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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.

Continuing Profesional Development Many finance professionals will find that society requires you to be Knowledgeable and Competent when MiFD II comes into force in January 2018. We have launched our CPD Weekly "10 Minute Read 'n Verify" to give 7.5 hours of structured CPD annually. Full Details

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

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28 November 2018

146th Brussels for Breakfast – CPD Notes

Highlights from the “Brussels for Breakfast” meeting

Of course the first topic had to be The Deal – but focussing on the financial services part of the Political Declaration on the Future Relationship. This has expanded from the 26 page draft to 36 pages of double-spaced text with plenty of white spaces… but the word “autonomy” continues to be appear 12 times and usually at the beginning of each section where the principles are laid down. EU27 – at around 7 times the size of the UK – has made quite clear that it retains autonomy of its own regulations whether in general terms or specifics such as in financial service regulations. Moreover, the three paragraphs on financial services continue to include the wording on the “prudential” carve-out so there cannot be any doubt about who sets the rules. I asked for a show of hands from those who think this Deal may benefit the City. None went up – or even thought of going up! My recent article laid out the risks from leaving on WTO terms so we now await Parliament’s vote. [...]

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28 November 2018

No plan B: it’s May’s deal approved by the EU or going back to square one

By Paula Martín Camargo

British PM Theresa May finally found a way around for the Northern Ireland border quandary and for an eleventh hour diplomatic spat with Spain over Gibraltar that saw the Spanish Government threatening to block the accord if it wasn’t given veto power over The Rock’s future relation with the EU. May got EU leaders to endorse the draft Withdrawal Agreement and a political declaration on the framework for the future relationship, but lost some major cabinet members like Brexit Secretary Dominic Raab, who resigned and branded the deal as “worse than staying in the EU”. The next major hurdle May must overcome if the legal texts are to be enshrined in UK law is waiting for her at home.

The Prime Minister is fighting her way out of the Brexit corner, putting her hopes on forcing MPs to vote YES to the agreement secured over the weekend in Brussels by winning the hearts of the public. Her strategy consists in convincing voters that the UK is “getting behind this deal” and negotiators should now approve the accord and “get on with Brexit” to let her team focus on working on the UK’s new relation with the EU and on the exciting trade prospects Brexit may bring to an unshackled Britain. But Britons are not on board with this idea, pollster YouGov found: By more than two to one, the public oppose the agreed plan for Brexit as it stands.  

Faced with fierce opposition at home, where MPs could derail the hard-won deal in a vote before Christmas, Theresa May told parliamentarians that they have a duty to deliver on what their constituents voted for in 2016. As the PM presented it, there’s no other choice anyway: rejecting the deal, May floated to lawmakers, would equate to going “back to square one.” Either way, EU leaders backed the UK PM signalling there could be no return to the drawing board: EU Commission President Jean-Claude Juncker said that Sunday’s was “the only deal possible”. An agreement that comes at a huge cost, research by the National Institute of Economic and Social Research (NIESR) has claimed: withdrawal arrangements will leave the UK £100bn a year worse off by 2030,  “the equivalent of losing the economic output of Wales or the City of London”.

The battle for parliamentary approval is, thus, now on.  The British Parliament is set to vote on the deal on the 11th December. Parliamentarians should read both texts together, argues Federal Trust Director Brendan Donnelly, so they can understand the full scope of the weakness and incoherence of Mrs May’s negotiating position, which makes a People’s Vote more likely.

But what happens if Commons vote down the deal, CER Director Charles Grant wonders? Three possibilities arise: it could lead to no deal – an option Work and Pensions Secretary Amber Rudd has ruled out-, the negotiation of a different deal, a general election, a second referendum – or MPs swallowing the package at the second attempt. For the time being, Labour said they would ask for an extension of Article 50, while foreign secretary Jeremy Hunt warned that the Government could fall if the Brexit deal failed. [...]

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26 November 2018

“Trading on WTO rules”: Have the Leavers revealed their utter lack of understanding of the real world yet again?

Support in Parliament for the Brexiteers’ call to “crash out of the EU and trade on WTO rules” seems to be ebbing away. But this just reflects fears about short term inconveniences (such as stockpiling medicines) rather than a proper appreciation of the huge, and continuing, risks to the UK’s foreign trade. Commentators have failed to test the full implications of the Leavers’ proposals against the complex reality that would face the UK.

Overall, it is swiftly becoming apparent that the Leavers’ claims that favourable free trade deals would be concluded rapidly are being shown up to be – at the least – an illusion. But British business must recognise that these problems will surely surface eventually in our non-EU trade even if an “ambitious” deal is done with the EU.

There are at least four components that should concern Parliament greatly:

  • The likelihood that the WTO’s enforcement mechanisms will collapse by the end of 2019
  • The rising probability that WTO members will not agree by consensus our new “tariff rate quotas” (TRQs) as Russia has already objected.
  • The implications of the Most Favoured Nation (MFN) rule: what is the point of leaving the EU?
  • The vast public procurement market is subject to separate rules that we must apply afresh.

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14 November 2018

Future Relationship Declaration: disaster for the City of London

The Political Declaration on the Future Relationship is particularly vague on financial services – but is likely to be devastating for the City of London over time. It emphasises the EU retains its ability to take decisions in its own interests – respecting its “decision-making autonomy”. This is code for the UK being a pure “rule taker” so this is just existing bog-standard equivalence. Moreover, the key phrase in the “Canada” free trade deal is approximately repeated “without prejudice to the Parties ability to adopt or maintain any measure where necessary for prudential reasons”. This phraseology is the route to effectively cutting financial services out of free trade deals.

It is difficult to imagine a worse outcome for the City of London. Professional and financial services are the nation’s largest single export earner – and source of 11% of the UK’s tax revenues. Yet the vital financial services sub-sector is accorded about the same space in the Declaration as the fishing industry. However, the fishing industry employs 12,000 fishermen versus 1,100,000 employees in the financial services industries. We are a net importer of £1.4 billion of fish but a net exporter of £51 billion of financial services.

11 November 2018

100 Years on – the End of Part One of the Thirty Years War

Today, Europe commemorates the end of the First World War with the signing of the Armistice in the woods of Compiegne. But the flawed peace Treaty of Versailles the following year did not end the war – tragically, it merely set the stage for Part Two to start in 1939. Winston Churchill called this whole period the Thirty Years War so in 1946 he determined to launch a genuine reconciliation throughout Europe. The following year, he founded the European Movement – both in the UK and across the whole of Europe - for the purpose of creating a mass movement for a `just peace’ – with the Charter of Human Rights at its centre. That movement flowered into what we now call the European Union and, last year, we celebrated 60 years of peace amongst its members.

Full article

2 November 2018

Boosting the international role of the euro

Amidst the din of Brexit, the UK may lose sight of a potentially historic shift in one of the major bulwarks of United States’ soft power – the function of the US dollar as the heart of global finance. The EU is being forced to consider a real challenge to the functions of the dollar due to the vigour of President Trump’s use of the dollar `weapon’ – against both Iran and Russia – ignoring the wishes of the EU. The rights and wrongs of the policies are a separate topic, but what matters is that the EU has decided to try and do something about it. [...]

Clearly, some pieces are still missing in the “international role” jigsaw. An effective capital markets union may even be the vital piece as the euro lags way behind the dollar in the `store of value’ function. But Europe suffers from a basic structural difficulty in matching the capital markets of the US.  Mortgage–related bonds are nearly 50% of US GDP – representing 23% of the total US bond market and about 2/3 the size of the US Treasury market. Foreign central banks are now starting to rebuild their holdings of US mortgage-backed bonds. But they cannot do that in Europe as the vast majority of mortgages are held on-balance sheet by the banks.

Moreover, the most basic `parking place’ for foreigners’ dollar holdings is the Treasury bill market – at €2.2 trillion in size. This dwarfs any of the European equivalents as there is not a single European bill market of that type. This lacuna may be the biggest single problem for the euro in any quest to boost its international role – and its resolution would also help the deepening of banking union by providing a safe asset for banks. This author has proposed a Temporary Eurobill Fund (TEF) to fill the gap and it could readily challenge the size of the US Treasury bill market. Providing such a competitive store of value could be the single quickest way of enabling growth in the international role of the euro.

Link to the updated 30 FAQs on a TEF 

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18 October 2018

October European Council: the clash of the ‘big shots’ over Brexit - 145th Brussels for Breakfast – CPD Notes

Highlights from the “Brussels for Breakfast” meeting

The Brexit frenzy is building up but we kept our Trappist vow of silence on the politics of the subject and only touched on the practical implications --- of which there are many and profound issues. But first – who will be the next Commission President? A string of possibles declared they were not running but the real question is whether the Spitzenkandidat system will survive. Despite the superficial attraction of an indirect election by the people, it now looks as though it would deliver a permanent EPP President. But the EPP has the same number of Heads of State as ALDE – 8 out of 27. Whatever the HOSGs do, the end-point is a vote in the European Parliament to approve the candidate who must obtain an absolute majority of the expected 705 members. [...]

Key items of the rest of the month

Time is running out for an agreement on Brexit terms before the official departure date on 29 March next year. Deep disagreements between both sides over the (seemingly) unsurmountable stumbling rock of avoiding a hard border on the island of Ireland dashed hopes over the weekend of securing some progress before the European Council this Wednesday that could pave the way for a final deal on an extraordinary 17/18 November meeting. Top EU Brexit official Barnier’s proposal to refine its backstop solution that would see minimised checks on goods travelling between Northern Ireland and the Republic of Ireland was flatly rejected by Brexit Secretary Dominic Raab on Sunday. [...]

October European Council was thus poised to be the ‘moment of truth’ to agree on a Brexit deal, as Council President Donald Tusk warned, while cautioning that parts of May’s Chequers agreement “would not work” for the EU.  But Tusk was gloomy after listening to the chief EU Brexit broker’s update about Britain’s prospects of coming out of the Council with an agreement. Michel Barnier briefed the EU27 about the ongoing talks and many member states came out thinking that a deal was ‘achievable’ – as Theresa May put it at her arrival at the Council meeting – in November, while others reflected that the issue might drag on until December.  Anyways, “much more time is needed,” said Barnier, for an orderly Brexit, and talks will continue over the next weeks. The Frenchman also said to be open to a one-year extension of the Brexit transition if Theresa May accepts a “two-tier” backstop to avoid a hard border in Northern Ireland. [...]

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16 September 2018

Churchill – a `founding father’ of the European Union – would vote to Remain


Graham Bishop – Vice Chairman, European Movement (UK)

Link to full, 19-page analysis


Winston Churchill has often been voted the most important/influential Briton ever. I was surprised to read claims that Churchill was a Eurosceptic, so I read through all his four great “European” speeches from 1946 to 1949. They were carefully prepared as a historic record of his views, delivered at grand events amidst great ceremony and designed to achieve impact: they did.

Having read the speeches and considered the way the world was changing around him, I have no doubt that Churchill would have voted to Remain In the European Union (EU) – but of course no-one can ever know now. However, he was one of its `founding fathers’ and its values represent the fulfilment of his life’s work. Moreover, he approved of our 1961 application to join a Community where the first sentence of its founding Treaty made clear that its over-arching political aim - “ever-closer union amongst the peoples of Europe” - went far wider than merely a “Common Market”.

In the darkest days of 1940, Churchill had proposed a complete union between Great Britain and his beloved France. After the terrible consequences of what he called the Thirty Years War (1914-45), what should Britain and France do to tackle the “German Problem”? His answer was clear – initially, he wanted France to take the lead in helping Germany to re-join the European family.

During the period spanned by these speeches, the Soviet Union – the direct predecessor state of Putin’s Russia – had just acquired the atomic bomb, and occupied by force the eastern part of Europe – eerily echoed by Putin’s current machinations.

As he watched the Empire unravel – epitomised by Indian independence in 1947 – his views evolved as events unfolded around him. How else would a statesman of his experience react to a new situation? He had experienced the vicissitudes of the highest offices in the land for a total of more than a third of a century – in contrast to the handful of years of our current/recent leadership.

That same year, the breadth of his vision was laid out at The Hague: “Mutual aid in the economic field and joint military defence must inevitably be accompanied step by step with a parallel policy of closer political unity.”  In the last of these speeches, he made his views on the UK’s role crystal clear: “Britain is an integral part of Europe, and we mean to play our part in the revival of her prosperity and greatness.”

Also in 1947, he founded the European Movement, tasking it “To create this body of public interest and public support is one of the main tasks of the European Movement… It must now build up a vast body of popular support…” In the centre of the task was the Charter of Human Rights – agreed in 1951.

His founding values of the importance of law and justice for citizens – in a peaceful world – were recognised in the award of the 2012 Nobel Peace Prize to the European Union: "for over six decades [having] contributed to the advancement of peace and reconciliation, democracy and human rights in Europe". Churchill wanted “Europe” to be a project of the people, not a project of the `governments’ – inherently the “elite”.

Some have taken a few comments scattered across the decades of his work and tried to argue that Churchill would have been a Eurosceptic. Reading these set-piece speeches – dramatic and graphic as they are – quickly gave the lie to such suggestions. Former Prime Minister Edward Heath delivered the most powerful rebuttal in 1996 “I knew Winston Churchill, I worked with him, I stayed with him at his home at Chartwell and I have read his speeches many times. I can assure you that Winston Churchill was no Euro-sceptic.”

Anyone who feels that the clearly-stated views of the most influential-ever Briton are worth considering should read his speeches and consider the changing circumstances in which they were delivered. I did – and now have no doubt that Churchill would have urged us to stretch every sinew to make sure the British public have their voice heard on the outcome of Brexit talks through a democratic People’s Vote.



Full, 20 page analysis by Graham Bishop link

Speeches: 1946 Zurich text (audio); 1947 Albert Hall1948 The Hague text (Pathé news clip) (70thanniversary celebrations); 1949 Kingsway Hall

Edward Heath rebuttal;   rebutting a fabricated quotation

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Clients' article here

12 September 2018

Sleepwalking towards crash-Brexit – 144th Brussels for Breakfast – CPD Notes

Highlights from the “Brussels for Breakfast” meeting

The new term opened with a burst of speculation about the top jobs in the EU that are now up for grabs during the next year. Nominations for the new Chair of the SSM have now closed – with only two declared candidates. If Sharon Donnery – Deputy Governor of the Central Bank of Ireland - is appointed, how will that affect the chances of her Governor – Philip Lane – being appointed to the ECB President.

Chancellor Merkel seems to have decided that Germany should have a run for Commission President rather than ECB President. Does that open the door to one of the excellent French candidates for the ECB? But is her support for MEP Weber as the EPP’s Spitzenkandidat a ruse to allow the European Council to install its own choice, rather than accepting the European Parliament’s decision? However, the successful candidate must obtain the support of an absolute majority of MEPs --- more in the months ahead! [...]

Key items from the rest of the month:

After a summer of utter despair for UK PM Theresa May, who saw some of her own Ministers turn against the proposal agreed at Chequers and was forced to publish plans on what a no-deal Brexit would mean for every British industry to assuage Tory Brexiteers, autumn offers no brighter perspectives for talks on Britain’s disconnection from the EU. With the far right on the rise, migration to the EU an unresolved issue causing vociferous divisions among member states and mounting pressure to step up efforts to complete Banking Union and agree on the next EU budget before the Parliament elections in May next year, Brussels has ‘bigger fish to fry’ and isn’t likely to devote much time or grant important concessions to a country that seems to be shooting itself in the foot as it waves goodbye to the largest political and economic bloc in the world. [...]

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3 September 2018

Money Laundering: a Sixth Directive after 27 years of failure?

The EU enacted its first legislation against money laundering 27 years ago in 1991 in response to fears that criminal activity could jeopardise the whole financial system. As a result, many ordinary citizens probably feel they have walk about with a “recent utility bill” in their pocket to undertake quite mundane financial transactions.

For all this huge effort by ordinary citizens, the UK’s Home Office reported that only 1,435 people were convicted of money laundering in England and Wales in 2016 – just twice the number of murders committed. In the most recently published annual data only “more than 450 suspicious bank accounts” were closed and a paltry £7 million in suspected criminal funds were frozen. Yet the Home Office estimates that annual money laundering in the UK exceeds £90 billion – 5% of GDP. [...]

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3 September 2018

Save the date for next Brussels for Breakfast! - CSFI and Graham Bishop invite you to the next debate on 11 September

An invitation (as provocative as usual) from Andrew Hilton of CSFI

It’s the rentrée… when our lords and masters in Brussels tear themselves away from the beaches and decide what rules and regulations they are going to hit us with in their continuing campaign to cut the City of London down to size. Or, if you believe in the benevolence of European bureaucracy, to make finance work better for all of us.

Whatever… As is our new policy, we will eschew the politics of Brexit – but we obviously cannot avoid the repercussions of the Chequers agreement, and indeed the prospects for a bespoke deal on financial services. Our guide (as usual) is Graham Bishop, and he has highlighted (as at mid-August):

  • the UK’s push for “enhanced equivalence” when it comes to financial services regulation;
  • ESMA’s warning that companies should prepare for a ‘hard’ Brexit;
  • the continuity issue for derivative and insurance contracts; and 
  • the growing appreciation that Brexit will hit Continental firms, as well as the City.

Beyond Brexit, the Brussels agenda for the Autumn appears set to focus on:

  • money laundering;
  • a replacement for LIBOR;
  • more work on EU NPLs;
  • an EU-wide personal pension product;
  • new KID guidance for PRIIPS; and
  • auditor concentration.

Backing up Graham for the first meeting of the new term will be:

  • Angus Canvin, UK Finance’s Director of International Affairs, with responsibility for its international and EU engagement. Prior to that, he was head of Brexit and senior adviser at the Investment Association, and before that spent three years at Goldman as an executive director for government affairs after more than a decade as a policy maker at the Bank of England, European Parliament and FSA.
  • Mark Foster, a partner at Kreab in Brussels, where he is also Vice-chair of the American Chamber of Commerce’s Financial Services and Company Law Committee. Prior to joining Kreab, he was a senior Parliamentary Officer at UKREP and, before that, a Parliamentary Assistant at the EP.

This is an invitation for you to attend the debate on September 11h at 8.30 am - by emailing or signing up (below).

Sign up here

See full invitation for Friends here

13 July 2018

White Paper on new UK “partnership” with EU

The UK White Paper shows few signs of recognising the reality that it is proposing a “partnership” with an entity that is 6-8 times the size of the UK. This is not a debate between two equals. EU27’s population is 447.4 million so 7.7 times the UK’s 66.5 million. In terms of GDP, the comparison is not quite so unequal: EU27 is €13,519 billion versus the UK’s €2,417 so the EU27 is only 5.6 times the size of the UK economy.

The EU27 has set out its negotiation position in some detail in several sets of Guidelines for its chief negotiator. The latest Guideline was specified on 23 March 2018 after unanimous agreement by the 27 Heads of Government. These can be changed – but only with difficulty. Then there is the need for the assent of the European Parliament to any final deal.

However, the Guidelines were set in response to the EU27’s understanding of the UK’s “red lines” at the time and specifically included the possibility of evolution if the UK evolved. But they explicitly rule out any “cherry picking” and also re-iterated “that the Union will preserve its autonomy as regards its decision-making…” These are just two – amongst many – tests to apply to the UK White Paper to judge the likelihood of its acceptance as a start for negotiations.

Reading through the `financial services sections of the White Paper, one is struck by the complete absence of any detail on how to amend EU legislation to achieve its pious goals. The detailed agreements between EU Members are contained in perhaps 100 Directives and Regulations, most with secondary legislation and then Regulatory and Implementing Technical Standards. In total, they run to many tens of thousands of pages of incredibly detailed prescriptions built up since the Great Financial Crash. [...]

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10 July 2018

Brussels and Chequers: a lacklustre performance  

142nd Brussels for Breakfast – CPD Notes

Graham Bishop/Paula Martín Camargo

Highlights from the “Brussels for Breakfast” meeting

We could not avoid the Brexit implications flowing from the Chequers Cabinet meeting but first we reviewed the build-up to the June EU Council meeting. The starting point was the Meseburg Declaration – was the Franco-German motor of the EU springing back to life? The short answer was `not really’. Though President Macron had put forward many ideas, Chancellor Merkel felt too weakened by the election to respond fully. With pushback from the northern EU states grouped in the “Hanseatic League”, the Summit fell well short of the hopes built up in the past few months but some items were agreed by the Euro Summit: agreement to finalise the Banking Union package by year-end, `start works on a roadmap towards’ EDIS and the ESM to provide the backstop to the SRF. [...]

Key issues of the rest of the month included:

Theresa May has managed to get her cabinet on board for the ‘softest of soft Brexits’ – as an economist and prominent Brexiteer denounced in mid-June, after May appeared to see off a Tory rebellion - after the meeting of ministers at Chequers, the UK Prime Minister’s country retreat. But the compromise reached claimed its first victims and threw May’s team into disarray with the resignations of top UK’s Brexit Secretary David Davis, his deputy at the Department for Exiting the EU, and Foreign Secretary Boris Johnson - Davis being replaced by fervent Brexiteer Dominic Raab and Johnson by Remainer Jeremy Hunt.

The British PM had played hardball at Chequers, challenging conflicting members of the toughest Eurosceptic wing within her government to back her ‘soft Brexit’ approach. She ultimately reached an agreement on a so-called ‘free trade area’ that would keep the UK as close to the EU as possible. But will the terms agreed fall within Brussels’ red lines? [...]

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9 July 2018

Article for Financial World: 

Italian Banks… More improvements ahead

[...]Overall, Italian banks are substantially more profitable than the EU average but slightly weaker capitalised – though still a long way above minimum levels. The key problem is the level of NPLs – but the Italian bank’s provisions are significantly higher than average. Italy is an €1,800 billion GDP economy so the uncovered NPLs – at €140 billion - are 8% of annual output.

In the event of a problem that posed a risk to the eurozone’s overall financial stability, the European Stability Mechanism (ESM) could provide Italy with loans for “indirect bank recapitalisation”, such as were provided to Spain. Only €41 billion of the €100 billion programme was actually drawn and Spain exited the programme in about a year. So – one way or another - the eurozone has the tools available to deal with Italy’s problems in the last resort. But is the `last resort’ likely to happen?

The EU is not sitting on its hands and simply waiting to see if disaster strikes. It has a multi-pronged strategy that includes pressure to write-off/sell existing NPLs, accounting rules to discourage the build-up of new NPLs, new laws to improve insolvency procedures to recover collateral more quickly and aspects of the Capital Market Union programme to encourage the emergence of an active secondary market in NPLs. [...]

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7 June 2018

June’s European Council: crunch time for a Brexit deal and a decisive push towards banking union  

142nd Brussels for Breakfast – CPD Notes

Graham Bishop/Paula Martín Camargo

Banking union has to remain top of the agenda as the Commission is pushing very hard to get it “completed” before the legislative window shut after the Parliament’s last Plenary on April 19th next years – ahead of its elections now agreed for 23-26 May. ECOFIN finally agreed its position on the banking package of November 2016. But the final piece of the jigsaw is widely thought to be EDIS and the prospect of Germany agreeing to that seems to have receded as the Italian crisis grew.

The LCR effectively requires banks to hold government securities equal to an average 100% of their CET1 capital. The doom loop is alive and well! But CMU also needs a risk-free yield curve to price fixed income securities and the Commission published their proposal for SBBS to kill both birds with one stone. However, unanimous opposition from the EU’s government debt managers – as well as the new German finance minister – does not augur well. Perhaps the time is now “ripe” for my plan for a Temporary Eurobill Fund.[...]

Uncertainty over the loss of the “passporting rights” for financial services based in the UK after withdrawal has made the most important financial firms in London boost their contingency plans for an adverse scenario and a race to reassure their position in Europe by opening new offices in financial hubs within the EU – given the time pressure and the flood of requests from UK-based companies, the European Central Bank hinted it will give banks more flexibility to meet the criteria required to build up their units in the EU.

In its desperate efforts to secure access to trade in services across the EU’s single market, the UK Treasury might end up giving away power over the rule book, the Bank of England decried, a fear that has led to a clash between both institutions with the BoE opposing any compromise that would leave it as “a rule taker”.  Open Europe think tank praised Britain’s central bank for resisting complete adherence to EU regulation, and put forward a proposal to abide by European rules in goods but be able to diverge in financial regulation, a compromise authors think European officials might be willing to accept. [...]

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The battle over customs union: the tipping point that may decide the fate of the Brexit war

 141st Brussels for Breakfast – CPD Notes

Graham Bishop/Paula Martín Camargo

323 days to go…always the starting point of the Breakfasts nowadays but the understandable interest in Brexit must not divert attention from the continuing flow of financial services events around the EU. Anything that influences the chances of a good outcome for “the City” must be considered but the minutiae of the Irish border issue can become overwhelming! However, a recurrent theme is the sense of running out of time… not just for Brexit but for the EU’s legislative process in the life of the 8th European Parliament and the current European Commission.

The window for proposing significant new legislation is now virtually closed – realistically until the new Commission takes office in October 2019. However, the Commission is preparing 30-40 legislative adjustments to deal with the risk of a no-deal, hard Brexit across all sectors. [...]

The complexity of the issue of the land border in Ireland – which has put at risk the Brexit talks, -  made Theresa May put forward a handful of options to avoid a hard border along Northern Ireland’s lines, among which a hybrid customs plan with the EU is the most favoured by the Prime Minister herself.

May’s so-called  “new customs partnership” would mirror EU customs rules and collect tariffs on behalf of Brussels on goods ending up in the EU through a very complex method that has been branded “magical thinking” by European officials. But May’s inner Brexit cabinet committee narrowly rejected this model– Eurosceptic ministers deemed it “unworkable” -, which forced the Government to postpone the decision.

This insoluble conundrum might lead Theresa May’s minority Government to collapse: a letter signed by as many as 60 Tory Brexiteers has warned the PM that accepting a customs partnership with the EU would mean she can’t deliver a clean break from the EU, and therefore they may withdraw their support to her Brexit Bill.

May’s options could be boiled down to a choice between “bad and worse,”Bloomberg co-founder Michael R. Bloomberg said, recognising that Theresa May knows that Brexit talks have “gone wrong” and remaining in the customs union after Brexit, of creating a new tailored customs relationship, is the least worst option for Britain after repealing full EU membership. [...]

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9 May 2018

Europe Day 2018

Today – Europe Day 2018 – Graham Bishop has published an update of his “Temporary Eurobill Fund (TEF): 30 FAQs”. President Macron and Chancellor Merkel are searching for “compromise” ideas to put to the European Council to maintain the momentum of deepening the Economic and Monetary Union. The Temporary Eurobill Fund offers a simple and quick solution.

This “30 FAQs” draws together all the thinking and comments from around the EU since the idea began with a working group of the European League for Economic Co-operation (ELEC) in late 2011. It is specifically published on Europe Day to provide a modest – at least initially - concrete achievement to match Schuman’s famous call “Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity."

The TEF’s Objectives are simple:

  • Re-enforce financial stability.
  • Provide:  a “safe asset” for banks to reduce the `doom loop’ with their government; a “Risk Free Rate” yield curve to support CMU; a simple savings vehicle for citizens.
  • Build trust amongst states, institutions and citizens to assist a European demos.

The Principles for progress in deepening EMU are clear and include:

  • No mutualisation of debts.
  • Strengthen the post-crisis economic governance system.
  • A proper role for market discipline.
  • Financial solidarity with states that respect the rules yet lose market access.

Read the full proposal here

9 May 2018

Temporary Eurobill Fund (TEF): 30 FAQs

The Temporary Eurobill Fund offers a modest, technical but concrete step that can be expanded progressively into a financial, economic and political structure if circumstances develop propitiously. This author has developed the TEF plan over several years – now comprehensively updated. (All FAQs are listed on page 2 - click on a Question that interests you to jump straight to it).

Follow on Twitter: #TemporaryEurobillFund

Version 1.1

1.What is the TEF Plan?

  • The Objectives:
  • Re-enforce financial stability.
  • Provide:  a “safe asset” for banks to reduce the `doom loop’ with their government; a “Risk Free Rate” yield curve to support CMU; a simple savings vehicle for citizens.
  • Build trust amongst states, institutions and citizens to assist a European demos.
  • The Principles:for progress in deepening EMU are clear and include:
  • No mutualisation of debts.
  • Strengthen the post-crisis economic governance system.
  • A proper role for market discipline.
  • Financial solidarity with states that respect the rules yet lose market access.
  • The Mechanics: TEF is a simple “plainest of plain vanilla” plan:
  • For a common institution created by participating Eurozone states to purchase the under-two year debt issuance of those states.
  • The institution would finance such purchases by issuing its own bills - matching its assets in overall volume and maturity. “Back to Back” market finance for absolute simplicity and transparency.
  • The TEF is a replacement of existing debt, rather than a mechanism to increase debt.
  • Why two years? Nothing magical… (i) Seems long enough to give a state in difficulties time to realise and begin to change before markets cut off access (ii) enough issuance to become a major market sector with undoubted liquidity.
  • The TEF will charge all borrowers an identical interest rate for a given maturity.
  • The TEF’s legal structure would replicate the tried and tested ESM Treaty. It would not require a change to EU Treaties so could be set up very quickly.
  • Governance is inter-governmental – not Communautaire at this stage.
  • If it did not prove effective, then it would cease to issue new bills and most of its bills would have run off within a year, and completely within two years.

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7 May 2018

A bespoke services deal with EU 27: fantasy or reality?

Anyone who thinks that it will be easy for the EU to grant the UK a bespoke deal on financial services needs to understand what the EU27 thinks is at stake. After all, the Great Financial Crash had its European headquarters in the City of London and has resulted in a re-structuring of the EU’s economic governance rules to give a hugely enhanced role for Eurozone bodies such as the Eurogroup. The crisis forced the whole thrust of financial regulation within the EU to move on from “mutual recognition” – pioneered by UK Commissioner Lord Cockfield in the 1990s – to a single Eurozone regulator such as the Single Supervisory Mechanism for the banking system.

However, the UK Government has now revived the concept of mutual recognition especially for financial services. As Brexit Secretary Davis put it: each side would "trust each other’s regulations and the institutions that enforce them.” This may work on the day of Brexit but the Prime Minister raised the issue pointedly in her Florence speech – what happens when we want to diverge? The EU believes it has answered this question explicitly in its published negotiating guidelines “The European Council further re-iterates that the Union will preserve its autonomy as regards decision –making” – meaning the EU27 will decide for itself what it wants to do. This is hardly surprising for a group that is about seven times the size of the UK. [...]

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10 April 2018

Less than a year for an increasingly unlikely Brexit - 140th Brussels for Breakfast – CPD Notes

Now only 353 days until we go over the “cliff” – so the 150th B4B may mark the end of the UK’s EU membership! A lengthy Brexit discussion was inevitable and we focussed on the shape of the deal on the future of EU-UK trade relations, rather than the Withdrawal Agreement or Transition Deal. The seven pages of Guidelines were agreed by the EU27 Heads of Government as part of the Article 50 Council meeting but seem to have had little coverage in the UK – despite their huge significance.

The European Council has now agreed the dates for the next European Parliament elections in May 2019 so the final plenary session of the Parliament will be early April 2019. Any legislative proposals not agreed at that stage are at risk of having to re-start – especially if the new Commissioner on financial services decides to follow precedent and initiate a lengthy review. So the practical deadline for any new legislative proposals is close - May 2018.

Karel Lanoo at CEPS has published a report on the dangers of forcibly moving euro derivatives clearing out of London and splitting regulation away from the single oversight of the Bank of England. He is probably right that the existing proposals would fragment control and raise risks. But could another answer be to centralise it under say ESMA?

Progress on tackling NPLs generated much discussion. The Commission has proposed a four-pronged action package to deal with the stocks of existing NPLs. But there is also pressure to prevent new NPLs appearing – IFRS9 will be a disincentive but the ECB – in the shape of the SSM – has also proposed regulatory measures and the EBA is advising the Commission on the use of prudential backstops.

The issue of benchmarks re-surfaced as the ECB has launched a second consultation on replacing Euribor and ISDA is urging market players to get engaged.  The FCA will cease to compel/persuade banks to submit LIBOR observations after 2021 and it seems that floating rate bonds may well become “fixed rate at the last-published fix” if no solution is found.

We had an enlightening discussion on the recent work of the International Forum of Independent Audit Regulators (IFIAR) – the `IOSCO of audit’. After all the post crisis work on strengthening audit, IFIAR has reported lapses in 40% of the 918 risky/complex situations audits tested last year. Disturbingly, the most common lapse was insufficient challenge of the reasonableness of assumptions. The second was insufficient challenge of management data/reports. What then is the point of an audit? [...]

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29 March 2018

Brexit in a Year? [Probably] not

In 365 days, Britain goes over the cliff edge of departing from the EU – with a 'transition' to unknown arrangements. If regrets set in afterwards, it will be too late as we will have to re-apply under Article 49 - just as any other applicant. When those `unknown arrangements’ become somewhat clearer during negotiations on EU27's seven-page negotiating mandate this summer, “the people” may well look at the implications and decide for themselves whether they want to proceed over the cliff. [...]

  1. State of play of public opinion on Europe 
  2. What do “the people” want? 
  3. Are most of “the people” going to be disappointed by the result of the negotiations? 
  4.  Are “the people” satisfied with the Government’s handling of the negotiations? 
  5.  Are “the people” optimistic about the likely outcome of their vote? 
  6.  Are “the people” focussed on Brexit at this stage? 
  7.  Are “the people” looking for a vote on the deal? 
  8.  Can we change our mind? 
  9.  What do the “political tribes” think?
  10.  How should Europe read a 52:48 decision to remain?
  11.  What would a “1975 repeat” 67:33 decision mean? 

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20 March 2018

“The regulatory treatment of sovereign exposures” Comments by Graham Bishop on BCBS Discussion Paper

This short paper relates solely to the countries that use the euro as their “domestic currency”.  By definition, they are in a fundamentally different relationship with the currency in use in their country compared with all other members of say G10 or OECD. The sovereign states of the Eurozone (EZ) issue their bonds in a currency (i) that they cannot control and (ii) that no single government has the power to instruct the Central Bank to lend it currency to repay its bonds.

This is a constitutionally-entrenched difference with all other major countries where the legislator - with public support – has the power to change legislation and require the central bank to provide monetary finance that can be used to redeem the sovereign state’s bond obligations on schedule.

The discussion paper does not appear to recognize this fundamental - and critical – difference in the nature of the obligations of EZ sovereigns and all others.

This difference has not arisen by accident – it was an integral part of the design of monetary union reflecting the economic history of the participants and the preceding decade or more of very high inflation. In a parallel – and not particularly connected – strand of activity, the 1974 Basel Concordat was being converted into the 1988 Basel I Capital Requirements by the central bankers of the world. [...]

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13 March 2018

Brexit ‘hard facts’ might become insurmountable facts in Ireland - 139th Brussels for Breakfast – CPD Notes

Highlights from the “Brussels for Breakfast” meeting

Now only 381 days until we go over the “cliff” – so the 150th B4B may mark the end of the UK’s EU membership! A lengthy Brexit discussion was inevitable.

Prime Minister May delivered her set-piece policy speech at the Mansion House that had great significance for financial services. On the one hand, she accepted there would be no passporting but on the other hand, called for “mutual recognition” for goods. We had a lengthy discussion on mutual recognition – how it gained prominence in 1992 and the full meaning of Single Market `directives’ being enacted into the laws of each state so that the Commission could launch infringement proceedings if necessary. Nowadays, the supervisory authorities – the ESAs – might take action but the backstop was always actions at the ECJ.

However, this system failed amidst the huge stresses of the GFC and the thrust now is to enact directly applicable Regulations: CRR, MiFIR etc. Coupled with a single supervisor e.g. SSM and a single rule book, financial regulation is well on the way to moving entirely to the European level. Why would EU27 want to go back to the failed system of the 1990s? […]

Key items of the rest of the month:

Theresa May gathered her ‘war cabinet’ at Chequers, the PM’s country house, to try to agree on a single voicefor the Government’s approach to a future trade deal with the European Union. But the model understood to be May’s preferred, the ‘three basket approach’ – under which Britain would in time diverge from some rules while conserving others that would also remain subject to change in future, - had been ruled out from Brussels overnight, as it would breach the bloc’s pledge to forestallcherry-picking. In spite of this categorical negative, the German Chancellor Angela Merkel threw a lifeline to May, suggesting that a bespoke trade deal with the UK didn’t necessarily mean that it was choosing the elements of the single market that suits Britain the most.

The reported agreement among the members of the cabinet, a “managed divergence” based on May’s initial approach, was almost immediately dismissed by Council President Donald Tusk as “pure illusion”, while Irish Taoiseach Leo Varadkar called urgently for a detailed position, saying that the negotiations are at a point “well beyond […] aspirations and principle,” and  top EU negotiator Michel Barnier rebuffed May’s aspiration to be able to reject EU rules during transition.

Barnier outlined the EU’s stance towards Northern Ireland during his presentation of the draft Article 50 Withdrawal Agreement, that seeks to speed up talks: to avoid a hard border in the island that threatens the Good Friday Agreement, "Northern Ireland has to be covered by the Union customs code," he reminded – a plan which had previously triggered a row among British and EU officials and had made Scotland call to be kept as well within the single market. […]


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8 March 2018

Commission to propose SBBS framework: But Temporary Eurobill Fund is very different – with wider benefits

Politico reported on 14th March that Vice President Dombrovskis plans to propose a legislative framework for Sovereign Bond Backed Securities (SBBS) in May -  fulfilling the commitment made in the May 2017 Reflection Paper. Politico further reports that the EU28 debt managers opposed SBBS at a March meeting – following their unanimous opposition expressed in a June 2017  letter that Politico has now published.

In my paper of 2 February “European Systemic Risk Board (ESRB) on Sovereign Bond Backed Securities (SBBS)” I commented on the ESRB paper and made the point that my plan for a Temporary Eurobill Fund (TEF) is designed to be not just a “safe asset”  for banks but achieve radically different objectives – with much wider benefits  - than the SBBS plan. The luke-warm official support for SBBS was underlined again in a recent Vox paper by Philip Lane – Chairman of the ESRB task force. As he put it “‘ivory tower’ ideas do not always work in practice” and his paper underlines the difficulties. On such a sensitive matter, it seems unlikely that Finance Ministers will overrule the powerful and unanimous advice of their own debt managers about the risks of damaging the financial `blood supply’ of all governments.

I have recently published a consolidation and update of my plan: Temporary Eurobill Fund (TEF): 30 FAQs to illustrate the radically different targets of the TEF that go far beyond the limited objectives of SBBS. The four specific objections to SBBS by the debt managers are analysed below, as well as their comments on “safe assets”. The table below also provides a simple tick-box comparison for other features. [...]

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6 March 2018

Temporary Eurobill Fund (TEF): 30 FAQs

The euro area now has an historic opportunity to cement its stability:  the run of elections in the past couple of years has opened a substantial political `window’ that happily coincides with the sun shining on the European economy. The Temporary Eurobill Fund offers a modest, technical but concrete step that can be expanded progressively into a financial, economic and political structure if circumstances develop propitiously. If they do not, then it can easily be wound down again ad extinguished within two years.

This author has developed the TEF plan over several years – now  comprehensively updated in 30 FAQs


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22 February 2018

Building the Brexit castle on a foundation of quicksand: 138th Brussels for Breakfast – CPD Notes

The Brexit shambles in Britain contrast starkly with the neat negotiation strategy in Europe. The EU would welcome back - with relief - UK's membership, but it is moving fast towards new horizons of reform and it has signalled it won't wait for anyone that isn't on board and fully committed. 

Highlights from the “Brussels for Breakfast” meeting

We are now down to 401 days until we go over the Brexit cliff and the UK feels no nearer to laying out the details of what it wants. Perhaps this week’s Cabinet away day will finally reach conclusions but speeches from the Foreign Secretary and DexEU minister provided little clarity – especially after 62 MPs wrote to the Prime Minister setting out their own red lines.

For the financial services industry, the deadline for action is drawing perilously near. But what action? The volume of calls from across the Channel to get on with applications for banking licences grows louder with comments that only a handful of licence have been issued. But it seems that many are under discussion and what about firms that simply want to extend their existing activities? Nonetheless, it was accepted that there would be capacity constraints among EU regulators if there is a last minute rush. [...]

Key items of the rest of the month:

The foundations for the second phase of the Brexit talks have proven not to be very solid. Inspired by UK’s Brexit Secretary David Davis’ motto that “nothing is agreed until everything is agreed”, the top EU Article 50 negotiator Michel Barnier warned British officials against their backtracking in “substantial” agreed principles and flagged the risk for the UK of crashing out of the EU without a transition period in case that the deals achieved weren’t rapidly transposed into law – a major concern for MEPs. The UK Prime Minister has found battle lines in all fronts, with MPs at home calling for more reforms to her Withdrawal Bill. Theresa May faces also distrust among business, with more than two-thirds of companies not confident in Government's ability to negotiate with the EU.  

Under the negotiating directives for transitional arrangements adopted in January’s Council meeting and published by the Commission, Britain will be bound by EU laws but have no say over them, a friction point that May’s administration has tried to fight and that could threaten transition talks. The EU’s stance in this regard might have activated the ‘hard Brexit’ option: senior officials told POLITICO that the British PM plans for an ‘immediate’ break with the EU in trade or financial services after withdrawal, which has raised the EU27’s fears of a ‘bonfire of regulations’ that could undermine the bloc’s economy after divorce and resulted in the publishing of a strategy paper that threatens with sanctions in case of a regulatory ‘race to the bottom.’ Dispute settlement remains a key sticking point for the future trade deal, a Commission’s internal document suggested: a feasible option could be ‘docking’ with the European Free Trade Association (EFTA) Court as a dispute resolution body, wrote POLITICO’s Georgina Wright. [...]

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2 February 2018

European Systemic Risk Board (ESRB) on Sovereign Bond Backed Securities (SBBS)

The ESRB has just published its long-awaited reports (Part I and Part II) on SBBS. They are exhaustive and thorough reports on an intellectually attractive idea that was generated in 2011 by the consequences of the Great Financial Crash. The plan is designed to create a new class of “safe assets” via an elegant securitisation of euro area government bonds. The SBBS would be held principally by banks as an alternative to direct holdings – especially of the banks’ domestic government bonds.

The reports analyse in great detail the motivation to create such securities and highlight the necessary condition of often-contentious regulatory change that would be required to make them economically viable. The reports also highlight the usual problem for the tranches of securitisations: who buys the risky, junior tranches?

Perhaps the real problem for SBBS in 2018 is that the concept was originally designed to mitigate a narrow – though important – problem. The arguments today for the much wider solutions offered by a Temporary Eurobill Fund (TEF) remain intact: a safe asset; direct contribution to financial stability; global scale issues of great liquidity; flexible and progressive market discipline to enhance economic governance; and last – but certainly not least politically – a genuine fusion of euro area citizens’ economic interests into a `European asset’ that can be a core savings instrument for all. [...]

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17 January 2018

“How to reconcile risk sharing and market discipline in the euro area”:  Some observations on the new Vox paper

In this fallow period for policy-making while Europe waits for a new German Government (and may yet have to wait even longer for a strong Italian Government), it is welcome that an illustrious group of Franco-German thinkers should publish a Vox paper[1] that outlines a complete, coherent strategy for the Eurozone. As the economic sun shines on Europe – at long last – this is indeed the time to fix the roof!

The authors set out three sound reasons for believing the binary choice between more risk sharing/better incentives is false. The authors specify six areas for reform and this blog reflects on three of them.

My observations link are from the perspective of a market participant who has published a plan for a Temporary Eurobill Fund.

10 January 2018

Graham Bishop elected Vice Chairman of the European Movement (UK)

We are delighted to announce that Graham Bishop was elected Vice Chairman of the European Movement (UK) in December, after being re-elected to serve a third term on the European Movement’s National Council. He was also re-elected recently to the Board of the Kangaroo Group.

9 January 2018

2018: the year of the make-or-break for the Brexit talks

The start of the New Year marked the entry into force of the EU's revamped rules for financial services, MiFID II, and re-set in motion a big headache for European regulators and firms: Brussels and London will have less than 10 months to ink a trade deal and the terms of their new relationship. [...]

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