The European Commission’s winter economic forecast estimate that the EU economy will grow by 3.7% in 2021 and 3.9% in 2022. Europe remains in the grip of the coronavirus pandemic with many countries experiencing a resurgence in cases and the need to reintroduce or tighten containment measures. At the same time, the start of vaccination programmes has provided the EU with grounds for cautious optimism.
Economic growth is set to resume in the spring and gather momentum in the summer as vaccination programmes progress and containment measures gradually ease. An improved outlook for the global economy is also set to support the recovery, with the US and Japan also undertaking strong recovery measures.
The economic impact of the pandemic remains uneven across the EU with the speed of the recovery projected to vary significantly.
"We can say we face fewer unknown risk and more known risks"
Risks surrounding the forecast are described as more balanced since the autumn, though they remain high. They are mainly related to the evolution of the pandemic and the success of vaccination campaigns.On the positive side, extensive vaccination could lead to a faster-than-expected easing of containment measures and therefore an earlier and stronger recovery.
The forecast has not fully factored in the impact of the EU's recovery instrument of which the centrepiece is the Recovery and Resilience Facility (RRF), this could fuel stronger growth than projected.
In terms of negative risks, the pandemic could prove more persistent or severe in the near-term than assumed in this forecast, or there could be delays in the roll-out of vaccination programmes. This could delay the easing of containment measures, which would in turn affect the timing and strength of the expected recovery.
There is also a risk that the crisis could leave deeper scars in the EU's economic and social fabric, notably through widespread bankruptcies and job losses. This would also hurt the financial sector, increase long-term unemployment and worsen inequalities.
Paolo Gentiloni, Commissioner for Economy said: “Europeans are living through challenging times. We remain in the painful grip of the pandemic, its social and economic consequences all too evident. Yet there is, at last, light at the end of the tunnel. The EU economy should return to pre-pandemic GDP levels in 2022, earlier than previously expected – though the output lost in 2020 will not be recouped so quickly, or at the same pace across our Union.”
Asked about the impact of Brexit, Gentiloni said that the exit of the UK and the free trade agreement that the EU finally reached with the UK implies an output loss of around half a percentage point of GDP until the end of 2022 for the Union and some 2.2% loss for the UK in the same period. He compared these figures with the estimates in the autumn forecast, which were based on the assumption of no agreements and of a WTO-terms deal. The agreed TCA reduces the negative impact on average by about one third for the EU and one quarter for the UK.
UK will resist 'dubious' EU pressure on banks, says BoE's Bailey
Britain will resist “very firmly” any European Union attempts to arm-twist banks into shifting trillions of euros in derivatives clearing from Britain to the bloc after Brexit, Bank of England Governor Andrew Bailey said on Wednesday, write Huw Jones and David Milliken.
Europe’s top banks have been asked by the European Commission to justify why they should not have to shift clearing of euro-denominated derivatives from London to the EU, a document seen by Reuters on Tuesday showed.
Britain’s financial services industry, which contributes over 10% of the country’s taxes, has been largely cut off from the EU since a Brexit transition period ended on Dec. 31 as the sector is not covered by the UK-EU trade deal.
Trading in EU shares and derivatives has already left Britain for the continent.
The EU is now targeting clearing which is dominated by the London Stock Exchange’s LCH arm to reduce the bloc’s reliance on the City of London financial hub, over which EU rules and supervision no longer apply.
“It would be very controversial in my view, because legislating extra-territorially is controversial anyway and obviously of dubious legality, frankly, ...” Bailey told lawmakers in Britain’s parliament on Wednesday.
The European Commission said it had no comment at this stage.
Some 75% of the 83.5 trillion euros ($101 trillion) in clearing positions at LCH are not held by EU counterparties and the EU should not be targeting them, Bailey said.
Clearing is a core part of financial plumbing, ensuring that a stock or bond trade is completed, even if one side of the transaction goes bust.
“I have to say to you quite bluntly that that would be highly controversial and I have to say that that would be something that we would, I think, have to and want to resist very firmly,” he said.
Asked by a lawmaker if he understood concerns among EU policymakers about companies having to go outside the bloc for financial services, Bailey said: “The answer to that is competition not protectionism.”
Brussels has given LCH permission, known as equivalence, to continue clearing euro trades for EU firms until mid-2022, providing time for banks to shift positions from London to the bloc.
The question of equivalence is not about mandating what non-EU market participants must do outside the bloc and the latest efforts by Brussels were about forced relocation of financial activity, Bailey said.
Deutsche Boerse has been offering sweeteners to banks that shift positions from London to its Eurex clearing arm in Frankfurt, but has barely eroded LCH’s market share.
The volume of clearing represented by EU clients at LCH in London would not be very viable on its own inside the bloc as it would mean fragmenting a big pool of derivatives, Bailey said.
“By splitting that pool up the whole process becomes less efficient. To break that down it would increase costs, no question about that,” he said.
Banks have said that by clearing all denominations of derivatives at LCH means they can net across different positions to save on margin, or cash they must post against potential default of trades.
($1 = €0.8253 )
Britain agrees to EU request for more time to ratify Brexit trade deal
Britain has agreed to the European Union’s request to delay ratification of their post-Brexit trade agreement until 30 April, cabinet office minister Michael Gove (pictured) said on Tuesday (23 February), writes Elizabeth Piper.
Earlier this month, the EU asked Britain if it could take extra time to ratify the agreement by extending until 30 April provisional application of the deal to ensure it was in all 24 of the bloc’s languages for parliamentary scrutiny.
In a letter to Maros Sefcovic, vice president of the European Commission, Gove wrote: “I can confirm that the United Kingdom is content to agree that the date on which provisional application shall cease to apply ... should be extended to 30 April 2021.”
He also said Britain expected there to be no more delays.
How Amsterdam is stealing a march on rivals as Brexit trading hub
All the talk was of Frankfurt or Paris luring London’s financial business as Britain peeled away from the EU. Yet it is Amsterdam that is proving the most visible early winner. Data last week showed the Dutch capital had displaced London as Europe’s biggest share trading centre in January, grabbing a fifth of the 40 billion euros-a-day action, up from below a tenth of trading pre-Brexit, write Tommy Wilkes, Toby Sterling, Abhinav Ramnarayan and Huw Jones.
Yet that is just one of several areas the city has quietly stolen a march on its rivals as it attracts businesses from Britain, evoking memories of its history as a global trading powerhouse in the 17th century.
Amsterdam has also overtaken London to become Europe’s number one corporate listing venue so far this year, data shows, and the leader in euro-denominated interest-rate swaps, a market estimated to be worth about $135 trillion in 2020.
“There is a whole culture of trading, and to be close to that was very positive,” said Robert Barnes, CEO of London Stock Exchange-owned share trading platform Turquoise, which has selected the Dutch capital over Paris for its post-Brexit hub.
“You have some of the big institutional banks, you have specialist trading firms, a dynamic retail community. But it’s also in the heart of continental Europe.”
Cboe Europe, an equities exchange, told Reuters it was launching an equities derivatives venture in Amsterdam in the coming weeks to emulate the trading model built in its Chicago home.
Asked why Cboe chose Amsterdam over rivals, Howson said the Netherlands was where he saw “substantive growth” for his industry in Europe. He also cited the wide use of English in the city and Dutch regulation being friendly to global investors, in contrast to some European countries’ preference for championing domestically-focused firms.
“You need core Europe to be competitive on a global scale,” said Howson. “A more insular Europe or too much national interest makes that a difficult thing.”
Yet while the arrival of such businesses may bring higher tax revenues from trading volumes and private investment in infrastructure, the city is not experiencing a jobs boom, as many companies relocating there tend to be highly specialised, and smaller employers.
Turquoise’s new Amsterdam operation, for instance, sits in the former head office of the Dutch East India Company, the trading megacorporation that fuelled Amsterdam’s rise to its former finance fame - yet it only employs four staff.
The Netherlands Foreign Investment Agency, which has led the effort to woo Brexit business, told Reuters it estimated about 1,000 new jobs had been created by financial firms moving operations to Amsterdam since Britain left the EU.
That’s a fraction of the 7,500 to 10,000 jobs estimated to have left London for the EU since 2016, when Britain voted the leave the bloc, and a drop in the ocean compared with the British capital’s financial workforce, which numbers over half a million.
Many investment banks with their large staffs have looked elsewhere on the continent, deterred in part by Dutch laws that limit banker bonuses.
Amsterdam leads the European listings table this year, having attracted $3.4 billion-worth of initial public offerings (IPOs), Refinitiv data shows. That included Poland’s InPost, which raised 2.8 billion euros in the biggest European IPO in 2021 so far.
Spanish fintech form Allfunds, Dutch web startup WeTransfer and two “blank-cheque” firms - one backed by ex-Commerzbank chief executive Martin Blessing and another by French tycoon Bernard Arnault - are planning to list on Euronext Amsterdam.
At least three technology companies from Central and East European are also considering listings as Brexit dents London’s allure, bankers told Reuters.
Banking sources working on the two blank-cheque, or special purpose acquisition companies (SPACs), said Dutch regulations were closest to rules in the United States, making it easier to appeal globally.
In the euro-denominated interest rate swaps market, platforms in Amsterdam and New York have grabbed the bulk of business lost by London, whose share fell from just under 40% in July to just over 10% in January, IHS Markit data shows.
That made the Dutch capital the biggest player, an advance from last July when platforms in the city commanded just 10% of the market.
Amsterdam will also become home to the European carbon emissions trading, worth a billion euros a day in trading volumes, when the Intercontinental Exchange (ICE) moves the market from London later this year.
The Netherlands Foreign Investment Agency, which began analysing where Amsterdam could capitalise after Britain’s 2016 decision to leave the EU, said it had identified certain financial sectors where it believed it could have an edge.
“We focused on specialist areas ... that were trading and fintech,” said spokesman Michiel Bakhuizen, adding that the city played up the strength of its low-latency digital trading infrastructure.
“The big investment banks were always going to move to Frankfurt and Paris because of the Dutch legislation that is in place for bank bonuses,” he added, referring to a 2015 law limiting variable pay to a maximum of 20% of base salary.
This drive to focus on specialist areas rather than appeal more broadly could be reflected in the number of companies relocating.
In response to Brexit, 47 firms have shifted operations entirely or partly to Amsterdam from London, according to preliminary data compiled by New Financial, a think-tank.
That is lower than the 88 firms that have moved business to Paris and the 56 to Frankfurt.
Companies to have shifted operations to the Netherlands include CME, MarketAxess and Tradeweb. A handful of asset managers and banks including Commonwealth Bank of Australia are also relocating there.
By contrast, those firms that have moved departments and staff to Frankfurt have mainly been big investment banks, including JP Morgan, Citi and Morgan Stanley, while Paris has mostly welcomed banks and asset managers, according to New Financial.
William Wright, New Financial’s managing director, notes that although fewer firms have made the move to Amsterdam, the city’s share “is highly concentrated by sector, with Amsterdam having a clear lead in areas like broking, trading, exchanges and fintech”.
Amsterdam’s apparent success, however, may be flattered because Brexit has so far hit trading hardest, and such business may be easier to move.
“The early data on the impact of Brexit is mainly trading-based, hence Amsterdam looks like it is doing particularly well,” Wright added. “And I’m not making a call on Amsterdam for IPOs yet as I think it’s way too early.”
Sander van Leijenhorst, Brexit programme manager at the AFM Dutch financial regulator, said authorities would actually have preferred London retaining its dominance because of the efficiencies that come from concentrating everything in a single European hub, he said.
But once the implications of Brexit became clearer, it was obvious that Amsterdam - home to the world’s oldest stock exchange - would appeal, he added.
“There was already a group of traders here. They tend to come together, they tend to flock together.”
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