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Welcome to Graham's Public Blogs

These  quick commentaries are written by Graham on events and developments in European politics, finance, economics and budgets. They are part of his pro bono work.  Click through to see how you can support this work.

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(Graham has "his cake and eats it" at the 100th Brussels for Breakfast)

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13 February 2019

Running down the ‘atomic bomb’ clock

Paula Martín Camargo

Officials in Brussels were appalled to see the deal they have been toiling on for two years crushed by MPs in the heaviest defeat for a government in UK parliamentary history, only to be brought back to life by a slim margin after PM Theresa May caved in to Brexit hardliners’ demand that she goes back to Brussels in search of changes to the Irish backstop – the most loathed part of the deal. May was condemned in Brussels as untrustworthy and, what’s worse, willing to put her party unity above her country’s interest.

The PM made her way back to Brussels with nothing to offer in return except a bleak threat of a crude divorce in just over a month -  an ‘atomic bomb’ Brexit “everybody dreads”, as the Maltese Finance Minister recognised.

The EU didn’t play ball. Top EU Brexit broker Michel Barnier said firmly that the backstop was needed “as it is”, while Donald Tusk said the core parts of the agreement were “not open for renegotiation”. The European council president Donald Tusk’s remarks that there should be a “special place in hell” for those who promoted Brexit without a concrete plan drew Brexiteer’s outrage, but for the first time he sounded reconciled to the fact the divorce would happen. He recognized that there’s “no effective leadership for Remain.” Barnier praised Labour’s leader Jeremy Corbyn’s letter offering May Labour’s support for her Brexit deal if she made five binding commitments, including joining a customs union – the PM declined the offer but asked for a meeting soon with the opposition leader, in what has been seen as aimed at quelling another rebellion within Tory ranks.

A sci-fi solution to the Irish border conundrum remains an impossible task on which the EU will not budge, but officials are considering offering May a plan on technological fixes to their proposal in order to avert a cliff-edge Brexit that might be blamed on the Irish issue – something’s got to give!, Barnier said. Whatever the insurance solution against a hard border on Irish soil, MEPs warned they would veto a Brexit deal without a backstop. A world leading expert on customs reminded that checks on both sides of the Irish border would be ‘mandatory under a no-deal Brexit’, which could spur an Irish unity poll, several cabinet ministers told the BBC. The push could jeopardize UK trade talks with the US, officials at Washington warned.  [...]

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12 February 2019

148th Brussels for Breakfast – CPD Notes

As the UK Parliament agonises over Brexit, a sombre mood descended on the Breakfast as it became ever-more clear that irreversible damage has already been done to the City. ESMA published various notices on dealing with CCPs, CSDs and trade reporting continuity via MoUs with the Bank of England. But the drumbeat of news about yet more billions of euros of trading books moving out of the UK underlined that the profitability of the residual UK operations would come under pressure – inevitably leading to job losses. However, the more immediate hit to the UK may come from the removal from the UK of the foreign exchange revenues flowing from these books. Moreover, the SSM is already the world’s largest bank regulator and the swelling numbers of supervised banks will only re-enforce its role in international fora.

For the future of UK trade with EU, analysis of the newly in-force EU/Japan trade deal makes depressing reading. It underlines the EU’s intention to set the tone of international trade deals – to preserve its values and rules. For financial services, there is a specific article on the “prudential carve out” that maintains the ability of a receiver of financial services to refuse them if the other party’s rules are deemed inadequate.

The European Parliament elections in late May are likely to be a pivotal moment as the new Parliament will meet on July 2nd. If Brexit has been delayed, will the UK be obliged to hold elections so that UK MEPs can influence the choice of the next Commission President etc? Will the extreme `populists’ of left and right be able to combine to thwart business? [...]

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24 January 2019

May’s Deal = “Vassal State” OR “Deferred Crash Out”

Only a Government of National Unity (GNU) can solve this now

Graham Bishop - Vice Chairman European Movement UK

  • Look beyond the Irish backstop problem: The May `deal’ leads inexorably to a `vassal state’ OR a `crash out’ deferred to 2020.
  • The EU27 has made it plain that it will maintain its `autonomy of decision making’: ask EEA/EFTA/Switzerland what this means in practice.
  • A Government of National Unity (GNU) must ask EU27 for a timetable extension to work thoroughly through the options. Then Parliament decides OR puts it back to the people.
  • The GNU would have two prime tasks:

1.     Set up a Parliamentary Commission of the whole of Parliament to examine in full detail all the implications of each option that commands any reasonable support in the House of Commons. If there is no clear `winner’ in the House voting, then Parliament should ask the people to choose between the top two options – having sent each elector a summary of the Parliamentary Commission’s comparison of the two options.  

2.     Begin the national healing: identify the areas where EU migration has deprived the indigenous population of proper access to public services; start a crash programme of sorting it – funded by a temporary `solidarity’ tax surcharge until 2020 (Note: 1p on income tax for four years = £20 billion).

  • Who should lead this GNU? The Father of the House – Ken Clarke – has an unrivalled breadth of experience in 24 years in government/50 years in the House. Mrs May should step down and recommend the Queen to call on him to form a GNU. That would answer Her Majesty's call to find "common ground".

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11 January 2019

78 days to Brexit: UK Parliament is the only British institution so far to have ‘taken back control’

Paula Martín Camargo

The UK Parliament started the New Year taking back the driver’s seat of the Brexit battle in Britain after a series of raucous parliamentary skirmishes that have laid bare the strength of the opposition to a cliff-edge withdrawal from the EU among lawmakers. An extension of the official departure date seems now a plausible option and has been floated to EU officials, who are open to the idea but dismiss further concessions that would make the plan more palatable to British Parliament members.

MPs managed to pass a key amendment which will force PM Theresa May to come back to Parliament with an alternative plan just three sitting days after the deal she agreed in Brussels last month is rejected next Tuesday – as it is widely expected to be. This controversial tweak limits May’s supposed strategy to run down the clock right to Brexit eve so MPs are left with the binary choice of staring right into the no-deal abyss or voting the PM’s proposal.

The clash is therefore set for next week with a vote on the 15th that will most probably see May’s deal rejected – the deadline for May’s alternative motion would then be January 21. The Tory leader will then have to propose a motion that will be amendable, which could see MPs testing options such as a so-called Norway plus model or even a second referendum – a People’s Vote on the final deal the majority of Britons now want, as shown in the widest poll on the issue to date. The whole Brexit process could ultimately be cancelled if a majority in Parliament or a landslide popular vote calls for it: the EU top judge ruled that the UK can unilaterally withdraw Article 50. [...]

The EBA published its annual report on risks and vulnerabilities in the EU banking sector, which found  further improvements in EU banks resilience but highlights challenges connected to profitability, funding and operational risk. The Banking Authority’s updated risk Dashboardshowed that EU banks have further improved their resilience, but profitability remains weak. It will run its next EU-wide stress test in 2020, in line with its previous decision to aim for a biennial exercise.

The impact and implementation of IFRS 9 was thoroughly assessed by the EBA in its first observation report, while the Chair of the IASB Hans Hoogervorst addressed financial industry concerns that the new accounting model might exacerbate procyclicality and discussed current risks in the global financial system.

The ECB announcement that it has appointed temporary administrators to the troubled Banca Carige to safeguard the bank’s financial stability was the first time the European Central Bank used these powers - Graham Bishop assessed whether Carige is a foretaste of a new dimension of the slow-burning EU banking crisis, and if this is the first bank where, paradoxically, the final nail in the coffin may be IFRS 9. The ECB announced that it will directly supervise 119 banks this year. [...]

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10 January 2019

147th Brussels for Breakfast – CPD Notes

As political history unfolds at Westminster, it was inevitable that Brexit took up much time. News from the ECJ topped the agenda as the Court moved at lightning speed to rule that the UK could indeed unilaterally withdraw its Art 50 notice --- BUT it must be done in a proper constitutional manner and must “not involve an abusive practice”. The European Council met in its Art 50 formation and reconfirmed its November conclusions about the agreement but “It is not open for renegotiation.”

The Commission has started its process of implementing its “no deal” planning with just 14 measures. These include a strictly limited equivalence decision of 12 months for CCPs and 24 months for CSDs. There was also a regulation for 12 months to facilitate novation for OTC contracts moving into EU 27 from the UK. This was announced at the very last moment to forestall announcements about giving notice to UK contracts. The tight time frames triggered a surprising discussion about Switzerland’s troubles with the EU that resulted in a 12 month equivalence decision for the Swiss stock exchange. However, this was extended for a further 6 months even after the Swiss government postponed their decision on the EU’s “institutional framework” proposal. [...]

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8 January 2019

Banca Carige: an inauspicious start to 2019?

On the first working day of the New Year, the ECB announced that it has appointed temporary administrators to the troubled Banca Carige – Italy’s tenth largest bank – to safeguard the bank’s financial stability. This was the first time the ECB used these powers so is Carige a foretaste of a new dimension of the slow-burning EU banking crisis? Is this the first bank where, paradoxically, the final nail in the coffin may be IFRS 9 – the accounting standard designed to be the solution to lax accounting before the Great Financial Crash (GFC)? Is the cure worse than the disease? Or is Carige’s new round of problems just an uncomfortable part of the transition to the new world where no bank is too-big-to-fail?

Carige’s lack of profitability puts it at the extreme end of the spectrum in the EU. However, the EBA Transparency Exercise continues to report for the whole banking EU system that “Profitability remains low on average and has not yet reached sustainable levels.”  Shareholders may look nervously at the way that Carige is treated and wonder whether they should throw good money after bad at other banks. According to Reuters, the 27.6% owners – the Malacalz family - has invested more than €400 million since 2015. That is now worth little and the family has baulked for the moment at contributing to a further €400 million – the specific trigger for the ECB’s decision. [...]

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Graham Bishop - Consultant on EU Integration - Political, Financial, Economic, Budgetary


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