POLITICS & POLICY
Events occurring in the past days mark another turning point in the long path towards Brexit. After the Leave vote of 23 June, in July Britain’s service sector appears to have been hit by the first contraction since December 2012 and with the strongest rate of decline since March 2009. This gloomy news has strengthened the case for a Bank of England (BoE) interest rate cut on Thursday: BoE set interest rates to a record low and announced a vast stimulus package to combat economic fallout from Britain’s looming EU exit. However, economic concerns have not been the only ones to affect the British political landscape this week. Tensions about migration remain high, as the UK Court of Appeal ruled against the decision of a British immigration tribunal to let four Syrian refugees living in Calais’s camp come to the UK. The British government was particularly concerned that the tribunal’s decision set a legal precedent. In the meantime, Great Britain keeps on having a relevant role at the supranational level by means of the new British commissioner named by Juncker, after the resignation of Sir Jonathan Hill (former Commissioner for Financial Services). British diplomat Sir Julian King is likely to be become the new Commissioner for Security Union, thus being the head of anti-terror strategy. This nomination may be another important step towards greater intelligence sharing and cooperation between EU countries.
EU-Turkey relations continue to represent another highly controversial issue. This week Austria’s Chancellor Christian Kern has called on the European Union to end accession talks with Turkey in the wake of the massive government repression following the failed coup. Kern’s words have caused a diplomatic case, with Turkey’s European Affairs minister Ömer Çeli saying that the Austrian chancellor’s statements are “similar to those of the far right”. EU Commission President Jean-Claude Juncker has tried to pour oil on troubled waters, by rejecting the idea of unilaterally ending negotiations with Turkey. Meanwhile, Turkish Foreign Minister Mevlut Cavusoglu has said that Turkey would have to back out of its agreement with the European Union to stem the flow of migrants into the bloc if the EU does not deliver visa-free travel for Turks, which has been subject to delays due to a dispute over Turkish anti-terrorism legislation and Ankara’s crackdown after the coup attempt. Furthermore, Turkish President Recep Tayyip Erdoğan has overtly accused the West of “supporting terror” and standing by the authors of the failed coup, criticizing EU’s foreign policy chief, Federica Mogherini, after she called for the Turkish government to respect the rule of law. A final controversy involves the relations between Rome and Ankara, as Erdogan urged Italian judges to focus on the mafia and not his son, currently under investigation in Italy with the accuse of money laundering: Italian Prime Minister Matteo Renzi has strongly reacted to Erdogan’s claim on Twitter, stating that “judges answer to the Italian constitution and not the Turkish president”.
A by-product of the heating up of the relations with Turkey is the increasing concern for the stability of South Eastern Europe. Greece’s Migration Minister Ioannis Mouzalas has expressed worries and has warned that a back-up strategy—a Plan B—is needed in case the EU-Turkey refugee deal collapses amid escalating tensions. The statement has been later denied by the minister himself, but the seriousness of the situation is also expressed by Greek Prime Minister Alexis Tsipras’ visit to Sofia, seeking to strengthen ties with Bulgaria and stabilise the region after the turmoil caused by the 15 July coup.
Finally, news concerning the financial situation of both European banks and sovereigns have captured much attention this week. On the one hand, despite delivering overall positive results, the stress test released by the European Banking Authority (EBA) on Friday revealed a situation of financial fragility for banks in Italy, Ireland, Spain and Austria: Italy’s Monte dei Paschi, Austria’s Raiffeisen, Spain’s Banco Popular and two of Ireland’s main banks came out with the worst results in terms of risk absorbing capacity in the EBA’s test of 51 EU lenders. In a bid to save itself without triggering EU “bail-in” rules, Monte dei Paschi di Siena had announced a plan to prop up the struggling institution with private money just a few hours before the release of the stress test results. On the other hand, International Monetary Fund’s (IMF) Independent Evaluation Office has published a report asserting that IMF bent its rules and was vulnerable to political pressure as it embarked on the 2010 Greece bailout, underestimating the risks in the European economy and overestimating the region’s ability to handle any problems. In response to this evaluation, the European Commission has released a statement, pointing out that stabilising the eurozone was “eminently a political issue”, thus minimizing the controversy related to an undue influence of European politicians over the choices made by the IMF.
“I would seriously question whether the nomination of the UK commissioner for the Security Union is the right choice. The UK will soon start the process of leaving the European Union but, more importantly, the country has a long-standing opt-out from Justice and Home Affairs measures. … It would be odd to give such an important portfolio to someone who has no incentive to further the European interest in general or more specifically, to enhance the EU’s security capabilities.”
Guy Verhofstadt, President of the Liberals and Democrats group in the European Parliament.
Source: EurActiv, 02/08/2016
“Our position is very clear—we support visa liberalisation for all countries that fulfil the relevant benchmarks. This is the case for Turkish citizens as it is for citizens of any other country. However, in reaction to the recent coup attempt Turkey is moving in the wrong direction. We will not be blackmailed into accepting visa liberalisation by an increasingly autocratic regime in Ankara.”
Knut Fleckenstein, Vice-President of the Socialists & Democrats group in the European Parliament.
Source: EurActiv, 01/08/2016
“The publication last week of the stress tests organised by the European Banking Authority and the recapitalisation plan for the Monte dei Paschi di Siena seem to have triggered a very similar contagion effect in the financial markets, affecting all banks in the EU. Without a clear backstop and a mechanism to avoid contagion, the European banking union appears to be incomplete.”
Lorenzo Bini Smaghi, former member of the Executive Board of the European Central Bank.
Source: Financial Times, 05/08/2016
The record low interest rate set by the Bank of England to provide support for post-Brexit economy.
Source: EurActiv, 04/08/2016
The number of migrants relocated from Greece and Italy, out of 160,000 people EU leaders have committed to relocate by September 2017.
Source: EurActiv, 03/08/2016
The core equity capital ratio (a measure of financial soundness) of Monte dei Paschi by the end of 2018 in the “adverse” scenario simulated by Friday’s stress test.
Source: EurActiv, 30/07/2016