In the shadow of Donald Trump’s spree of controversial actions, the European commission has quietly launched the next offensive in the war on cash. These unelected bureaucrats have boldly asserted their intention to crack down on paper transactions across the E.U. and solidify a trend that has been gaining momentum for years.
The financial uncertainty amplified by Brexit has incentivized governments throughout Europe to seize further control over their banking systems. France and Spain have already criminalized cash transactions above a certain limit, but now the commission has unilaterally established new regulations that will affect the entire union. The fear of physical money flowing out of the trade bloc has manifested a draconian response from the State.
The European Action Plan doesn’t mention a specific dollar amount for restrictions, but as expected, their reasoning for the move is to thwart money laundering and the financing of terrorism. Border checks between countries have already been bolstered to help implement these new standards on hard assets. Although these end goals are plausible, there are other clear motivations for governments to target paper money that aren’t as noble.
Back in March, when the ECB unexpectedly announced it would begin buying corporate bonds, while the German population was rather angry, its media was furious. The best example of the fury came from Germany’s Handelsblatt, which in an article titled “The dangerous game with the money of the German savers”, the authors provide a metaphorical rendering of what is happening in Europe as follows:
The publication also painted a caricature of the man behind Europe’s monetary policy:
Italy and other EU states need to hold referendums on giving up the eurozone common currency, Vice President of Italy’s Chamber of Deputies Luigi Di Maio said Tuesday.
“We should not be taking the decision instead of the citizens, we should give them an opportunity to make the decision on the issue [of rejecting euro] themselves. I hope that it will be possible for the other states of the Eurozone to hold the referendum on euro’s further fate, too,” Di Maio, one of the leaders of the Italy’s opposition Five Star Movement (M5S) party, told RIA Novosti in an interview. The lawmaker stressed that since joining the Eurozone, Italy lost some 25 percent of national wealth. Di Maio added that Germany is the only state, which benefits from the existence of euro, whilst other EU members pretend not to be damaged by the common currency.
C/A NSA EUR +23.6bln vs +33.8bln prev revised up from +31.5bln
net direct/portfolio investment inflow €+79.8bln vs 80.9bln prev
net portfolio investment inflow €+34.0bln vs 59.1bln prev
net direct investment inflow €+45.8bln vs +21.8bln prev
Decreasing combined investment inflows being reflected in declining euro from the August 1.1366 EURUSD highs and elsewhere. Will be interesting to know September’s data as direct investment still perky in the Aug reading.
These are challenging times for the European economy, with Brexit looming and the Greek bailout again becoming the focus of attention. But the issue dominating concerns in Brussels and Frankfurt is the state of the European banking sector.
Europe’s banking woes dominated debate on the fringes of last week’s annual autumn meeting of the IMF and World Bank in Washington, with senior bankers and policymakers from both sides of the Atlantic pitching-in with the latest take on the sector.
The IMF said that euro zone lenders threatened to undermine the global economy, while senior figures in US banking such as Goldman Sachs president Gary Cohn contrasted the current state of European banks with their US counterparts, who are “in the best shape ever”.
Despite the low profitability of the sector and the continuing problems in Italian banks in particular, the travails of Deutsche Bank have really propelled the issue into the spotlight.
Last month the German government was forced to deny it would bail out its biggest bank after concerns about the ability of it to absorb a fine of up to $14 billion €12.4 billion) levied by the US justice department over its misselling of mortgage-backed securities.
Deutsche Bank, which only just scraped through European bank stress tests in July, is now facing reports that it was given special treatment by the European Banking Authority (EBA) after the European Central Bank (ECB) granted the bank a special concession. This allowed it to include the proceeds from selling its stake in a Chinese bank to boost its stress test results, even though the deal has yet to go through.
The bank is now in the process of devising a restructuring plan, which may involve a flotation of its asset management unit, according to some reports.
On September 27, the Greek Parliament approved a reform bill, stipulating a number of social welfare cuts and privatizations demanded by EU and International Monetary Fund (IMF) creditors. The bill will proceed for an evaluation by a Eurogroup working group, which will then present its recommendations to EU finance ministers.
“The overall picture is that the [Greek] government’s strategy to fulfill conditions [to receive next bailout tranche] has produced positive results, though with a little delay, and we expect that things will go well on Monday as we are done with [implementing] conditions,” the source said. In May, Eurogroup finance ministers held marathon talks on new loans for debt-ridden Greece, finally agreeing on a 10.3 billion-euro ($11.5 billion) aid package, which is part of the 86 billion-euro package. In June, the European Stability Mechanism (ESM) disbursed about 7.5 billion euros to Greece. Greece was told to fulfill 15 conditions in order to get remaining $3.14 billion. The Greek debt crisis erupted in 2010 with a number of austerity packages adopted by the parliament and several bailout payments provided by the European Commission, the European Central Bank (ECB) and the IMF. The loans, however, only resulted in increasing country’s debt.