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Brussels debates building up a Fortress Europe in finance



For anyone with doubts about the post-Brexit direction of EU financial services policy, just take a look at what Brussels is up to on hedge funds.

The European Commission published a consultation paper at the end of last week reviewing its nearly decade-old legislation for the industry. 

It reveals an EU policymaking machine highly preoccupied by the threat that its rules could be undermined from abroad. 

No fewer than two-thirds of the questions in the consultation paper’s “International Relations” section invite the reader to consider whether and how non-EU access to the bloc should be better policed. 

They range from whether “delegation” rules allowing funds to be managed from overseas (say, from the City of London) need to become more restrictive, to whether managers based abroad (say, in Jersey or Guernsey) create an “unlevel playing field” by using national access schemes to bypass EU authorisation and tap investors.

Veterans of the preparations for the Brexit referendum will remember that the way a question is phrased is highly important. Here’s Question 54 of the consultation: “Do you consider that a consistent enforcement of the delegation rules throughout the EU should be improved?”

Either you have to agree with the question, or you find yourself being an advocate for inconsistency and lack of improvement. 

The paper was published on Thursday under the banner of the “Capital Markets Union”. 

The CMU was originally conceived, pre-Brexit, as a way to make the continent more attractive to foreign investment, but it has since transmogrified into something that seems to be more about onshoring financial services and supervisory centralisation. 

It is a direction of travel that manifests itself across different policy files: Brussels in recent years has toughened up the conditions for non-EU countries to qualify for financial-services access rights, known as equivalence provisions. The EU has also equipped itself with the legal power to force crucial market infrastructure to relocate into the bloc to serve European customers. 

Some might say this is all for the best — after all, this approach reflects a certain vision of the single market long pushed by Paris and, in fairness, others too: one with a focus on a strict internal level playing field and barriers to entry. 

But how will this fare with member states? One of the interesting things about the hedge funds paper is that Brussels has fought and lost on this terrain before.

The EU executive branch proposed back in 2017 that the bloc’s market regulator should have the right to police delegation rules for hedge funds and retail investment funds. But the plan was knocked back by a coalition of smaller member states, cheered on by the European fund sector. One of the staunchest opponents was Luxembourg, whose fund industry is closely interlinked with the City. 

Similarly, some member states have been getting a bit jittery recently about other parts of the commission’s policy. 

Ireland last month raised the problem that, unless the UK were granted crucial regulatory permissions by Brussels, European traders could be banned from trading dual-listed shares in the City. There are many dual-listed companies in Europe, including Ryanair and Tui, the travel company.

Dublin and other capitals called for action, with suggestions at one stage of emergency legislation, leading a rattled Brussels to warn that this would meddle with the Brexit negotiations. The upshot is that the European Securities and Markets Authority is set to present a solution on Monday. 

Expect many more such discussions over the months to come: the commission is preparing a major review of the EU’s market rule book next year, alongside its update of the hedge funds legislation. Brussels has also been clear that some equivalence rights for the UK will not be settled before the end of 2020. 

One thing all sides agree on: much of the work to determine the new EU-UK financial services relationship will not be done this year, but in 2021, and even beyond. 

Chart du jour: uninterrupted ascent of super-rich

The pandemic is widening financial inequalities, as the super-rich in countries including Germany, the UK and France get richer. Their advisers — many of whom counselled wealthy Europeans to remain calm during the selling at the start of the crisis — have also benefited financially. (chart via FT)

Europe news round-up

© AP
  • Pandemic-struck EU member states have made it plain that they intend to fully tap the €390bn of recovery fund grants leaders agreed in July. What is much less clear is how far they intend to avail themselves of the cheap loans the commission is also offering. (FT)

  •, one of Europe’s few tech giants, has hit out at Brussels’ plans to potentially regulate the company as a “gatekeeper”, warning that attempts to “handcuff” the platform will give advantage to foreign rivals. (FT)

  • Europe is heading into lockdown again after Italy imposed the harshest pandemic restrictions since spring. Brussels has also tightened rules, while Spain imposed a national curfew. (FT, Brussels Times, BBC)

  • EU television manufacturers have warned that they may be locked out of the benefits of a future UK trade deal, threatening thousands of European jobs and driving up the price of TVs for British consumers. (FT)

  • A boycott of French goods in Kuwait and Qatar is gathering momentum in reaction to popular disquiet at Emmanuel Macron’s crackdown on radical Islamism. (FT)

Coming up this week

Intensified Brexit talks continue in London until Wednesday before moving to Brussels from Thursday.

Minimum wage proposals are due from the commission in the middle of the week. On Thursday, Margrethe Vestager, the EU’s executive vice-president in charge of competition and digital policy, is set to take part in a virtual event on the proposed Digital Services Act.; @jimbrunsden; @siobhan_riding; @JavierespFT

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CDU leadership backs Armin Laschet’s bid to be German chancellor




Armin Laschet won a key victory in his campaign to succeed Angela Merkel when the party he leads, the Christian Democratic Union, backed him as their candidate for chancellor in September’s Bundestag election.

The CDU governing executive’s decision to back Laschet was a setback for Markus Söder, governor of Bavaria, who has also laid claim to the title.

The move was expected, but could prove controversial. Söder is by far the more popular politician, and many CDU MPs had argued in recent days that the party would have a much better chance of winning September’s election with Söder as their candidate.

After throwing his hat into the ring on Sunday, Söder said he would accept the CDU’s decision. However, it is still unclear whether his party, the Bavarian Christian Social Union, will accept Laschet as the CDU/CSU’s joint candidate. The CSU’s executive is meeting later on Monday.

Sunday’s events threw the process for finding a successor to Merkel, who will step down this year after 16 years as Germany’s leader, into confusion. The CDU and CSU traditionally field a joint candidate for chancellor: that person is usually the leader of the CDU, which is by far the larger party.

Volker Bouffier, governor of the western state of Hesse, said the CDU’s executive had unanimously backed Laschet at a meeting in Berlin on Monday morning. He added, however, that no formal decision had been made on the issue.

Bouffier said the executive had made clear “that we consider [Laschet] exceptionally well-suited and asked him to discuss together with Markus Söder how we proceed”. He added that “the current polls should not determine the decision over [who we choose as] candidate”.

Since Laschet was elected CDU leader in January, the party has suffered a precipitous slump in the polls and that created an opening for Söder. He has frequently argued that the CDU/CSU’s joint candidate should be the politician with the best chances of winning in September.

Voters have blamed the CDU for the government’s recent missteps in its handling of the coronavirus pandemic, in particular the slow pace of Covid-19 vaccinations. Revelations that a number of CDU and CSU MPs earned huge commissions on deals to procure face masks also badly damaged the party’s image.

The malaise in the CDU was highlighted last month when it slumped to its worst ever election results in the two states of Baden-Württemberg and Rhineland-Palatinate, which for decades had been Christian Democrat strongholds. National polls currently put support for the CDU/CSU at between 26 per cent and 28 per cent, way down on the 33 per cent it garnered in the last Bundestag election in 2017.

There was more bad news at the weekend for Laschet, who as well as being CDU leader is also prime minister of North Rhine-Westphalia, Germany’s most populous state. A poll for broadcaster WDR in NRW found that only 26 per cent of voters in the state are satisfied with the work of the regional government Laschet leads and only 24 per cent of voters consider him a suitable candidate for chancellor.

The slide in the CDU’s fortunes contrasts with the rise of the Greens. The party garnered 8.9 per cent of the vote in 2017 and is now polling at 23 per cent. It is seen as a racing certainty that it will be part of Germany’s next government.

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EU and UK edge towards accord on trade rules for Northern Ireland




The UK and the EU are making progress in talks on how to apply post-Brexit trade rules in Northern Ireland, raising hopes of an agreement that could help reduce tensions that have spilled over into violence on the streets of Belfast.

Officials on both sides said that recent days of intensive contacts had given cause for optimism that the UK and EU can craft a “work plan” on how to implement the Northern Ireland protocol, which sets the post-Brexit terms for goods to flow between the region and Great Britain. EU Brexit commissioner Maros Sefcovic and his UK counterpart David Frost may meet to review progress this week. 

“They are advancing on a technical level and probably we will see a [Frost-Sefcovic] meeting rather sooner than later”, said one EU diplomat, while cautioning progress depended on firm commitments from the UK and its “unequivocal support” for the Brexit withdrawal agreement.

Other EU diplomats and officials said strong UK engagement in the technical talks on implementation of the Northern Ireland protocol had raised hopes that an understanding could be reached. 

“The mood seems to have warmed up a bit — the tone of the discussions is quite good,” said one British official. 

The talks are a follow up to a draft plan about implementation of the Northern Ireland protocol that was submitted by the UK to Brussels at the end of last month — a step the EU said was essential to rebuilding trust after Britain unilaterally extended waivers for traders from some aspects of the rules in March. This move prompted EU legal action.

The discussions between British and EU officials in recent days have taken place against the backdrop of violence in Northern Ireland, stoked in part by resentment within the unionist community at how the protocol treats their region differently to the rest of the UK.

From April 2 there were eight consecutive nights of unrest in Northern Ireland, involving both unionist and nationalist areas. The police responded by deploying water cannons for the first time in six years.

The Brexit deal placed a trade border down the Irish Sea in order to keep commerce seamless on the island of Ireland. The Northern Ireland protocol requires customs and food safety checks for goods entering Northern Ireland from Great Britain.

Officials said the EU-UK talks now under way about implementation of the protocol cover a wide array of practical issues ranging from trade in steel and medicines to the policing of food safety standards, how to deal with residual soil on plant bulbs, and the construction of border inspection posts. 

“Technical talks are ongoing”, said an EU official. “Depending on the progress made at technical level, a political-level meeting may be held soon.”

But EU diplomats and officials also cautioned that more work remains to be done, especially on the thorny issue of applying food safety checks. Difficult talks also lie ahead on the timetable for putting particular measures in place.

Meanwhile Downing Street played down a report in The Observer that it was resisting proposals by Dublin for a special crisis summit to address the outbreak of violence in Northern Ireland.

“We have not refused anything,” said a Number 10 official. “It’s something we will consider.”

However there are concerns on the British side about the wisdom of holding a summit in Northern Ireland with Irish government ministers at a time when pro-UK loyalist groups have been engaged in street violence.

Irish officials said taoiseach Micheál Martin and British prime minister Boris Johnson have spoken and would “maintain close contact over coming days”.

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France to offer mRNA jabs as second dose after AstraZeneca 




France has become the second country after Germany to recommend that younger people who have had a first dose of the Oxford/AstraZeneca vaccine be given a different jab for their follow-up shot.

The mixed-dose approach has been recommended by health experts in both countries — despite there being little clinical trial data to support it — because of the slim risk that younger people can develop blood clots when given the AstraZeneca jab.

The World Health Organization reiterated its position on Friday that there was “no data on interchangeability of vaccine platforms”, noting further research was needed.

The move comes as the European Medicines Agency said it is also probing a possible link between the Johnson & Johnson vaccine and four serious cases of unusual blood clots in the US, where it is currently being rolled out. It is not yet being distributed in the EU or UK. The vaccine is based on an adenovirus vector, similar to the AstraZeneca shot.

The EMA said it was not yet clear whether there was a causal link. J&J said it is working with experts and regulators to assess the data. “Our close tracking of side effects has revealed a small number of very rare events following vaccination,” it said. “At present, no clear causal relationship has been established.” 

In France, the policy will affect roughly 530,000 people under age 55 who were given a first shot of AstraZeneca from early February to mid-March when they were eligible under its strategy of giving healthcare workers the vaccine, while reserving the mRNA vaccines for elderly people most at risk.

The Haute Autorité de Santé, a panel of medical experts which advises the government, has said they should be given booster shots from BioNTech/Pfizer or Moderna. France has changed course to use AstraZeneca only in people aged above 55 since the blood clot issue emerged.

France announced its decision on Friday after the HAS recommended the mixed-dose strategy. Germany took a similar stance in early April. 

Health minister Olivier Véran told RTL radio on Friday that the mixed-dose approach was “totally logical” given the analysis of European regulators and France’s desire to continue its vaccination campaign as the scientific evidence evolved.

European countries, whose vaccination campaigns have been slower than world leaders such as the US, Israel, and the UK, have been grappling with how to use AstraZeneca doses since the blood clot reports emerged, with some countries applying new age restrictions and others pausing its use entirely.

But with Covid-19 still spreading, officials are also seeking to reassure people that the AstraZeneca vaccine’s benefits still largely outweigh the risks. 

The European Medicines Agency recently established that there was a “possible link” between the AstraZeneca vaccine and unusual blood clots with low blood platelets that have mostly affected women under 60 years old, though regulators have said there is no specific risk factor by gender.

The EMA said it had examined at least 86 such reported cases and 16 deaths, and recommended updating the vaccine’s safety information to list the clots as a possible side effect.

Élisabeth Bouvet, a vaccine expert and member of the HAS, said on Friday that the mixed-dose approach was a practical solution intended to protect younger people, who are at lower risk of developing severe forms of Covid-19, from the risk of blood clotting side effects. “It is really a choice based on safety,” she said.

“Given that the protection of the Covid-19 vaccines begins to diminish after three months, these people need an additional dose,” she added. “The idea is to give mRNA vaccine as a second dose for this population in a ‘prime-boost’ strategy.”

Even in the absence of clinical data, Bouvet said that they believed the approach carried low risks of side effects and was likely to offer people additional protection given that the Covid-19 vaccines all aim at the same spike protein on the coronavirus.

“We think that this approach will work,” she said. “There is no reason to expect any particular side effects with mixed dosing but it would be good to study the immune response it creates.” 

Peter English, a retired Public Health England consultant in communicable disease control, said it was “reasonable” to use other vaccines, particularly in younger patients, until the risk of blood clots caused by the AstraZeneca vaccine has been clarified.

“If we are to achieve vaccine-induced herd immunity [not just through masks and social distancing] a high uptake of vaccination will be required in the groups most likely to spread the virus, not just in those most at risk if infected,” he said, noting vaccine mixing and matching has been done for other diseases. 

Trials studying a combination of vaccines, including AstraZeneca’s and Russia’s Sputnik V shots, are under way.

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