EU Banking And Finance Regulatory Newsletter - February 2020

Author:Mr Michael Huertas

February for financial markets has seen most of 2020 gains reversed and consequently, courtesy of Coronavirus concerns, an introspective review of what monetary policy tools are left in the toolkit or the workshop and how these, along with fiscal policy, might get things moving again. Germany has already announced plans to suspend its debt brake to allow municipalities to spend. If this passes the Bundestag (2/3rds required in both houses) this might be a small step towards further stimulus in Europe with the ECB expected to possibly follow at some point. Lagarde has already welcomed the move. However, "Helicopter Money", akin to Hong Kong's EUR 14.25 billion "handout" budget plans to pay each permanent resident 18 years and over HKD 10,000 (i.e., ca. EUR 1,200) is however not (currently) on the table. Difficult decisions certain remain on the horizon in tackling not only the virus' transmission but its spillover in financial markets and the real economy given that global trade tensions led to pressure on supply chains but also spending.

Other difficult decisions remain on the negotiating table - no not Brexit... but the EU's budget summit that ended without agreement but in the stand-off between the "Frugal Four" (Denmark, Austria, Sweden and the Netherlands" who refuse a budget amount higher than 1% of EU's GDP - the original proposal stands at 1.074% or EUR 1.09 trillion. The UK was a net contributor to the EU's budget and its departure leaves a EUR 75 billion gap for the 2021-2027 budget framework.

Meanwhile, standoffs continued with positioning on both sides of the Channel as post-Brexit free trade agreement (FTA) talks set to start March 2nd before the April break. With the EU's negotiating guidelines approved and the (quite short remaining) timeline of 10 rounds of talks agreed, concern remains in Brussels and Frankfurt that the UK's views publically communicated over the course of various speeches from the Prime Minister along with a defiant lecture in Brussels by the UK's Chief Negotiator runs the risk of talking past one another. This could lead to clashes on quotas, standards and ultimately Northern Ireland, with the latter being an increasingly important domestic issue for a political deal south of the Border.

For financial services the three paragraphs in the guidelines to negotiating the EU's FTA aspires to "appropriately structured voluntary cooperation on regulatory and supervisory matters, including in international...

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