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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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Any comments on my blogs? Contact me: Graham@grahambishop.com or 00447785323483

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17 September 2020

My highlights of the week

Commission President von der Leyen delivered her first State of the Union message – re-iterating her call for completion of banking union and capital markets union (listing some key legislative steps) and promoting the international role of the euro.

In recent months, the Green community has produced many sets of standards - and advice to corporates on how to apply them. Now, key bodies (CDP/GRI/CDSB/SASB/IIRC) have announced a shared vision of what is needed for progress towards comprehensive corporate reporting. Moreover, the ECB has just joined the Steering Committee of the Network for Greening the Financial System. It feels as though “sustainable investing” is really joining up the dots … with the EU leading the way.

Much more in our Gold weekly details

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10 September 2020

My highlights of the week

The “shock of the week” prize clearly goes to Boris Johnson for his unilateral decision to “overwrite” parts of the EU Withdrawal Treaty because – at his insistence – it was negotiated “at pace”. Much will be said and written about the implications of this breach of trust but – for financial services – the issue of trust in the UK’s equivalence regime will surface quickly. In the event of a crisis, can the EU rely on quiet UK promises to provide hugely expensive support to parts of the EU’s financial infrastructure located in the UK?

The appointment of MEP McGuinness as the new Commissioner for financial services may slow the rush to CMU as she seems to have no experience in the field. However, the ECB underlined the need for swift moves on CMU. The insurance industry and its supervisors are also grappling with the creation of a pandemic insurance system – at massive cost to “someone”!

Much more in our Gold weekly details


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3 September 2020

Welcome back from holidays... to our bumper newsletter

Europe was far more active over the summer than expected and I was also active with Zoom/YouTube… most recently with the European Liberal Forum (ELF) seminar “Completing the Banking Union” - elaborating on the comments I made in the 165th Brussels4Breakfast Zoom. I will also be moderating the “Trade in Services” session on September 11th in ELF’s Expert Forum on “Internal Market and Trade”. Former Commissioner Mario Monti will open the event with his thoughts on “Re-thinking the Single Market post-COVID-19” (Register here)

The next term will surely be historic as EU banks come to terms with the Covid loan losses and the reality of Brexit finally strikes!

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Graham speaking on Banking Union - 27 August

I commented on the banking system’s problems during the 165th Brussels 4 Breakfast and I will be participating in a Zoom webinar tomorrow at 09.30 Brussels time to elaborate on this.

The European Liberal Forum (ELF) is hosting - with Billy Kelleher MEP (ECON Shadow Rapporteur 2019 Report on Banking Union) as the opening speaker, and Diane Fromage (Assistant Professor of European Law at Maastricht University) will also participate.

The webinar

The Banking Union is an essential pillar of the EU’s Economic and Monetary Union. In recent times it has become clear that it is a strength of the entire European economic system, vital for mitigating the impact of negative contingencies of the economic cycle.

The conclusions of the European Council on the possibility for the Commission to receive empowerment “to borrow funds on behalf of the Union on the capital markets” are one more step into the direction of a more integrated European financial system. However, the Banking Union is still not completed and not as resilient and weather-proof as one would wish.

Recently, the European Liberal Forum published a Discussion Paper (including a substantial article by Graham Bishop) which addresses technical questions concerning the state of the art of the European Banking Union system, examining the various proposals to counter the crisis and the possible use of complex analysis from the world of artificial intelligence to prevent crisis at micro-level.

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165th Brussels4Breakfast (fifth Zoom edition!)

The Covid crisis mean that the EU was more active than normal over the summer. So we have just held our 165th Brussesl4Breakfast – the fifth in our Zoom format. Click on www.GrahamBishop.com

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My highlights of the week

EUCO may not enjoy their first physical meeting at the end of this week as EUCO President Michel said “a deal is essential” so it may be a long night. Nonetheless, the euro’s attractions continue to draw new applicants: Bulgaria and Croatia entered the two-year waiting room of ERMII though Bulgaria is being wracked with renewed corruption allegations. The Commission launched a guide to `best practices’ towards clients Covid difficulties – supported by banks and insurers. AFME reported the highest ever issuance of bonds – with a surge in ESG bonds – though supported by ECB purchases. The Commission suffered a severe blow from the ECJ in overturning the “Apple decision” but still found grounds to push its tax proposals forward. Wirecard: German regulators to be investigated.

Much more in our Gold weekly details

9 July 2020

My highlights of the week

Today is Election Day for Eurogroup President so we highlight the three candidates, and the European Parliamentary Research Service’s `brief’ about the role. But the first topic on the new President’s table will be the question of Europe’s “Hamiltonian moment” – or not! So the Fondation Robert Schuman has reminded us of the famous dinner with Jefferson in 1790 where US matters were settled ... and the European Commission reminded us with their Summer Forecast why the EU needs to settle EU matters in 2020.

Europe’s payments industry may be at a crossroads as a group of banks launch the European Payment Initiative (EPI) while SUERF debates the likelihood of Central Bank Digital Money, rather than Libra. The deadline for Brexit extension passed without comment from the UK Government…but the EU noticed that the UK is already setting out to “diverge”, so goodbye “equivalence”.

Much more in our Gold weekly details


2 July 2020

My highlights of the week

The German Presidency gets underway amidst a welter of historic developments – with a stark warning to the UK. Germany also makes some unfortunate history: a staggering fraud at formerly–iconic Wirecard. The Commission’s digital finance strategy consultation draws very positive feedback. The Single Market for ordinary people takes some genuine steps forward: consumers can now get effective redress cross-border, the Commission consults on the retail payments strategy and the Instant Credit Transfer limit is raised to €100,000 (so why do we need cyber money??).

Brexit: the “extension” window shuts, Merkel is blunt that the talks could fail and EU negotiator Barnier on UK financial service proposals “I will be blunt: its proposals are unacceptable”

Much more in our Gold weekly details


25 June 2020

My take on events of the week to 25 June:

·        EUCO fails to agree on the Recovery Package – as expected… but then pledges to agree at its 17/18 July special meeting! But will this collide with growing splits on what the Conference on the Future of Europe should achieve?

·        CRR “quick fix” completes all legislative stages in just 9 weeks from conception – the EU can act quickly when necessary.

·        Banks’ potential loan losses are widely discussed but the insurance industry is also wrestling with vast problems – now and in the future.

·        The last chance to extend the Brexit transition expires in five days and the UK is already proposing new laws that do not import the EU’s precise rules.

Much more in our Gold weekly details


18 June 2020

My take on the week’s news 

Tomorrow is EUCO Day –though only the first attempt at finding consensus on the Next Generation recovery plan. EU President Michel did not even mention Brexit in his invitation letter but Boris Johnson-Cummings is now well into his end-game: could an economically irrelevant “triumph” on fishing enable him to cave on the real issues? Probably not.

Banks are suddenly exuding confidence on possible loan losses from a recession twice as deep as the 2007/9 GFC but the regulators want proper disclosure. Moreover, they may give quite some time for a rebuilding of capital buffers but have yet to explain where the new capital will come from. The wave of responses to the Commission consultation on the Non-Financial Disclosure Directive (NRFD) has underlined that this will be a major tool in pushing sustainability.

Much more in our Gold weekly details


11 June 2020

Graham's highlights of the week

Covid dominates everything – nearly all the stages of the CRR “quick fix” amendments are done since the idea was floated at Easter. The ECB is treading a delicate line between pushing banks to provision properly while also improve lending standards. It provided a loosening of capital buffers but banks seem reluctant to use for fear of market reactions. That should not be surprising as the €400 billion of available capital only approximates to the losses in the sovereign debt crisis yet the GDP decline in this crisis is expected to be twice as deep.

Brexit grinds on – even amidst the Covid crisis – and the EU unanimously decided not to change Barnier’s negotiating mandate. However, he may have a little wiggle room on state aid to keep the playing field level.

Much more in our Gold weekly details


4 June 2020

Highlights of the week

Reactions continue to the Commission’s “Next Generation” recovery plan and the MFF budget plan. IF it all comes to pass, then as CEPS put it, a “fundamental taboo” will have been broken. EURACTIV reports that the Commission will surely follow a very different set of economic policies than the old “troika” days. So it may be a defining moment for economic policies. We could be at a corresponding moment for monetary policy.  Bruegel published a critique of the German Constitutional Court “ECB decision” by a group of leading German economists that picks many holes in the Court’s economic understanding. A Treaty revision may yet put an end to national judiciaries effectively undermining the economics of the euro – the heart of the European project.

Meanwhile, Commission/Council/Parliament are rushing to finalise the “CRR quick fix” so it can be formal law by end-June so that it is applied to 2 Q bank reporting. 210 days to go to the end of the Brexit transition and the door to further discussions remains open – just. The House of Lords pithily pointed out the Northern Irish contradiction agreed by Prime Minister Johnson – and time is running out.

Much more in our Gold weekly details


 

28 May 2020

Highlights of the week

Hot on the heels of the Franco-German €500 billion proposed funding, Commission President von der Leyen launched the Commission’s complete recovery package – totalling €2.4 trillion. Fondation Robert Schuman describes the complete package below, and EURACTIV provides an excellent over-view of the state-by-state reactions. However, the ECB’s Financial Stability Review reminded us of the gravity of the financial situation – especially when one reads the small print. But ECB President Lagarde upstaged the FSR the saying the GDP decline was more likely to be in the 8-12% range rather than the Review’s assumption of 8%. As that is getting for three times the magnitude of the GDP decline in the Great Financial Crash a decade ago, perhaps we should be bracing for Non-Performing Loans to exceed by a margin the near €1 trillion pile of NPLs reached by 2014.

Much more in our Gold weekly details


21 May 2020

Highlights of the week

The Franco/German recovery "bazooka" may also herald major politcal change to re-enforce the "level playing field" - rather than allow Brexit to distort it. The headline was the €500 billion package but reading the full statement reveals that the scale of political change may be just as great – the Conference on the Future of Europe next year may even lead to re-opening “the Treaty”. In the past, that has always been an opening of Pandora’s Box! Such a re-opening could be used to re-affirm the primacy of the ECJ and thus neutralise the German Constitutional Court’s manoeuvres to challenge the ECJ’s primacy.

Much more in our Gold weekly details


20 May 2020

162nd Brussels for Breakfast: the Merkel/Macron package; German Constitutional Court; Brexit, and CRR quick fix

The Franco/German recovery "bazooka" may also herald major politcal change to re-enforce the "level playing field" - rather than allow Brexit to distort it.

The overnight news from Chancellor Merkel and President Macron electrified the discussion from the start. The headline was the €500 billion package but reading the full statement reveals that the scale of political change may be just as great – the Conference on the Future of Europe next year may even lead to re-opening “the Treaty”. In the past, that has always been an opening of Pandora’s Box! Such a re-opening could be used to re-affirm the primacy of the ECJ and thus neutralise the German Constitutional Court’s manoeuvres to challenge the ECJ’s primacy....

More for Friends of GrahamBishop

 


14 May 2020

Highlights of the week:

This week marked the 70th anniversary of the Schumann Declaration on 9 May 1950 that launched the process that has evolved into the European Union of today. Yet the week also marked a furious reaction across the EU to the judgment by the German Constitutional Court that was nominally about the ECB’s bond-buying powers but actually challenged the entire legal foundations of the Union. Apparently more prosaically, the Commission announced its Action Plan against money laundering but its success hinges on a further notch towards greater integration of the EU.

Much more in our Gold weekly details


7 May 2020

Highlights of the week:

Several more "impossible things" happened this week: The European Commission baldly downgraded its economic forecast for 2020 GDP by around 9 percentage points - to an almost unbelievable decline of more than 7% . Against this backdrop, the German Constitutional Court appeared to declare war on both the ECB and ECJ. But economic observers were left bewildered by the Court's grasp of the economic realities facing the ECB so the bond market vigilantes barely blinked – raising the German/Italian 10-year government bond spread by hardly 10 basis points. However, the political foundations of the European Union may need to be shored up in the fullness of time.


30 April 2020

Highlights of the week:

The results of EUCO's virtual meeting dominated the week as proposals for a financial "package" multiplied - together with varied thoughts on "corona" bonds. More fundamental thoughts about the EU's political structure are also emerging, but the pressure to keep "sustainability" at the centre of the policy response remains unabated. Bank shares hit a new historic low but have rallied nearly 20% as early results for the first quarter were not as bad as some feared, and the Commission announced an emergency package of amended bank regulations to ease the pressure on bank capital.


23 April 2020

Highlights of the week:

In a few hours we will know if EUCO has agreed on "corona" bonds (however defined) or some other form of major funding to protect the EU economy and, correspondingly, the financial system. Expectations are low and the bank share index continues to hover around 30-year lows (and literally half the levels seen in February) as we await banks' Q1 results in the next couple of weeks. The realism of the "expected losses" required by IFRS 9 may give a foretaste of how Europe will cope with the biggest recession in modern times.


16 April 2020

Highlights of the week:

The only good news is that the Covid epidemic may be near its peak but we can now begin to reckon the economic damage.

STOXX Bank Index

The IMF has warned of the risk to financial stability and a glance at the 30-year STOXX chart of European bank shares underlines the scale of the likely damage: bank shares have halved as the crisis struck, sell at less than 30% of their book value and are one-tenth of their peak in 2007.

The FT has just published an article from the official who ran the US TARP programme in 2008/9. He calls for US banks to raise €200bn now from private investors to cover expected losses. Which external investors would supply such capital to European banks as their profits are unlikely to generate much? (See Schildbach's article below)


 

9 April 2020

Welcome to our Notes and Video of the 161st Brussels 4 Breakfast

The Zoom video is here


Topics: Brexit; EU policy response;

Banking Regulation – relief, but the start of a slippery slope?

Brexit:

As it was just David and I speaking – prodded by Andrew’s questioning - David led off with thoughts about the Brexit negotiations. Gloomily, he feels that it is now less than 50:50 that there will be a deal at all. However, he was sanguine about the possibility of an extension - but only agreed at the very last moment.

EU policy response

Covid19 has dominated everything since our last meeting in mid-March when the number of new cases in Europe that day was just under 5,000 (versus the peak of 41,000 just three weeks later). The following day, the Commission set out its co-ordinated response to the pandemic – though much of the response is national as the EU itself has no role (competence in EU-speak).

Though small numbers were discussed in relation to say EIB lending, the really significant decisions were to authorise the fullest flexibility of the State Aid regime and the Growth Pact Framework. Eurogroup stated that the automatic stabilisers in the economy should be allowed to work fully and had already agreed national fiscal measures of 1% of GDP – combined with liquidity measures that amounted to 10% of GDP even in mid-March. Eurogroup also gave the ECB political cover for its decision to launch a €750 billion Pandemic Emergency Purchase Programme (PEPP) that allowed the purchase of Greek government bonds and a widening of eligibility criteria for other assets.

The rapid emergence of a vigorous debate on issuing jointly–guaranteed “corona bonds” seems to overlook that an EU institution – the ECB – may soon run its balance sheet up to €5 trillion (getting on for 40% of EZ GDP). EZ members are proportionately liable for this balance sheet! At the moment of the webcast, the Eurogroup President was reporting that the nearly all-night virtual meeting had failed even to agree reduced conditionality on ESM lending.

Banking Regulation – relief, but the start of a slippery slope?

We also discussed the regulatory response to the need for major actions by the banking system. Just before our March meeting, the STOXX index of EU bank shares had hit a peak for the year of 102 (back to the same level as 1/3 of a century ago!). A month later the index sank to 49 as bank shareholders began to digest the Covid implications – pricing banks at about 25% of their published book value.

The regulators sprang into action on two levels: relief measures on both capital and loan-loss provisioning. The Pillar 2 Guidance buffers were released immediately and the more relaxed CRD V composition of capital for Pillar 3 Requirements was immediately implemented. Together, this amounted to a release of €120 billion of CET1 capital – about 10% of the total in the banking system. So far so good. More controversially, banks were permitted to use more flexibility in the treatment of NPLs and the “expected credit losses” that will have to be reported under IFRS 9. If debtors do not pay due to a public moratorium then that individual debtor should not be treated as a missed payment. Moreover, that categorisation does not click in until a payment is 90 days past due.

I am not the only person concerned about this move and I cited Nicolas Veron’s recent paper on the subject. Investors already seem to have major concerns about the genuine quality of bank assets. If the authorities now connive to reduce the credibility of stated assets even further, then we may have started slipping down a slope where there may only be one buyer of new bank equity should it be needed. The risk of de facto nationalisation has returned very quickly. More in the months ahead.


17 March 2020

Reflections on the Great Financial Panic – are there parallels we can learn from?

Looking at the market reactions to the weekend central bank moves, one can only be deeply disturbed – another 12% decline in US equity markets yesterday, taking them fully into normal “bear market” territory.

The big question is what happens next when many EU economies were only growing at 1% annually – supported by record low interest rates. We now have a massive shock to confidence of consumers and commerce. Behaviour patterns are likely to be changed fundamentally by the coronavirus shock and it will probably take years before new patterns are fully established, or old ones recovered.

One of my sons asked me over the weekend if the 1987 stock market “crash” is a parallel – and my answer is No. Then the economies were growing at 3% annually – and continued after what was the first big “technical” correction of markets in modern times – driven by automatic systems. Sell-offs have always had a severe phase that was triggered by stop-loss orders and margin calls (look at the charts of 1929!), but this is now being accentuated by algorithmic trading that recognises the patterns and sells short for the purpose of triggering further margin calls. That is followed by a brief bounce when the short sales are covered by buying the shares back.

The next phases may well reflect the new economic reality rather than market mechanisms and the prospect of low growth at the very best – or prolonged recession – is very real. I am afraid the model may be Japan where the Nikkei index peaked at nearly 40,000 in late 1989 and finally bottomed at 7,000 in 2009 - moving roughly sideways for the next three years.

I still recall vividly that the UK market fell to almost 1/4 of its previous level between 1972 and 1974 – just as I started working in the City.  But equities did then rebound dramatically in the next few months - before developing into the bull market that has just ended so dramatically. That dramatic plunge and recovery reflected first the realisation that much of UK industry would be bankrupted by corporation tax payments on illusory profits generated by the wave of inflation sweeping the UK. But the government was able to take “administrative action” to avert impending doom by a "stroke of the pen" to remove that tax doomsday machine. No government can remove coronavirus with a corresponding administrative action today.

 


11 March 2020

160th Brussels for Breakfast – CPD Notes

Organised by the Centre for the Study of Financial Innovation (CSFI), hosted by CISI with fellow speakers Gergely Polner (Hanbury Strategy) and Niamh Moloney (LSE Dept. of Law). This blog complements the subsequent 51st Brussels 4 Brunch 30-minute CISI webinar that is also available to Friends of GrahamBishop.

We want to involve the Brussels Finance Watchers community in the choice of future topics so my up-coming video invitation for the 162nd meeting (still planned for April 8th ) will include my then-current thinking about the top three topics - but we welcome your suggestions to graham@grahambishop.com

Naturally, the Brexit negotiations took centre stage – though the subsequent discussion on the plight of EU banks proved to be very sobering.

Become a Friend to read the full article


3 March 2020

The view from Brussels of the EU/UK negotiations: a total illusion of “independence”

The smoke may be clearing from the opening salvoes in the Great Negotiation War and I happened to be in Brussels for a conference just after the `negotiations’ finished last week. My clear conclusion is that the UK is about to be sacrificed on the altar of an ideological purity about independence that is a total illusion.

Conversations with leading experts (is one allowed to use that term nowadays?) and a wide range of very well-informed participants exposed the fallacy of the UK position vividly. The tone was set by EU Negotiator Barnier at his Press Conference afterwards (see end for the English). It seems the EU is also independent.  But Barnier did say “…However, I continue to believe that we can reach a good agreement for both sides.” [...]

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23 February 2020

Graham Bishop video invitation for next Brussels for Breakfast

Graham Bishop suggests - and requests - ideas for the next Brussels for Breakfast debate on March 11th 2020.

 


12 February 2020

Negotiating with a bloc seven times your size: Clash no 1 – Financial Services

The UK has the same rules as the EU at this instant – but the main Directive about trading securities is about to be examined later this year. The UK will not be at the table when the EU debates reversing a key concession to the UK after the Great Financial Crash.

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11 February 2020

159th Brussels for Breakfast – The EU-UK trade deal: if - when - what

What will be in the trade deal with EU? When will it happen? Will it even happen at all? Lots of questions but no definitive answers at this stage!

This was the starting point for a debate focused on the troubled onset of talks on a EU/UK new trade deal: financial services are on the table and act both as Britain's main strenght in the ongoing negotiations but also as the EU's bargaining chip since The City wants unrestricted access to the European single market and this won't come without a price tag...

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14 January 2020

158th Brussels for Breakfast – CPD Notes

The bulk of the meeting was consumed by discussion on the timetable and content of the Brexit negotiations. The rest of the meeting covered the continued rush of EU developments, such as the Conference on the Future of Europe, the ESM reform, the upcoming ECB's paper on Central Bank Digital Currency (CBDC) and the ESG march into the heart of the financial system.

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


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