In the light of the foregoing considerations, the Commission’s preliminary view is that the tax ruling of 1990 (effectively agreed in 1991) and of 2007 in favour of the Apple group constitute State aid according to Article 107(1) TFEU. The Commission has doubts about the compatibility of such State aid with the internal market. The Commission has therefore decided to initiate the procedure laid down in Article 108(2) TFEU with respect to the measures in question.
Click for the full document laying out the case.
Stress tests in Europe maybe aren’t the mugging by reality they used to be… they’re putting up a little bit more of a fight this time. Though how much?
Here’s Citi cruelly putting the European Banking Authority’s recently released methodology against the US’s CCAR:
In the EU, the proposed adverse scenario leads to an overall cumulative deviation of EU GDP from its baseline level by 7.0% over the 3-year period to end-2016, with EU unemployment deviating by 2.9% versus the baseline scenario. This would imply a cumulative real GDP decline of -2.1% over 3-years, notably less than the stress applied in the US CCAR (a -4.75% decline over 15 months) and a peak unemployment rate of 13.0% versus US CCAR 11.25%. Equity prices are expected to decline by 19% relative to the baseline (US CCAR -50% decline), residential house prices by -21% (US CCAR -25%) and commercial property prices by -15% (US CCAR -35%).
Also, no deflation in the EU adverse scenario? Read more
This guest post on the Ukraine crisis is from Jorge Mariscal and Alejo Czerwonko, emerging markets chief investment officer and emerging markets economist, respectively, at UBS Wealth Management.
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Here’s an essay published by the Bruegel think tank, penned by Ashoka Mody, currently a visiting professor at Princeton. He argues that if Europe wants to move forward in terms of integration, it first needs to stop. Click to read.
Listening to the comments of the various European leaders this morning, you’d be forgiven for thinking that they were attending different summits yesterday.
Francois Hollande, as quoted by the FT (emphasis ours):
The topic of this summit is not the fiscal union but the banking union, so the only decision that will be taken is to set up a banking union by the end of the year and especially the banking supervision.
Here’s the Liikanen Report. Click to view.
Just when you had had enough of Grexits, Greuros and Drachmageddons, here’s another irritating term to add to the eurozone crisis lexicon: Brixit. Yes, the genius fusion of the words Britain and exit to describe another gloomy scenario.
The word was coined by The Economist’s Bagehot column this week (although apparently it is also the name of a Swedish shop that sells Lego) to describe an event that it argues no British political party wants but is nevertheless likely to happen. (The story of the euro crisis, surely?) Read more
Click the image for the full document:
This had been a long while coming… Flashes from Reuters at pixel time:
16:57 – CYPRUS APPLIES FOR EU BAILOUT - GOVERNMENT STATEMENT Read more
It’s all political at this point.
The goal going forward is to bring Europe into a state of sustainability. Only politicians can do that. So writes Nomura analyst Jens Nordvig. Read more
What can Europe do? SocGen has a handy little chart:
Tonight’s text on Greece from the EU summit. Not much, to be honest.
(Click to image for full doc – more/less from Van Rompuy, here)
Sensational “news” via the Daily Express, which for the avoidance of doubt is a British national newspaper.
Can it really be true that advisers to Glencore and Xstrata did not envisage a referral to the competition authorities in Brussels when planning their
$90bn $80bn merger?
Seems so… Read more
From the FT on Friday:
Executives at Glencore, the world’s largest commodities trader, and Xstrata, the mining group, had been confident that their deal would not require a formal investigation by the European Commission. Read more
Here’s a graphic designed to give one a headache (click to embiggen)…
European officials are insisting that Chinese airlines will have to pay for their carbon emissions, rebuffing an attempt by Beijing on Monday to shield them from a controversial emissions trading scheme, reports the FT. While Chinese airlines had previously said they would not pay the EU carbon tax, the Civil Aviation Administration of China formally instructed them not to join the EU emissions trading scheme without government approval. The EU countered that it remains determined to include all airlines that take off or land in the 27-member bloc in the scheme, which other nations complain is a violation of their sovereignty and has stoked warnings of a trade war. The US has warned that it would “take appropriate action” if Europe does not amend the law.
Iran’s oil minister said on Sunday that oil sales to “some countries” would be halted soon, amid pressure from the parliament that the government should pre-empt a looming European embargo, the FT reports. “Iran has a market for its oil exports even with cuts [in sales] to Europe and will face no problem in this regard,” Rostam Ghasemi told local journalists. But the Iranian parliament failed to pass a proposed law over the weekend that would have banned oil exports to the European Union, apparently because of differences between the legislative body and the government of Mahmoud Ahmadi-Nejad. Emad Hosseini, spokesman for the Iranian parliament’s energy committee, said consultations were being held with concerned officials in the government, “to see where we stand and in what situation the contracts are”. The talk of a pre-emptive ban, even if approval of the bill has been delayed, has already affected the physical crude oil market, traders and analysts said.
The European Commission will complain to Treasury Secretary Timothy Geithner that proposed US regulations could discourage banks from trading European sovereign bonds, the WSJ says. Michel Barnier, the European commissioner for the internal market, told the newspaper he would speak to Mr Geithner next month, adding: “We can’t accept extraterritorial consequences or Europe will be tempted to do the same thing”. Mr Barnier said the UK chancellor George Osborne raised concerns at a meeting on Monday.
UK homeowners could face higher mortgage costs and greater risk of foreclosure next year because of an obscure clause in the bank capital directive being worked on by the European parliament, says the FT. As part of a large reform package that seeks to make banks safer and regulation more uniform, the draft directive declares that all EU loans must be treated as if they are in default when they are 90 days in arrears. While this is common practice in much of the 27-nation bloc, it would overrule UK rules that give retail mortgage borrowers up to 180 days. The definition change pushes up the probability that mortgage loans will default, a key metric in determining capital charges. It will boost banks’ capital charges on UK mortgages by 15-20 per cent, forcing many institutions either to cut lending or charge more to customers. About half of 1 per cent of the UK’s 13.6m mortgages are already in “forbearance” compared with 1.2 per cent of mortgages that are in arrears, according to the Bank of England’s financial stability report. Italian public sector borrowers will also be hit but the Bank of Italy does not expect the impact to be as great.
The European Union embargo on imports of Iranian oil will probably be delayed for six months to let countries such as Greece, Italy and Spain find alternative supplies, Bloomberg reports. Citing an EU official with knowledge of the talks Bloomberg said the embargo would also likely include an exemption for Italy, so that crude can be sold to pay off debts to Rome-based Eni SpA, Italy’s largest oil company. The embargo needs to be accepted by the 27- nation bloc’s foreign ministers on January 23. A ban on petrochemical products could, however, start sooner — most likely three months after EU ministers agree to the measure. The price of West Texas Intermediate crude oil dropped by $1.77, or 1.8 per cent to $99.10 a barrel on the news, the lowest settlement since December 30, on the news of the embargo’s delay.
Making an extraordinary story of bailout conditionality even more extraordinary…
The European Commission warned the Hungarian government on Wednesday that it’s ready to go to the European Court of Justice to argue that a new constitution violates EU law. Read more
Hungary’s currency plunged to fresh lows against the euro on Thursday after the country failed to attract enough investors at a government bond auction to reach its target, the FT reports. Analysts warned that the central bank might have to take drastic action to raise interest rates in an effort to prevent investors from selling assets after the sale of just Ft35bn in government debt, down from a targeted Ft45bn. Investors have become increasingly concerned about the country’s ability to pay its debt as bond yields have risen, with credit default swaps hitting a record high this week. A new law that curbs the central bank’s independence as well as a lack of a clear timetable for negotiations with the IMF and the EU are also unnerving investors — although, FT Alphaville says, they are not quite as unnerved as might be expected.
Hungary — still in basket-case mode earlier on Thursday… (a snapshot courtesy of Bloomberg):
The government sold 35 billion forint ($140 million) of one-year bills, 10 billion forint less than targeted, data from the Debt Management Agency on Bloomberg show. The average yield rose to 9.96 percent, the highest since April 2009, from 7.91 percent at the last sale of the same-maturity debt on Dec. 22… Read more
Prospects for a rapid increase in IMF firepower to cope with the eurozone crisis have receded after the Japanese government and the Bundesbank set tough conditions before making contributions, reports the FT. On Tuesday Jun Azumi, Japanese finance minister, said that the EU needed to present a more convincing plan before Japan put more money into the IMF. Separately, hopes that eurozone leaders might increase the size of their own rescue fund in March were knocked when Angela Merkel, Germany chancellor, reportedly told lawmakers in a closed session she was sticking to her demand for a €500bn ceiling. The Telegraph says there is concern the UK may have to contribute a further £30bn to eurozone rescue loans through the International Monetary Fund, matching the sorts of burdens shouldered by Germany, France and other EMU states, after an IMF publication said “European leaders agreed to make bilateral loans to the IMF of as much as €200bn — with €150bn contributed by eurozone members and €50bn from other members of the EU”.
Franco-German hopes for a sweeping new treaty to bind the region’s economies more closely came under strain on Tuesday as several EU leaders warned of difficulties pushing a far-reaching pact through their national parliaments, says the FT. The pressure was particularly acute in non-eurozone countries, where at least four governments — the Czech Republic, Hungary, Sweden and Denmark — signalled that the precise legal text would determine whether they could sign up to the treaty or otherwise join the UK on the sidelines. Even inside the 17-member eurozone, cracks emerged, with Irish opposition leaders calling on Enda Kenny, prime minister, to allow a referendum on the new pact. The euro slumped to its lowest level against the dollar since January. The single currency had been losing ground since Friday amid market disappointment at the outcome of the EU summit. Traders said that a seasonal dip in market liquidity had exacerbated the falls. EU president Herman Van Rompuy told the European Parliament in Strasbourg that the UK’s veto would complicate the task of implementing new, stricter fiscal rules, reports the WSJ.