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Brussels’ plans to tackle digital ‘gatekeepers’ spark fevered debate



After months of anticipation, Brussels has revealed its most ambitious set of rules on Big Tech in years, but the publication of the draft regulations marked only the end of the beginning, rather than the beginning of the end.

The proposals, released by European Commission executive vice-president Margrethe Vestager and single market commissioner Thierry Breton, will now be scrutinised by the European parliament and Council of ministers before being adopted into law. This will entail years of complex legislative and legal debate.

EU regulators want to tackle digital giants on two fronts. With the Digital Services Act, the EU wants to impose more responsibility on the likes of Facebook for taking down illegal content. The Digital Markets Act is aimed at curbing the growing power of platforms seen as “too big to care”.

You can find a comprehensive read about why the EU wants to regulate Big Tech here. And you can find details on the two legislative proposals here, here, and here

It was the DMA that provoked the most heated debate in the immediate aftermath of Tuesday’s announcements, given that its far-reaching proposals touch on the basic business models employed by big platforms. Here’s a rundown of the reactions from some of the interested parties:

  • Big Tech cried foul and accused the EU of unfairly targeting a small number of companies with regulations that could kill innovation. Karan Bhatia, vice-president of government affairs and public policy at Google, said: “We are concerned that [the proposals] appear to specifically target a handful of companies and make it harder to develop new products to support small businesses in Europe. We will continue to advocate for new rules that support innovation, increase responsibility and promote economic recovery to the benefit of European consumers and businesses.”

  • Rivals in Europe argued the opposite — claiming the new proposals will foster innovation. Horacio Gutierrez, Spotify’s head of global affairs and chief legal officer, said his company was “encouraged” by the DMA, saying: “There is now a global consensus that large gatekeeper platforms are leveraging their power in ways that slow innovation and hurt consumers, and that regulation is needed to avoid harm before it becomes irreparable.” Spotify has a complaint outstanding against Apple over the US company’s App Store.

  • Legal experts praised the scope of the proposals — or at least some did. Jay Modrall, a partner at Norton Rose Fulbright, said the DMA set the stage for “a legislative and lobbying battle” but argued: ““The Act aims to shift away from a case-by-case enforcement model for dealing with problematic platform behaviours to a (hopefully) more efficient regulatory model. Many other jurisdictions, including the UK and the US, will study the Digital Markets Act as a potential model for proposed legislation on online platforms.”

  • Leading consumer groups cheered. Monique Goyens of consumer group Beuc said: “Antitrust investigations have shown how gatekeeping practices by digital players harm competition and thus limit consumer choice. But competition investigations can be too slow to prevent irreparable harm on the market. It is the right move to prohibit some practices up front instead of picking up the pieces afterwards.”

  • Lawmakers began to stake out their positions. Paul Tang, a Dutch MEP, said the commission wasn’t ambitious enough. “The commission should take direct aim and at least dismantle the perverse business model of these tech giants: monetising personal data via advertising. We need to get to the root of what’s troubling the internet: we need to end personalised ads.”

Lobbyists and their lawyers will now delve into the details of the proposals as they prepare for the debates that lie ahead within the parliament and among member states. The battle is just getting started.

Chart du jour: lockdowns for Christmas

Chart showing that test positivity remains in the double digits in many European countries, and declines have stalled in some places

Christmas may become a casualty of coronavirus in large parts of Europe. High numbers of cases have spurred governments including Germany to impose stricter lockdowns to avoid another wave of infections. In the UK, Boris Johnson’s pledge to relax rules around Christmas is coming under pressure from scientists and opposition parties. (chart via FT)

Europe news round-up

  • Zdravko Krivokapic, Montenegro’s recently elected prime minister, said his country had experienced a “rebirth” as he pledged to make the rule of law and boosting the economy his primary focus. The small Adriatic country has been in negotiations to join the EU for eight years. Mr Krivokapic cast his new coalition — which is balanced on a razor-thin majority — as an “expert government” that he hopes will show the world that a “democratic transition” is under way in Montenegro. (FT)

  • Hungary’s parliament approved a package of new laws aimed at limiting the rights of gay couples, changing electoral rules and decreasing oversight over public funds. The parliament approved an anti-LGBT constitutional amendment stipulating that “the mother [of a child] is a female, the father is a male”. It also states that only married couples can adopt children, in effect excluding homosexuals because gay marriage is not allowed. (FT)

  • British MPs have been put on standby for an extended House of Commons sitting next week, with hopes rising at Westminster that a post-Brexit trade deal with the EU could be ready for approval before Christmas. But anxiety is also mounting in the European parliament over the narrow window remaining for any deal to be ratified. (FT)

  • The European Central Bank has set out strict limits permitting banks to resume paying dividends from next year. Its supervisory board recommended banks only distribute up to 15 per cent of their past two years of profits to shareholders and no higher than 0.2 per cent of their common equity tier one capital ratio. Lenders should only restart dividend payments if they are profitable and have “robust capital trajectories” that can withstand the impact of the coronavirus pandemic. (FT)

Coming up today

The commission will release its new cyber security strategy and proposals for handling non-performing loans at European banks. Ministers wrap their fishing quota setting council. The EU will launch its European Climate Pact, which aims to support action on climate change.

Holiday notice: Today’s edition is the last Brussels Briefing before it takes a festive break. We’ll be back in early January 2021.; @JavierespFT

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FC Barcelona and Real Madrid will be forced to pay back illegal state aid




FC Barcelona and Real Madrid will be forced to pay back millions of euros in illegal state aid after the EU’s highest court ruled Brussels was right to declare that beneficial tax arrangements they enjoyed for a quarter of a century were illegal.

The decision by the European Court of Justice upholds previous rulings by the European Commission and comes as Barcelona, the world’s highest-earning football club, is enduring one of the biggest crises in its history. 

This week police arrested the club’s former president, its current chief executive and its general counsel, in connection with a separate legal case ahead of a vote on Sunday to decide its next president. Barcelona, which recorded a loss of €100m last year, also has to contend with a debt pile of more than €1bn.

In 2016 Margrethe Vestager, the EU’s competition chief supremo, ordered four Spanish football clubs to pay back tens of millions of euros received since the 1990s in the form of sweetheart property deals, tax breaks and soft loans.

FC Barcelona subsequently contested the decision before the General Court, the EU’s second-highest tribunal, which annulled the commission’s judgment. However, after a final appeal from Brussels the ECJ ruled in favour of the EU.

In its decision on Thursday — which is final — the ECJ deemed the tax scheme “liable to favour clubs operating as non-profit entities over clubs operating in the form of public limited sports companies”, holding that it could therefore qualify as illegal state aid under EU rules.

The General Court had previously annulled Brussels’ decision over what it said was lack of sufficient evidence that the tax arrangements offered to the four football clubs, which also include CA Osasuna and Athletic Bilbao, were illegal.

But the commission had questioned the court’s “heavy burden of proof” on regulators in its appeal, arguing that a lower tax rate was obviously more favourable than a higher one.

The ECJ argued that the difficulty in assessing the extent of state aid — because of the complexity of tax deductions — did not preclude the commission from banning government practices that it considered gave sports clubs unfair advantages. 

It said: “The impossibility of determining, at the time of the adoption of an aid scheme, the exact amount, per tax year, of the advantage actually conferred on each of its beneficiaries, cannot prevent the commission from finding that scheme was capable, from that moment, of conferring an advantage on those beneficiaries.”

The Spanish government said on Thursday it had “absolute respect” for the court’s decision. FC Barcelona and Real Madrid did not immediately respond to requests for comment.

The judgment will be seen as a big win for regulators in Brussels who have for years been trying to stop highly successful commercial clubs from freeriding on the back of taxpayers.

The European Commission said on Thursday it noted “the judgment by the Court of Justice to follow the Commission’s arguments”.

Thursday’s ruling is the second time Brussels has won an appeal of its state aid decisions in recent weeks. Last month judges at the General Court rejected a legal challenge by budget airline Ryanair to state aid given to rivals on discriminatory grounds.

At present Barcelona is dealing with the fallout of what the Spanish media dubs Barçagate — allegations, denied by the club, that it corruptly hired outside groups to defame former president Josep Maria Bartomeu’s adversaries on Facebook.

Bartomeu was temporarily detained by the Catalan police earlier this week. He, the club, and other individuals in the case, which is being investigated by a Barcelona court, have all denied any wrongdoing.

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Italy raises €8.5bn in Europe’s biggest-ever green bond debut




Investors flocked to Italy’s inaugural environment-focused government bond offering on Wednesday, allowing the country to raise more than €8bn.

The banks running the issuance chalked up around €80bn in orders for €8.5bn of debt. It was the biggest debut sovereign green bond from a European issuer to date, according to Intesa Sanpaolo, which worked on the deal.

Other recent Italian bond sales have also attracted strong demand, after former European Central Bank president Mario Draghi became prime minister last month.

Demand for the debt highlights the popularity of green bonds, which provide funding for environmental projects and require borrowers to report to investors on how the funds are used. 

Tanguy Claquin, head of sustainable banking at Crédit Agricole, which was a co-manager on the transaction, said the sale was met with “very strong support” from investors, particularly those that are required to consider environmental factors in their portfolios.

The bond, which matures in 2045, was issued with a yield of 1.547 per cent. The underwriters were able to reduce the premium against a normal Italian government bond maturing in 2041 to 0.12 percentage points, a slimmer premium than the 0.15 points initially mooted.

Italy follows several European countries, including Poland, Ireland, Sweden and the Netherlands, into the green debt market. France has issued 11 green bonds since 2017, totalling $30.6bn according to Moody’s Investors Service. Germany joined the market last year with two green Bunds. In its budget on Wednesday, the UK announced plans to sell at least £15bn of green bonds in two offerings this year. 

Italy is the first riskier southern-European government to tap the green market. The spreads on Italian debt relative to the eurozone benchmark German bonds fell to a six-year low of less than 0.9 percentage points in early February in a sign of investors confidence in Draghi’s leadership of the EU’s third-largest economy. The spread widened during last week’s volatile bond market trading but remains low by recent standards.

Spain plans to follow Italy with a green bond offering in the second half of 2021. Analysts expect an initial €5-10bn sale at a 20-year maturity. Johann Plé, senior portfolio manager at AXA Investment Managers said the demand for Italy’s sale “should reinforce the willingness of Spain and others to follow suit.”

Plé said the price investors paid for the Italian green bond “remained fair” and that this “highlights that strong demand does not necessarily mean investors have to pay a larger premium”.

Green bonds often command higher prices, and therefore lower yields, than their conventional equivalents from the same issuer. The German green Bund currently trades with a “greenium” around 0.04 to 0.05 percentage points, roughly double the gap when it was initially issued, according to UniCredit analysis, while French government green debt is roughly 0.01 percentage points lower in yield than conventional bonds.

Italy’s pitch on the environmental impact and reporting of its green projects drew positive reactions from some investors. Saida Eggerstedt, head of sustainable credit at Schroders, which invested in the bond, said the details provided on projects including low-carbon transport, power generation, and biodiversity were “really impressive”.

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German regulator steps in as Greensill warns of threat to 50,000 jobs




Germany’s financial watchdog has taken direct oversight of day-to-day operations at Greensill Bank, as the lender’s ailing parent company warned that its loss of $4.6bn of credit insurance could cause a wave of defaults and 50,000 job losses.

BaFin appointed a special representative to oversee Greensill Bank’s activities in recent weeks, according to three people familiar with the matter, as concern mounted about the state of the lender’s balance sheet.

The German-based lender is one part of a group — advised by former UK prime minister David Cameron and backed by SoftBank — that extends from Australia to the UK and is now fighting for its survival.

On Monday night Greensill was denied an injunction by an Australian court after the finance group tried to prevent its insurers pulling coverage.

Greensill’s lawyers said that if the policies covering loans to 40 companies were not renewed, Greensill Bank would be “unable to provide further funding for working capital of Greensill’s clients”, some of whom were “likely to become insolvent, defaulting on their existing facilities”.

In turn that may “trigger further adverse consequences”, putting over 50,000 jobs around the world at risk, including more than 7,000 in Australia, the company’s lawyers told the court.

A judge ruled Greensill had delayed its application “despite the fact that the underwriters’ position was made clear eight months ago” and denied the injunction.

Greensill Capital is locked in talks with Apollo about a potential rescue deal, involving the sale of certain assets and operations. It has also sought protection from Australia’s insolvency regime.

Greensill was dealt a severe blow on Monday when Credit Suisse suspended $10bn of funds linked to the supply-chain finance firm, citing “considerable uncertainties” about the valuation of the funds’ assets. A second Swiss fund manager, GAM, also severed ties on Tuesday. Credit Suisse’s decision came after credit insurance expired, according to people familiar with the matter.

While the bulk of Greensill’s business is based in London, its parent company is registered in the Australian city of Bundaberg, the hometown of its founder Lex Greensill.

In Germany, where Greensill has owned a bank since 2014, BaFin, the financial watchdog, is drawing on a section of the German banking act that entitles the regulator to parachute in a special representative entrusted “with the performance of activities at an institution and assign [them] the requisite powers”.

The regulator has been conducting a special audit of Greensill Bank for the past six months and may soon impose a moratorium on the lender’s operations, these people said.

Concern is growing among regulators about the quality of some of the receivables that Greensill Bank is holding on its balance sheet, two people said. Regulators are also scrutinising the insurance that the lender has said is in place for its receivables.

Greensill Bank has provided much of the funding to GFG Alliance, a sprawling empire controlled by industrialist Sanjeev Gupta.

“There has been an ongoing regulatory audit of the bank since autumn,” said a spokesman for Greensill. “This regulatory audit report has specifically not revealed any malfeasance at the bank. We have constructive ongoing dialogue with all regulators in all jurisdictions where we operate.”

The spokesman added that all of the banks assets are “unequivocally” covered by insurance.

Greensill, a 44-year-old former investment banker, has said that the idea for his company was shaped by his experiences growing up on a watermelon farm in Bundaberg, where his family endured financial hardships when large corporations delayed payments.

Greensill Capital’s main financial product — supply-chain finance — is controversial, however, as critics have said it can be used to disguise mounting corporate borrowings.

Even if an agreement is struck with Apollo, it could still effectively wipe out shareholders such as SoftBank’s Vision Fund, which poured $1.5bn into the firm in 2019. SoftBank’s $100bn technology fund has already substantially written down the value of its stake.

Gupta, a British industrialist who is one of Greensill’s main clients, separately saw an attempt to borrow hundreds of millions of dollars from Canadian asset manager Brookfield collapse.

Executives at Credit Suisse are particularly nervous about the supply-chain finance funds’ exposure to Gupta’s opaque web of ageing industrial assets, said people familiar with the matter.

The FT reported earlier on Tuesday that Credit Suisse has larger and broader exposure to Greensill Capital than previously known, with a $160m loan, according to two people familiar with the matter.

Additional reporting by Laurence Fletcher and Kaye Wiggins in London

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