculation or On Purpose?

France may very well want the UK out on a hard deal for reasons we don’t fully understand. That said, Germany does get hit harder than France in a No Deal setup.

Possibly it’s just a large last-minute bluff.

But perhaps Eurointelligence has this right. The EU has seriously misjudged UK politics.

And that’s another irony in this mess. It was the UK who for the longest time misjudged the EU.

The final irony is that by attempting to take “No Deal” off the table, Remainers just may have sealed the fate.

Even the expelled Tories have had enough.

Two Lies Exposed

It’s now clear that taking No Deal off the table was a gigantic lie from the start.

  1. Labour, SNP, and some of the expelled Tories did not want to block “No Deal”, they want to remain.
  2. If Ireland will not go along with Johnson’s offer, then it never would go along with anything. This exposes the Backstop for what it really is: A lie to keep the UK in perpetual limbo forever.

Polls Go Johnson’s WayMatthew Goodwin on Twitter“I’m just not convinced Brexit Party voters will abandon Boris Johnson if extension happens. Why? 78% approve of his handling of… twitter.com

Mike “Mish” Shedlock

(BBC) Brexit: Deal ‘essentially impossible’ after PM-Merkel call – No 10

(BBC)

Angela Merkel and Boris Johnson
Image captionAngela Merkel and Boris Johnson spoke on the phone on Tuesday morning

A No 10 source says a Brexit deal is “essentially impossible” after a call between the PM and Angela Merkel.

Boris Johnson spoke to the German chancellor earlier about the proposals he put forward to the EU – but the source said she made clear a deal based on them was “overwhelmingly unlikely”.

They also claimed she said a deal would never be possible unless Northern Ireland stayed in a customs union.

Mrs Merkel’s spokesman said they did not reveal confidential conversations.

The President of the European Council, Donald Tusk, sent a public tweet to Mr Johnson, writing: “What’s at stake is not winning some stupid blame game. At stake is the future of Europe and the UK as well as the security and interests of our people.”Skip Twitter post by @eucopresident

Donald Tusk@eucopresident

.@BorisJohnson, what’s at stake is not winning some stupid blame game. At stake is the future of Europe and the UK as well as the security and interests of our people. You don’t want a deal, you don’t want an extension, you don’t want to revoke, quo vadis?20.3K11:39 AM – Oct 8, 2019Twitter Ads info and privacy11.4K people are talking about thisReport

End of Twitter post by @eucopresident

Scotland’s First Minister and leader of the SNP, Nicola Sturgeon, said Downing Street’s response to the phone call was an “attempt to shift the blame for the Brexit fiasco”, while Labour called it a “cynical attempt to sabotage the negotiations”.

Shadow Brexit secretary Sir Keir Starmer said Mr Johnson “will never take responsibility for his own failure to put forward a credible deal”, and called on Parliament to “unite prevent this reckless government crashing us out of the EU”.

An EU official close to the negotiations told BBC Brussels correspondent Adam Fleming Mrs Merkel’s reported comments did not reflect the EU’s agreed position, adding: “This is not our language.”

The PM has insisted the UK will leave the EU on the Brexit deadline of 31 October, with or without a deal.

That is despite legislation passed by MPs last month, known as the Benn Act, which requires Mr Johnson to write to the EU requesting a further delay if no deal is signed off by Parliament by 19 October – unless MPs agree to a no-deal Brexit.

Mr Johnson sent new proposals for a deal to Brussels last week, with the key focus being on replacing the so-called backstop – the policy negotiated by Theresa May and the EU to prevent a hard border returning to the island of Ireland – which has long been a sticking point.

Media captionConfused by Brexit jargon? Reality Check unpacks the basics

After presenting the new proposals to Brussels, government sources hoped the UK might be able to enter an intense 10-day period of negotiations almost immediately, with the aim of coming to a final agreement at an EU summit on 17 October.

The EU pledged to examine them carefully, but a number of senior figures, including Irish Taoiseach Leo Varadkar, warned the proposals did not form the basis for deeper negotiations – even if they believed a deal could still be done.

French President Emanuel Macron said the EU would decide at the end of the week whether a new deal was possible.

But after the phone call on Tuesday morning, the No 10 source said it had been a “clarifying moment”, adding: “Talks in Brussels are close to breaking down, despite the fact that the UK has moved a long way.”

Under Mr Johnson’s proposals, which he calls a “broad landing zone” for a new deal with the EU:

  • Northern Ireland would leave the EU’s customs union alongside the rest of the UK, at the start of 2021
  • But Northern Ireland would continue to apply EU legislation relating to agricultural and other products, if the Northern Ireland Assembly approves
  • This arrangement could, in theory, continue indefinitely, but the consent of Northern Ireland’s politicians would have to be sought every four years
  • Customs checks on goods traded between the UK and EU would be “decentralised”, with paperwork submitted electronically and only a “very small number” of physical checks
  • These checks should take place away from the border itself, at business premises or at “other points in the supply chain”

The source said the UK was not willing to move away from the principle of providing a consent mechanism for Northern Ireland or the plan for leaving the customs union, and if the EU did not accept those principles, “that will be that” and the plan moving forward would be an “obstructive” strategy towards Brussels.

They also accused the EU of being “willing to torpedo the Good Friday agreement” – the peace process agreed in Northern Ireland in the 1990s – by refusing to accept Mr Johnson’s proposals, arguing the plan is key to respecting the so-called “principle of consent”.

But Mr Varadkar has warned the Johnson plan could actually undermine that principle by giving one party in Northern Ireland a veto over what happens to the country as a whole.

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Analysis box by Laura Kuenssberg, political editor

It’s not the official policy of the government yet…

But in government and EU circles it is becoming more likely by the hour that there will not be an agreement at next week’s EU council.

There is no intention in Downing Street to move away from the broad concepts of what they are suggesting regarding either customs or the so-called principle of consent for gaining approval for the PM’s plans from Northern Irish politicians.

So short of a political escape worthy of Houdini, this prime minister is moving towards making the case for leaving without a deal.

To their opponents, that might appear petulant and counter productive, but be in no doubt, if there is no deal this month, Boris Johnson’s government would not suddenly play nice.

And in the likely event that there is an extension, for political reasons No 10 wants to give the impression it was forced into that position.

Read more from Laura here.

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EU diplomats have told Adam Fleming there has been “zero progress” in the talks and in some areas they believe things are going backwards.

A leaked presentation to diplomats on Monday revealed the EU would not accept the UK’s plans committing to no checks on either side of the Irish border if the Northern Ireland Assembly was granted a veto and if there was no guarantee of checks on the UK side.

Adam Fleming said EU negotiators were “so nonplussed by the proposal they asked if it was a mistake”.

It is understood the UK also wants continuing access to several EU trade databases, even if Stormont withholds its consent for the new arrangements.

The UK’s chief negotiator, David Frost, is still due to meet EU counterparts in Brussels on Tuesday, but another European official said he had so little room for manoeuvre, it called into question whether the UK was serious about getting a deal.

On Monday night, the Spectator published texts from a Downing Street source, who claimed if the deal “dies in the next few days, then it won’t be revived”.

The government has not denied the briefing, which also said Mr Johnson “will do all sorts of things to scupper a delay” to leaving the EU.

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Timeline: What’s happening ahead of Brexit deadline?

Negotiators

Tuesday 8 October – Last working day in the House of Commons before it is due to be prorogued – suspended – ahead of a Queen’s Speech to begin a new parliamentary session.

Monday 14 October – The Commons is due to return, and the government will use the Queen’s Speech to set out its legislative agenda. The speech will then be debated by MPs throughout the week.

Thursday 17 October – Crucial two-day summit of EU leaders begins in Brussels. This is the last such meeting currently scheduled before the Brexit deadline.

Saturday 19 October – Date by which the PM must ask the EU for another delay to Brexit under the Benn Act, if no Brexit deal has been approved by Parliament and they have not agreed to the UK leaving with no-deal.

Thursday 31 October – Date by which the UK is due to leave the EU, with or without a withdrawal agreement.

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(EUobserver) Macron gives Johnson five days to change Brexit plan

(EUobserver) French president Emmanuel Macron has given British prime minister Boris Johnson until the end of this week to improve the UK plan on the border between the Republic of Ireland and Northern Ireland. The UK proposed to reinstall a customs border without border checks. The EU said it was not satisfied, making an agreement on a Brexit deal at the EU summit on 17 October less probable.

(Independent) ‘Problematic points’ in Boris Johnson’s Brexit plan must be fixed by UK, not us, says EU

(Independent) Brussels denies that ‘ball is in its court’

Brussels hardened its rhetoric against Boris Johnson‘s Brexit plan on Thursday, warning that it is up to the UK, not the EU, to fix “problematic” aspects of it before negotiations can start in earnest.

Asked whether Brexit Secretary Steve Barclay was right to say that the ball was “in the EU’s court” following the release of the proposals, a spokesperson for the European Commission said the EU would not be left “holding the bag” and that it was the UK that needed to act.

“We would disagree.” she told reporters in Brussels. “There are, as we have said, problematic points in the United Kingdom’s proposal and further work is needed – but that work needs to be done by the United Kingdom and not the other way around.

“We would remind you that it’s the UK leaving the European Union and not the EU leaving the UK. 

“We are doing everything in our power to ensure that exit is on an orderly basis and we are willing to engage constructively with our counterparts. But we are not going to be the ones left holding the bag, the ball, or any other kind of object.”

An initial polite but firm response from Brussels to the plans on Wednesday evening had been interpreted ambiguously back in the UK, with EU officials saying they would study the plans before commenting in detail.

But reaction behind the scenes hardened on Wednesday. One senior EU officials said the UK proposals “can’t fly” and that plans to give the Northern Ireland assembly a veto over the plan were not acceptable.

Jean-Claude Juncker, the European Commission president, is expected to call Taoiseach Leo Varadkar on Thursday afternoon to discuss the proposals. A spokesperson for Mr Juncker said he would “reiterate the EU’s continued unity and solidarity behind Ireland”.

Both Ireland and Brussels have dismissed reports in the UK media that Ireland is under pressure to accept the proposals. The country’s European affairs minister Helen McEntee said: “Our EU partners have stood beside us for the last three-and-a-half years, and that has not changed. We are not coming under pressure to change those key objectives.”

She added that the proposals were “a basis for discussions” but that there “are obvious concerns”.

Under the British plan, Northern Ireland would stay aligned with the EU single market regulations for goods, but stay in the UK customs zone. The result would be customs checks on products moving between the Republic of Ireland and Northern Ireland, and regulatory checks on products moving between Great Britain and Northern Ireland. The UK government says the checks could be done away from the border, though has provided little detail on how. The Northern Ireland assembly and executive would also have to vote to keep the plan going every four years. 

The proposal has been received very poorly in Northern Ireland, where only the DUP has welcomed it out of the territory’s main political parties. Business groups also condemned the plan, with a spokesperson for Manufacturing NI saying it would be “worse” than a no-deal Brexit and “decimate” entire industries.

(Reuters) U.S. hits Scotch whisky, Italian cheese, French wine with 25% tariffs

(Reuters)

WASHINGTON (Reuters) – The Trump administration slapped 25% tariffs on French wine, Italian cheese and single-malt Scotch whisky — but spared Italian wine, pasta and olive oil — in retaliation for European Union subsidies on large aircraft.

The U.S. Trade Representative’s Office released a list of hundreds of European products that will get new tariffs, including cookies, salami, butter and yogurt – but in many cases applied to only some EU countries, including German camera parts and blankets produced in the United Kingdom.

The list includes UK-made sweaters, pullovers, cashmere items and wool clothing, as well as olives from France and Spain, EU-produced pork sausage and other pork products other than ham, and German coffee. The new tariffs are to take effect as early as Oct. 18.

The U.S. Trade Representative’s Office said it would “continually re-evaluate these tariffs based on our discussions with the EU” and expects to enter talks in a bid to resolve the dispute.

Still some Italian foods — Parmesan Reggiano, Romano and provolone cheese — were hit with tariffs as were Italian fruits, clams and yogurt. Also getting new tariffs are German and British camera parts, industrial microwave ovens, printed books, sweet biscuits and waffles.

The main target of the U.S. tariffs is Airbus aircraft made in the EU, which face 10% levy that could hurt U.S. airlines such as Delta (DAL.N) that have billions of dollars of Airbus orders waiting to be filled. EU products winning reprieves include chocolate, Greek, French and Portuguese olive oil, helicopters, frozen fish, lobster, sparkling wine, stemware and tiles.

Joseph Profaci, executive director of the North American Olive Oil Association, said a substantial portion of the imports initially threatened with tariffs were not on the list.

“We’re still digesting what it will mean for the industry, but the total universe of oil affected has been greatly reduced,” he said.

Specialty food importers in August had urged the Trump administration to skip the tariffs, saying “there are few to no domestic products” that could replace the imported items.

The Specialty Food Association said the tariffs would affect 14,000 U.S. specialty food retailers and over 20,000 other food retailers.

Ralph Hoffman, executive vice president of New Jersey-based Schuman Cheese, one of the largest importers of hard Italian cheeses, said the tariffs could slash his firm’s imports by 30% in the middle of the critical holiday season.

“It looks pretty bad. They hit cheese hard,” said Hoffman, who is also a vice president with the Cheese Importers Association of America.

Hoffman said Schuman and other companies had bought extra amounts of cheeses with a longer shelf life, but there was a limit to how much hedging they had been able to do. He said the company brings in over 1,100 containers of cheese each year, serving big box stores such as Costco and BJ’s Wholesale Club.

“This will put a massive dent in that,” he said.

Phil Marfuggi, president and CEO of Ambriola Co Inc, a unit of Auricchio SpA, one of Italy’s largest cheese producers, said 25% was lower than the 100% tariff initially threatened, but it came on top of 10-15% tariffs already paid on specialty cheeses.

Marfuggi, who also serves as president of the Cheese Importers Association of America, said his firm faced extra costs of up to $70,000 each for a dozen containers due to arrive in U.S. ports after Oct. 18, if USTR did not grant a shipping grace period.Slideshow (4 Images)

Robert Tobiassen, president of the National Association of Beverage Importers, said the new tariffs on whisky, liqueurs and cordials, and wine from certain EU countries, would hit many of the United States’ 12,000 importers hard.

“These tariffs will devastate, perhaps destroy, many small and medium sized family businesses importing these products into the United States,” he said.

Many of the tariffs, especially those on alcohol, were not popular on social media.

Jacob Levy, a professor of political theory at McGill University, wrote on Twitter the tariffs were “an interesting strategy for lowering the trillion-dollar deficit: increase everyone’s need to drink to get through each day’s news, then tax the heck out of the good alcohol.”

P.O. (BBC) Boris Johnson: No-deal only alternative to Brexit plan

P.O.

Everyone says:
“This is madness, we are going to crush out of the EU on October the 31st…”


I personally thing the chances are there will be a deal.
The EU is not interested in jumping into the unknown…
And the EU exports 5 times more to the UK than it imports from it.

FCMP



(BBC) Boris Johnson says there should be “no doubt” the only alternative to the Brexit proposals he will put to Brussels later is no-deal.

Addressing his party conference in Manchester, the PM said his plan would be a “compromise by the UK”, but he hoped the EU would “understand that and compromise in their turn”.

The European Commission said they will “examine [the proposals] objectively”.

The Irish PM said he had not seen the plans but was “not encouraged”.

Leo Varadker told the Irish Parliament: “What we are hearing is not encouraging and would not be the basis for agreement.”

The UK is set to leave the EU on 31 October.

The government has insisted it will not negotiate a further delay beyond the Halloween deadline, saying this would be unnecessary and costly for the UK.

However, under the terms of a law passed by Parliament last month, the PM faces having to request another extension unless MPs back the terms of withdrawal by 19 October – two days after a summit of European leaders.

The European Commission’s President Jean-Claude Juncker and Mr Johnson will speak on the phone later, and the two sides’ negotiating teams will also meet.

In his speech, Mr Johnson said no-deal was not an outcome the government was seeking, but “it is an outcome for which we are ready”.

On the eve of his speech, Mr Johnson told a conference fringe meeting, hosted by the DUP, that he hoped to reach a deal with the EU over the course of “the next few days”.

What has the PM proposed?

Boris Johnson

The issue of the Irish border – and how to keep it free from border checks when it becomes the frontier between the UK and the EU – has been a key sticking point in Brexit negotiations.

Mr Johnson has said the solution reached by the EU and Theresa May, the backstop, is “anti-democratic” and “inconsistent with the sovereignty of the UK”, claiming it offered no means for the UK to unilaterally exit and no say for the people of Northern Ireland over the rules that would apply there.

The PM used his speech to confirm parts of his offer to the EU.

He said that “under no circumstances” would there be checks at or near the border in Northern Ireland and the proposals would respect the peace process and the Good Friday agreement.

It included promising “a process of renewable democratic consent” for the Stormont Assembly on its relationship with the EU going forward.

He also referred to the use of technological solutions to ensure there was no hard border on the island of Ireland.

He said he did not want a deal to be out of reach “because of what is essentially a technical discussion of the exact nature of future customs checks when that technology is improving the whole time”.

Mr Johnson also said he would “protect the existing regulatory arrangements for farmers and other businesses on both sides of the border”.

He added: “At the same time we will allow the UK – whole and entire – to withdraw from the EU, with control of our own trade policy from the start.”

The PM said this would “protect the union”.

Echoing the main slogan of the conference, Mr Johnson said: “Let’s get Brexit done on 31 October…to answer the cry of those 17.4 million who voted for Brexit [and] for those millions who may have voted Remain, but are first and foremost democrats and accept the result of the referendum.”

He said the Tories were “not an anti-European party” and the UK is “not an anti-European country”.

The PM added: “We love Europe. We are European.

“But after 45 years of really dramatic constitutional change, we must have a new relationship with the EU.”

Presentational grey line
Analysis box by Norman Smith, assistant political editor

This speech was hugely important for Boris Johnson’s Brexit deal.

Be in no doubt that amongst those listening most closely, most intently, will be leaders in other European capitals, trying to gauge whether Mr Johnson is serious about a Brexit deal or whether he is paving the way for no-deal and looking to blame the EU.

This was actually a rather surprising speech because there was none of the aggressive, combative language that we had been expecting – none of the in your face, take it or leave it final offer that we were told would form the guts of his argument.

Instead, it seemed Mr Johnson went out of his way to adopt a rather more emollient approach, saying how much he loved Europe, how the Tory Party wasn’t an anti-European party and how Britain wasn’t an anti-European country.

What that meant was that Mr Johnson didn’t endeavour to bring the house down in the conference hall. He didn’t go for the easy Brussels bashing, and for the wider viewers in this country, there were no brand new policy announcements.

You sense Mr Johnson has calculated for the next few hours and days that the really crucial audience in terms of his premiership, and for his future, is not here in Manchester – it’s in capitals around the EU.

Presentational grey line

What does the EU think?

EU t-shirt

Before Mr Johnson’s speech, a European Commission spokeswoman said they would examine the proposals objectively, adding: “We will listen carefully to the UK.”

She said the EU wanted to agree a deal with the UK, saying “an orderly withdrawal is far more preferable than a ‘no-deal’ scenario”.

But the spokeswoman also reminded the UK of its “well-known criteria”, saying: “In order for there to be a deal, we must have a legally operational solution that meets all the objectives of the backstop.

“[That means] preventing a hard border, preserving North-South cooperation and the all-island economy, and protecting the EU’s Single Market and Ireland’s place in it.”

Leo Varadker said he would work until the last moment to secure an agreement, but he added: “We will not do so at any cost, and we are ready for no-deal if that’s what the British decide to do.”

The BBC’s Europe editor, Katya Adler said the bloc wanted to do a deal and needed to be seen to try.

But she added it was “fundamentally misunderstanding the EU” if the prime minister believed the other 26 EU leaders will turn round to Ireland and say they have to accept the proposals just they want to have a deal.

What has been the reaction to his speech?

Boris Johnson

There were huge rounds of applause for Mr Johnson from within the conference hall, showing support from his party.

After the speech, one member said the PM was “exactly what we need”, while another said she had been “inspired”, adding: “We are so fed up with nothing happening, but we feel like something will happen now because we think he will deliver.”

Leaving the hall, Tory MP Mims Davies described her leader as “bombastic Boris”, saying: “That [speech] was a message to the country, a message to our party and a message to the EU – we are ready to get on with this.”

But the PM’s plan has been branded as “extreme” and “doomed to failure” by the SNP’s Westminster leader, Ian Blackford, who said his strategy was leading towards a no-deal.

Shadow chancellor John McDonnell said the prime minister’s speech was “absolute bluster” and he described it as a “cynical manipulation to get a no-deal”.

Mr McDonnell also that any Brexit deal or no-deal should be put to the people to make the final decision.

The director general of the CBI, Dame Carolyn Fairbairn, praised the PM’s “optimistic vision for the UK”.

But she said his plan “relies on a good Brexit deal”.

“The UK is at a crossroads,” she said. “[And] the no-deal turning ends in a very different place: a swamp that will slow the UK’s every step for years to come.”

Media captionBoris Johnson: “If Parliament were a reality TV show… the whole lot of us would’ve been voted out of the jungle”

What else did Mr Johnson say in his speech?

Boris Johnson

The PM also used the opportunity to criticise Parliament, saying it “refuses to deliver Brexit, refuses to do anything constructive and refuses to have an election”.

He said: “I am afraid that after three and a half years people are beginning to feel that they are being taken for fools.”

Mr Johnson said the Tories were “the party of the NHS” because of their belief in capitalism, adding: “We understand the vital symmetry at the heart of the modern British economy between a dynamic enterprise culture and great public services precisely because we are the party of capitalism.”

He praised London as its former mayor, but pledged to “unlock talent in every corner of the UK”, and ensure safety with his existing policies of 20,000 additional police officers and tackling county lines gangs.

And he repeated more policy announcements from the conference on infrastructure, education, law and order.

Mr Johnson concluded: “Let’s get on with sensible moderate one nation but tax-cutting Tory government and, figuratively if not literally, let us send Jeremy Corbyn into orbit where he belongs.

“Let’s get Brexit done [and] let’s bring our country together.”

Mr Johnson’s conference speech clashed with Prime Minister’s Questions.

Normally the Commons goes into recess for the Tory conference, but MPs voted against this amid the bitter fallout from the government’s unlawful prorogation of Parliament.

Foreign Secretary Dominic Raab deputised for the prime minister, facing the shadow home secretary Diane Abbott over the despatch box.

He told MPs the government will present its written Brexit proposals to them later.

(SkyNews) Jean-Claude Juncker: ‘We can have a deal’ and ‘Brexit will happen’

(SkyNews) The European Commission President said a no-deal Brexit would be “catastrophic” and he was doing “everything to get a deal”.

Jean-Claude Juncker thinks a Brexit deal is possible
‘I don’t have erotic relation to backstop’

European Commission President Jean-Claude Juncker has told Sky News that “we can have a deal” on Brexit.

Mr Juncker said a no-deal Brexit would have “catastrophic consequences” and said he was doing “everything to get a deal”.Sponsored link

And he said he did not have “an erotic relation” to the so-called backstop, which he said he was prepared to remove from a withdrawal agreement, so long as “alternative arrangements [are put in place] allowing us and Britain to achieve the main objectives of the backstop. All of them”.

Sophy Ridge and Jean-Claude Juncker
Image:Sky’s Sophy Ridge meeting Jean-Claude Juncker in Brussels

Sky News@SkyNews

EC President @JunckerEU said he thinks a #Brexit deal can be reached by 31 October.

Speaking exclusively to @RidgeOnSunday, he also warned that a no-deal #Brexit would be “catastrophic” for Britain and for the EU.

Check out the full interview on #Ridge from 8.30am this Sunday.2116:08 PM – Sep 19, 2019Twitter Ads info and privacy363 people are talking about this

In a UK exclusive interview with Sky’s Sophy Ridge, Mr Juncker confirmed that he had been sent documents by Prime Minister Boris Johnson outlining draft ideas for a new Brexit deal.

Mr Juncker, however, said they had arrived late on Wednesday night, and he had yet to read them.

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The 64-year-old, who spent nearly two decades as the prime minister of Luxembourg, became president of the commission five years ago. His term finishes on 31 October, the same day that the United Kingdom is due to leave the European Union.

Earlier this week, he met the PM in Luxembourg – the first time the two men had met since Mr Johnson took over in Number 10. They spoke for two hours over a working lunch before Mr Johnson went off for his ill-fated meeting with Luxembourg’s Prime Minister Xavier Bettel.

Jean-Claude Juncker tells Sky News a deal can be done on Brexit
Backstop could be scrapped, says EU’s Juncker

“I had a meeting with Boris Johnson that was rather positive,” Mr Juncker said.

“I think we can have a deal. I am doing everything to have a deal because I don’t like the idea of a no-deal because I think this would have catastrophic consequences for at least one year.

“We are prepared for no-deal, and I hope Britain is prepared as well – but I’m not so sure.”

Asked if he had received the proposals from the British government, he said they had arrived “yesterday night” but he’d had no opportunity to read them yet. But he added that he had spoken to Mr Johnson on the phone “without knowing the content of the British proposals”.

But Mr Juncker did confirm to Sky News that he was now prepared to get rid of the controversial backstop plan, designed to prevent the return of a hard border between Ireland and Northern Ireland, but only on condition that “alternative arrangements [are put in place] allowing us and Britain to achieve the main objectives of the backstop.”

The backstop has been widely criticised as having the potential to tie Britain to European Union rules for an indefinite amount of time.

Jean-Claude Juncker speaks exclusively to Sky News
Jean-Claude Juncker:’Brexit will happen’

Mr Juncker agreed that a deal would revolve around the idea that Northern Ireland would follow EU rules on food and agriculture, with other checks being done away from the border.

“It is the basis of a deal. It is the starting and the arrival point,” he said. “The internal market has to be preserved in its entirety.”

Britain’s new proposals are believed to revolve around a collection of ideas, known as the alternative arrangements, designed to offer a suite of separate guarantees that would satisfy politicians in Brussels and London, while avoiding the need for infrastructure on the border.

Mr Juncker said: “I was asking the prime minister the other day to make concrete proposals as far as so-called alternative arrangements are concerned, allowing us and Britain to achieve the main objectives of the backstop. I don’t have an erotic relation to the backstop. If the results are there, I don’t care about it.”Brexit: Has Britain left the EU yet?Follow the updates including key stories, video and quotes from each day in the countdown to Brexit

Asked if that meant that the backstop could go, he answered: “If the objectives are met – all of them – then we don’t need the backstop. It was a guarantee, not an aim by itself.”

He remains hopeful that a deal can be done before he leaves office.

“Brexit will happen,” said Mr Juncker.

(EUobserver) Nobel economist: Ireland ‘not good EU citizen’ on taxes

(EUobserver)

Nobel prize-winning economist Joseph Stiglitz criticised Ireland on Thursday over taxation of multinational companies. “In the area of taxes, Ireland has not behaved well, either globally or for their own citizens, or as an EU citizen,” he said, arguing that Ireland kept revenue that would have gone to other EU countries, and did unfair tax deals for “pittance”. An EU court case is ongoing over Ireland’s tax deal with Apple.

(EUobserver) Juncker: No-deal Brexit ‘palpable’

(EUobserver)

  • Brexit MEPs during EU negotiator Michel Barnier’s speech: isolated (Photo: European Parliament)

EU top officials on Wednesday (18 September) warned that the UK is heading for a no-deal break with the EU, unless the London government provides written proposals on the controversial Irish border issue.

“There is very little time left. […] The risk of a no-deal is very real,” EU commission president Jean-Claude Juncker told MEPs in Strasbourg.

M.P.O. Da falta de transparência de uns políticos e da ignorância de outros

M.P.O.

Nunca ninguém explicou aos Europeus, e neste caso, o Chanceler Kholl, nunca explicou aos Alemães, que adotar o euro faria da Alemanha o de longe o seu  maior beneficiário  e que isso daria à Alemanha responsabilidades especiais em momentos de crise, para a sobrevivência da União Europeia.

Tenho sempre a impressão que a maior parte dos políticos europeus da época não eram suficiente qualificados, porque não faziam nem ideia do que estavam a falar.


Opunham se a um sistema e transferências automáticas, mas elas vieram a ser criadas pelo Senhor Draghi.


Que salvou a UE e o euro.


Mais uma vez a maioria dos polícias europeus, que criticaram as medidas, não faziam a mais pálida ideia do que estavam a falar quando criticaram as ditas.


É confrangedor ouvir os Dirigentes da UE não saberem

Um exemplo disso é não terem a mais pequena ideia do que taxas de inflação diferentes entre os Estados da UE, teriam como consequências com uma moeda única.

Também há que relembrar que os Alemães não queriam o euro, de que vieram a ser os maiores beneficiários.


Mais um sinal da ignorância, ou falte de transparência dos políticos.
Mas o cumulo são os Franceses, que vieram a ser um dos maiores prejudicados, e que impuseram à Alemanha uma moeda que eles não queriam.


Também nunca ninguém explicou aos Europeus, particularmente aos Alemães, que uma Federação ou União, implica necessariamente um sistema de transferências automáticas entre os Estados mais ricos e que fossem  beneficiários da moeda única e os Estados mais prejudicados.


O Senhor Juncker, então Primeiro Ministro do Luxemburgo, disse numa entrevista uma frase que ficou para a História:
 “Todos nós sabemos o que tem que ser feito.


Nunca ninguém nos explicou é como seriamos outra vez eleitos depois da introdução dessas medidas.

Assim vai o Mundo

Francisco (Abouaf) de Curiel Marques Pereira

(Economist) Mario Draghi and the ECB confront a slowing euro zone

(Economist) As the risk of recession in Europe rises, the ECB must act

If mario draghi had been hoping for a quiet few months before he retires from the European Central Bank (ecb) at the end of October, he has been disappointed. He has been in charge for eight high-wire years. In 2012 he quelled panic about the break-up of the euro zone by pledging to do “whatever it takes” to save the single currency. In 2015 he introduced quantitative easing (qe, creating money to buy bonds) in the face of fierce opposition from northern member states. Now the euro zone is flirting with recession and governments are not helping by being slow to loosen fiscal policy. At the central bank’s meeting on September 12th, Mr Draghi must dust himself down one last time.

Investors’ jitters about a recession and the impact of the trade war have sent bond yields tumbling. The ecb’s hawks—such as Jens Weidmann, the head of the Bundesbank, and Klaas Knot, of the Dutch central bank—caution against overreacting with a large stimulus. But the economic data are dreadful. Output in Germany shrank in the second quarter, and some economists are pencilling in another contraction in the third. Italy is stagnating. According to a survey of purchasing managers released on September 2nd, Europe’s manufacturing decline shows no sign of abating. The deeper it is and the longer it lasts, the more likely that trouble brims over into the rest of the economy. In Germany retail sales are already slipping and firms are planning to hire fewer workers.PUBLICIDADE

Inflation is dangerously low. Both the headline figure and the “core” measure—which strips away volatile food and energy prices—are stuck at around 1%, below the ecb’s target of inflation below, but close to, 2%. Investors’ medium-term expectations, as measured by swap rates, have drifted down to 1.2%, well below levels in 2014-15, when the bank prepared to launch qe. The views of professional forecasters surveyed by the ecb have fallen to their bleakest since polling began in 1999. In an attempt to bolster its credibility, the bank has tweaked its language to emphasise that it does not want to undershoot the target of 2% consistently. But without action, those words count for little.

Some economists, among them Larry Summers of Harvard University, argue that, with little ammunition left, central banks should refrain from action so as to force governments to step into the breach with fiscal policy. They are right that the root cause of the economic woe is a shortfall of demand. Sovereign borrowing costs in much of the euro area are near zero or below it. In an ideal world governments would leap at the chance to borrow so cheaply in order to invest. And it is also true that monetary policy is likely to be less effective because rates are so low. The ecb’s deposit rate is already -0.4%. At some point the benefits of further cuts will be offset by their costs, for example if customers begin to withdraw funds from banks and thus destabilise them. With financial conditions already much looser, qe will not be as effective as it was in 2015.

But for the ecb to stand back and do nothing would be irresponsible. It is legally obliged to achieve price stability. Germany’s government shows little appetite to borrow to spend, even if its entire bond yield-curve is submerged below zero. There is even less sign of co-ordinated regional fiscal stimulus in the offing. Until governments loosen the purse-strings, the ecb has no choice but to act. It is the only game in town.

Mr Draghi must therefore be bold on September 12th. Although the scope for interest-rate cuts is limited, it still exists. The important thing is to mitigate the impact on financial stability by, say, “tiering” deposit rates—giving banks a rebate on some of the interest they would otherwise have to pay to park spare cash with the central bank. This would signal that the ecb can cut rates further without blowing up the banking system.

He should also restart qe and commit the bank to buying bonds until underlying inflation shows a meaningful recovery. Mr Draghi has said before that he views asset purchases as particularly helpful in reviving inflation expectations. One constraint is the ecb’s self-imposed limit on the share of a country’s government bonds that the bank can buy. This should be lifted from a third to a half, sending a powerful signal that the ecb means business. The legality of qe is still being questioned in Germany’s constitutional court, but a ruling by the European Court of Justice last year appears to give the ecb room to raise those limits in its quest for price stability. The promise of lower borrowing costs for longer might even prompt national treasuries into issuing more debt.

Last, Mr Draghi must use the bully pulpit to urge governments to exercise their fiscal powers to fend off a recession. You might think that he should avoid taking action at the end of his tenure, so as not to bind the hands of his successor, Christine Lagarde. Not so. A determined response now will save her much work later. Mr Draghi is in a unique position. His stature with investors and governments gives him real clout. And since he departs in a few weeks he can be blunter than he has been in putting across the message that governments, not just the ecb, must act. That would cement his legacy as the man who saved the euro.

(ZH) Since 2014, European Banks Have Paid €23 Billion To The ECB… And Now Face Disaster

(ZH) Earlier this morning, there was an added wobble in European bond prices after an unconfirmed MNI report said the ECB could delay the launch of QE on Thursday and make it data dependent. While skeptics quickly slammed the story, saying it was just a clickbait by MarketNews…

About this MNI story on a possible delay in ECB QE announcement:
1) No substance, including from the ECB “sources”
2) Let’s hope the story is as accurate as the previous ones163:51 PM – Sep 10, 2019Twitter Ads info and privacySee Frederik Ducrozet’s other Tweets

… it does highlight just how sensitive the bond market is to an announcement of aggressive easing by the ECB when it meets on Thursday, Sept 12, where consensus generally expects a significant easing package, including a -20bp rate cut (followed by -10bp cut later on), coupled with roughly €30 billion in sovereign debt QE for 9-12 months, coupled with enhanced forward guidance.

The three package expectations (small, medium, large) by Goldman analysts are laid out below:

There is just one problem: while it is unclear if any further easing by the ECB will do anything to stimulate the Eurozone economy, one thing is certain – further easing will only cripple Europe’s banks. In fact, as Goldman writes in its ECB preview, “further rate cuts are a very uncomfortable prospect for the [banking] sector” and estimates that a -20bp cut could lead to an aggregate €5.6bn (-6%) profit cut for 32 €-banks under the bank’s coverage; worse, a further -10bp cut, as per GS macro forecasts, increases the hit to -10% (-€8.3 bn). Overall, 19 banks in Goldman’s coverage face a >10% EPS cut, and 8 banks face as much as a 20% EPS hit.

Then there is Europe’s head on collision with a recession: the weakening rate outlook has been accompanied by >20% fall in €-bank shares (SX7E) since 2H18 and -4% cuts to their consensus Net Interest Incomes (for 2020E). According to Goldman, so far ~40% of the share price decline could be explained by NII cuts; the rest falls into the ‘other’ domain, “where political risk features notably.”

Here is the problem in one sentence, and chart: since negative rates were intorduced in 2014, European Banks have paid €23BN to the ECB!

So to avoid a further banking sector, deterioration Goldman warns that “it’s critical that tiering accompanies further rate cuts if a large profit hit for the sector is to be avoided. A -20bp cut could lower €-banks EPS by ~6%. A tiering with efficiency on par with SNB scheme could offset ~30% of the hit.”

So the big question for Thursday is whether the ECB will also introduce rate tiering at the same time as it eases more.

On this topic, Goldman economists note that the implementation of the ECB’s new scheme is likely to be structured based on a multiple of minimum reserves held by individual banks (SNB model) or on a fraction of their actual excess reserve holdings (BOJ). Their baseline assumption is a two-tiered system, with one tier remunerated at the MRO (currently 0%), similar to minimum reserves, and a second tier charged at the prevailing DFR. They expect c. 50% of excess reserves to be priced at the DFR level.

In Goldman’s view, tiering is a critical part of any incremental easing package. As we have argued before, without it, an extremely challenging operating environment becomes worse, and may push an increased number of banks towards breakeven, or even loss-making territory. However, not all tiering is the same, and the schemes currently in use vary greatly in the extent of the offset/relief they provide to banks.

Key questions for bank investors ahead of the ECB meeting revolve around these following issues:

1. Could ECB’s tiering efficiency be on par with the Swiss or Japanese approach? The Swiss-like approach to tiering is Goldman’s baseline scenario (where c. 60% of deposit balances are exempt from negative rate), but it offers less relief for banks compared to the Japanese approach (>90%).

2. Would tiering be applied to the incremental cut (-20bp) only, or the full -60bp? In other words, would the tiered rate be set at the level of the MRO (0%) or lower. In our view, an offset for the entire -60bp is key. Goldman estimates that a scheme with efficiency on par with a ‘Swiss model’ with a relief applied retrospectively to a full negative rate (-60bps) has scope to shield ~⅓ of a fully-loaded impact of a 20bp rate cut for the Euro area banks under our coverage.

If rates on aggregate fall by -30bp, we calculate that the ‘tiering shield’ would be closer to 25-30% of the aggregate hit. It’s also important to note that even with tiering a 20-30bp rate cut is ultimately profit negative – when fully loaded. The  relief it brings, however, is front-loaded leading to a near-term neutral impact for the aggregate.

In short: with the sellside analysts more focused on what the ECB will do to offset the adverse impact of its additional easing – as Europe inevitably careens to the reversal rate of roughly -1%, beyond which it’s game over for central banks – one wonders: just why is the ECB doing anything at all, if the biggest consideration is what it will do to offset the damage it creates by “fixing” things?

(EN) Team Ursula: European Commission’s president-elect reveals list of nominees for next Commission

(EN)

Team Ursula: European Commission's president-elect reveals list of nominees for next Commission

Ursula von der Leyen revealed on Monday the list of nominees for the next Commission.

The European Commission’s president-elect has been working hard this summer to get the best candidates from member states for her team. She’ll be announcing their portfolios on Tuesday as well as how she intends to organise work in the next European Commission.

One of von der Leyen’s main requests was to get “gender parity”. She wanted to have at least 13 women (including herself), which means four more than the current Juncker Commission.

She asked all EU countries to send two names, one male and one female but only two countries followed her request: Romania and Portugal.

A few countries decided to nominate one woman and some of them are old faces from the Juncker team who will serve a second mandate.

Who’s in the list?

In total, three women and five men from the current Commission will work with von der Leyen including Dutchman Frans Timmermans and Dane Margrethe Vestager.

The other returning members are Valdis Dombrovskis, Mariya Gabriel, Johannes Hahn, Phil Hogan, Vera Jourova, and Maros Sefkovic.

CEPS think tank director Daniel Gros said they should not be seen as a threat to her leadership.

“It is always good to have some people that have been there before and eight is not even one-third of the total, so that should not be a problem. Moreover, these eight have been rather passive in the previous commission, and therefore I do not think that they will dominate the new one”.

However, there will also be new faces in the Commission such as Spain’s minister for foreign affairs, Josep Borrell, who’s been nominated to be the next EU high representative overseeing foreign affairs and security policy.

Read More: Spanish socialist Josep Borrell, undiplomatic head of European diplomacy?

Other new faces include Helena Dalli, Malta’s minister for European affairs and equality. Her role in the new Commission is unclear at the moment, Italy’s former prime minister Paolo Gentiloni, France’s former MEP Sylvie Goulard are also in the list.

The President-elect will have a tough job assigning portfolios, especially the important ones like agriculture, digital, economic and financial Affairs, trade, regional development — that have a big political and financial impact.

But the final decision will depend on how the commissioners will perform during the hearings at the European Parliament, taking place in the second half of September.

One piece of advice is that von der Leyen changes management style from the Juncker era.

“The Juncker commission was totally centralised, the individual commissioners did not really count for anything, but that led also much to an organisation that was very much top-down and it lost some of its internal vitality. Von der Leyen could change that; she could say ‘I will allow more discussion in the Commission; I will leave more room for individual commissioners to have their own initiatives’,” Gros said.

Other important portfolios such as migration and climate change could prove controversial since they lead to big policy rifts among EU countries.

What happens next?

After the first hearings mid-September, Ursula von der Leyen will have about one month to present the final list of names to the European Parliament.

The new Commission is due to take office on November 1 but all commissioners have to be confirmed by the European Parliament first.

(EN) Turkey’s Erdogan threatens to ‘open the gates’ for migrants to Europe

(EN)

Turkey's Erdogan threatens to 'open the gates' for migrants to Europe

CopyrightMurat Cetinmuhurdar/Presidential Press Office/Handout via REUTERS

Recep Tayyip Erdogan says Turkey will “open the gates” for migrants to Europe if international support for a refugee safe zone in northern Syria fails to materialise.

Turkey’s president said on Thursday (September 5) he plans to resettle one million refugees in northern Syria.

The country hosts more than 3.6 million registered Syrian refugees, according to the UN Refugee Agency.

It controls parts of northern Syria where it is setting up a “safe zone” with the United States. It says 350,000 Syrians have already returned and more could follow.

“Our goal is for at least one million of our Syrian brothers to return to the safe zone we will form along our 450 km border,” Erdogan said during a speech in Ankara.

“We are saying we should form such a safe zone that we, as Turkey, can build towns here in lieu of the tent cities here. Let’s carry them to the safe zones there.

“Give us logistical support and we can go build housing at 30 km (20 miles) depth in northern Syria. This way, we can provide them with humanitarian living conditions.

“This either happens or otherwise we will have to open the gates,” Erdogan said. “Either you will provide support, or excuse us, but we are not going to carry this weight alone. We have not been able to get help from the international community, namely the European Union.”

Turkey agreed to curb the flow of migrants to Europe, under a 2016 deal between Ankara and Brussels, in return for aid amounting to billions of euros.

But renewed fighting in Idlib in recent weeks raised prospects of another wave of refugees at Turkey’s borders.

The Russian-backed Syrian army has gained a lot of ground against rebel forces, some of which are supported by Turkey after a truce failed in early August.

Nicholas Danforth, an Istanbul-based senior visiting fellow at the German Marshall Fund, told Reuters that warning about refugees in the context of the safe zone allows Erdogan to simultaneously pressure Europe and the United States.

“What seems clear is that it would be impossible to settle that many refugees in any zone achieved through negotiations with the United States and the YPG,” he said.

“This looks like an attempt to build pressure for more U.S. concessions on the safe zone, where some refugees could then be resettled for purposes of domestic (Turkish) public relations.”