14 January 2020

158th Brussels for Breakfast – CPD Notes

Organised by the Centre for the Study of Financial Innovation (CSFI), hosted by CISI. This blog complements the subsequent 49th Brussels 4 Brunch 30-minute CISI webinar that is also available to Friends of GrahamBishop.

Brexit is now upon us and the negotiations are due to get underway soon. I took a few minutes to set out the mechanics of trade deals – especially the issue of the “mixed” deal that will be necessary for the inclusion of financial services. (I recorded this and it will soon be available as a podcast on the website for clients.)

The bulk of the meeting was consumed by discussion on the timetable and content of the Brexit negotiations.

• Timetable: the EU is already negotiating its position internally as the 13th Dec Council meeting mandated the Commission to submit a “comprehensive mandate” immediately after the UK’s withdrawal.  So the Council will expect to agree this in mid-February ready for the formal start of negotiation in March. Both Commission President UvL and chief negotiator Barnier have been very clear that there is not enough time to do a deep and comprehensive deal.  Moreover, the Commission has stated that any change to the cut-off date in July for a postponement agreement may itself need a Treaty change!
• Content: Council requires it to be “a balance of rights and obligation and ensure a level playing field”. Given the time available, Barnier has said only a “bare bones” trade deal is possible and must provide for a “level playing field on standards, state aid and tax matters”.  However, other unrelated’ issues will surely come into play – including foreign policy and security. Far more emotive is fishing and France has already highlighted fishing rights. However, “citizens’ rights” are likely to be a widespread problem and the European Parliament (which must assent to any deal) will probably pass a resolution this week expressing grave concerns about the UK’s willingness to implement its agreement on citizens’ rights. Accordingly, President UvL said that certain parts will have to be prioritised and financial service would have to be left for later.

A vigorous discussion erupted about the contrast between the speed of the EU developing its position (and publishing it) versus the UK’s position. No-one knew exactly what the UK wants or who is running the negotiations. Moreover, it was reported that there would not be a ministry in charge as that would require a Select Committee to oversee it and take public evidence.

The rest of the meeting covered the continued rush of EU developments.  The Council’s decision to launch a Conference on the Future of Europe (to conclude in 2020) was greeted with snorts of derision – ignoring the historic precedents for this sort of conference re-shaping the EU.

ESM reform is now agreed in principle with a €68 billion backstop for the Single Resolution Fund. My recent paper highlighted the fragility of Europe’s banks and a Bruegel paper on bank resolvability, argued that, five years after BRRD, “very few European banks could be described as resolvable”.

In her first Press conference, ECB President Lagarde confirmed that the ECB is aiming to publish a paper on Central Bank Digital Currency (CBDC) around mid-year. This will examine both wholesale and retail payments. However, digital settlement of payments is already underway – via Target 2 and TIPS instant settlement. Moreover, 20 EU banks are working on a system to bypass Visa, MasterCard, Google and Apple.

ESG continues its march into the heart of the financial system.  The 13th December Council meeting devoted most of its Conclusions to climate change – endorsing the “objective” of climate neutrality by 2050 but Poland could not sign up to this. Council noted a key commitment from the Commission to propose a “carbon border adjustment” to prevent leakage. Both the EBA and Bank of England are planning green stress tests on banks so that the entire financial system – not just green bond issuers/buyers - will be bound in by the just-agreed taxonomy

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© Graham Bishop