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Mon, 20th February 2017

Anirudh Sethi Report

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Archives of “european council” Tag

Cash No Longer King: Europe Accelerates Move To Begin Elimination Of Paper Money

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.

‘Catastrophic Effect’: More Austerity Measures Could Force Greece to Exit the EU

Greec debtThe Greek government has just three weeks to secure a deal with the European Commission, the European Central Bank and the International Monetary Fund, to avoid the possibility of a Greek exit from the EU and a fresh debt crisis. Radio Sputnik discussed this with Dr. Marina Prentoulis, a senior lecturer at the University of East Anglia.

When asked whether there was any chance of a compromise that would appease both creditors and Greece, Marina Prentoulis said that the situation hasn’t changed since the first round of negotiations.

“There are different political forces involved and the creditors insist on the implementation of additional austerity measures. One thing the IMF doesn’t want to understand is that these measures have already had a catastrophic effect on Greece and also on the future of the European Union,” she noted.

Meanwhile, it looks like the Greek government is taking advantage of the political instability in the EU to secure a better deal for itself, knowing that if the country enters another debt crisis it could destabilize the already fragile EU.

Davos 2017: UK will lead world in free trade after Brexit, says May

UK prime minister Theresa May has said Britain will seek to lead the world in free trade after the Brexit vote as she sought to reassure the global economic elite her government would remain a force for liberalisation and globalisation after the EU referendum.

Addressing the annual World Economic Forum in Davos this morning, Ms May said Britain would “step up to a new leadership role as the strongest, most forceful advocate for free markets and free trade anywhere in the world” as it seeks to strike new trade agreements after the referendum.

Despite seeking to align herself with the Davos crowd, the prime minister also used her speech to rail against a “cult of individualism”, quoting conservative British philosopher Edmund Burke in favouring a pace of change that would still “conserve”, in remarks delivered to a subdued main congress hall.

She added the Brexit vote was a decision to “restore our parliamentary democracy and national self-determination. A vote to take control and make decisions for ourselves”.

UK High Court to rule on Brexit tomorrow (Thursday)

Reuters reporting that the announcement will be made at 10.00 GMT Thursday

Further to my earlier post where reader Biscotti and FXL gave you the heads up that a ruling could be made tomorrow.

Reuters now reporting a tweet from a lawyer sitting on the case

London’s High Court will deliver its verdict on Thursday on whether British lawmakers, rather than the government, must trigger the formal process of leaving the European Union, lawyers involved in the case said.

The court heard a challenge last month from campaigners who argue Prime Minister Theresa May and her ministers do not have the authority to invoke Article 50 of the EU Lisbon Treaty, the mechanism by which a nation can leave the bloc, without the explicit backing of parliament. 

Nicely timed to hit the markets before we get the latest BOE decision.

Bring it on!

Meanwhile GBPUSD has blown up through to 1.2328 helped by softer US ADP data. Offers up there and more into 1.2350 Large option interest at 1.2360

Major Banks to Leave UK Early Next Year Following Brexit

According to Anthony Browne, the chief executive of the British Bankers’ Association, major banks consider leaving the United Kingdom in the first quarter of 2017, while small banks plan to start relocations before Christmas, the Observer said.

“For banks, Brexit does not simply mean additional tariffs being imposed on trade – as is likely to be the case with other sectors. It is about whether banks have the legal right to provide services,” Browne said as quoted by the Observer. Browne noted that businesses could not wait to the last minute, since it could take much time to move the operations and “banks might hope for the best but have to plan for the worst”.

A hard Brexit would deprive the country of the access to the EU internal market and the customs union, which could potentially result in tariff and non-tariff restrictions.

On June 23, the United Kingdom voted on referendum to leave the European Union. On October 2, UK Prime Minister Theresa May said that the country would trigger Article 50 of the EU Lisbon Treaty by the end of March 2017 to start the official procedures to cease its EU membership. According to Article 50, a country wishing to leave the European Union must formally inform the European Council about its decision, and then two-year exit negotiations would start.

This Week Eyes on 4 Events

Of the forces driving prices in the week ahead, events appear more important than economic reports.   There are four such events that investors must navigate.  The Bank of Canada and the European Central Bank meet.  The UK High Court will deliver its ruling on the role of Parliament in Brexit.  The rating agency DBRS updates its credit rating for Portugal.
The Bank of Canada is not going to change interest rates.  Still, growth has disappointed, and price pressures appear to be ebbing.  It will take longer than the BoC is currently anticipating to close the output gap.  It may adjust its forecasts accordingly.  In addition, the recent use of macro-prudential policies to address housing market activity eases one of the inhibitions for a rate cut.  The market is currently pricing in about a one in 20 chance of this materializing next year.
The risk may be somewhat greater than that  In part, there seems to be too much made of the trade-off between the fiscal stimulus and monetary easing.  It is so pre-crisis.  This week’s data is likely to show that CPI continues to moderate and, despite the launch of a new low-income family benefits program, retail sales like fell in August, and the risk is on the downside of the median forecast of -0.1%.
It does not appear that the ECB is prepared to announce a decision about whether it will extend its asset purchases after the current soft end date of March 2017, or about how it will address the potential scarcity of particular securities.  Although we thought there was an opportunity to do so last month, it now seems more likely that the ECB will make its decision at the December meeting.

UK banks can withstand ‘worst’ outcome on EU passporting – Fitch

Fitch Ratings has become the latest major rating agency to say UK-based banks and financial services firms can cope with losing their much-cherished ability to “passport” their services in the EU following the Brexit vote.

Should British banks lose their ability to operate across the continent with an EU-wide passport – a “worst case outcome” – the agency said it would not provoke any major change on lenders’ ratings.

“We believe the costs and disruption are likely to be manageable in the context of banks’ overall credit profiles,” said James Longsdon at Fitch.

The findings follow a similar verdict from rival agency Moody’s, which has called the loss of passporting rights as broadly “manageable” for the sector.

In the event the passport is lost, both agencies have touted the possibility of British banks using incoming European market rules, known as Mifid II, as easing the process of doing business on the continent following the UK’s exit.

Apple’s Tax Bill in Ireland Out of EU Competency – Parliament Speaker

OImage result for apple iphone 6n August 30, the European Commission found that Ireland had provided Apple with up to $14.5 billion in illegal tax benefits, allowing the corporation to pay less than 1 percent in taxes between 1991 and 2007. The Commission ordered Apple to repay the amount to Ireland.

“Fixing of tax rates, the collection of tax is a competency of the member states, it is not a matter for the European Union, and Ireland will do anything and everything that it has to do in order to protect its right and its competency in that regard,” O Fearghail said on the sidelines of the European Conference of Presidents of Parliament. Apple has paid all the taxes it legally owed, he stressed, adding that there are certain international issues related to tax avoidance through legal loopholes which Ireland has moved to address on its part. “Many of the EU member states are quite frankly jealous of the extent at which Ireland has succeeded in attracting multinational players. European member states are not supportive of the fact that we have a 12.5 percent corporate taxation regime,” he said.

The Irish government has previously warned that the European Commission’s decision would damage the investment climate in Ireland, which is home to hundreds of US companies, offering them easier access to the European market. Both the Irish government and Apple intend to appeal the European Commission decision in court.

Apple to repatriate overseas cash pile next year, says Tim Cook

Apple expects to pay billions of dollars of extra taxes in the US next year when it brings home the offshore cash pile at the centre of its row with Brussels, the technology company’s chief executive said on Thursday.

Tim Cook told Ireland’s national broadcaster RTE that Apple had set aside “several billion dollars for the US for payment as soon as we repatriate” some or all of its $215bn in overseas cash.

“Right now, I would forecast that repatriation to occur next year,” he said. Mr Cook has previously said that returning those funds to the US was contingent on a new American president introducing corporate tax reform that would lower the current 35 per cent rate.

The row between Apple and Brussels over a €13bn tax penalty escalated on Thursday, as Mr Cook called the European Commission’s decision “invalid” and “crap” and urged the Irish government to appeal.

Dublin was ordered on Tuesday by the commission to claw back up to €13bn from Apple after its tax arrangements in Ireland were judged to constitute illegal state aid. Apple has said the funds will be paid into escrow until an appeal is heard.

Mr Cook lashed out at the commission’s claim that Apple paid only 0.005 per cent tax in Ireland in 2014, telling the Irish Independent newspaper that it was “total political crap”, adding: “They just picked a number from I don’t know where.”

After Its “Predatory Tax Grab”, Europe Prepares Crackdown On Amazon, McDonald’s

In the aftermath of the EU’s latest escalation in its tax war with US multinational corporations, the rebuke from the US was swift, stretching from the US Treasury all the way to Congress: according to Kevin Brady, the House Ways and Means Chairman, the EU Apple decision was  “predatory and naked tax grab.” Chuck Schumer, the third-ranking Senate Democrat on the committee, said that the EU is unfairly undermining U.S. companies’ ability to compete in Europe.  Naturally, the Treasury also chimed in, and a spokesperson said that “the Commission’s actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the EU.”

Naturally, the US would confine itself only to heated words: after all, there was little chance Washington would do anything to truly jeopardize trade relations between the two core trading partners, and Europe knows it. 

However, with Europe desperate to boost its dwindling public coffers and only beginning its anti-tax avoidance campaign, AAPL was merely the start in the European Commission’s crackdown.  As the WSJ writes, following today’s ruling that Apple got an unfair advantage over its competitors because of help it got from Ireland government’s, the EU’s antitrust regulator is likely next to turn to two other ongoing tax investigations on its docket: Amazon.com and McDonald’s.