Thursday 18 December 2014

Currently browsing 'Euro & Finance'

In early 2010, fears of a sovereign debt crisis, the 2010 Euro Crisis developed concerning some European states. What should be the response? How should economic and financial policies be coordinated at the EU level?

 

Russia encroaches on the Baltics

Posted by on 14/12/14
Russia is very persistent in the pursuit of the goal to expand its influence inside the EU at all levels and in all spheres. Moscow is constantly seeking opportunities to influence European politics and public opinion and to turn them to its own advantage. The Kremlin effectively uses numerous Russian-speaking diasporas in the EU Member States; it also provides financial support to a large number of pro-Russian organizations. Adhering to this policy line, Moscow has appeared capable to consolidate its positions in some European countries, in particular, the Baltic states. The Kremlin runs large-scale propaganda campaigns in these countries through the media which are under its control, e.g., notorious “Russia Today” and newly presented “Sputnik”.

One of the most effective leverages used by Russia for lobbying its interests is intense cooperation with the left-wing and the far-right-wing parties. For the last few years leftists, ultra-rightists and nationalists have managed to enlarge their electoral base and to increase the number of their parties’ representatives in the national parliaments and the European Parliament, exploiting economic problems and social discontent.

The Kremlin is using a whole bunch of mechanisms and instruments to deepen collaboration with these forces. Special funds and information centers creation, conferences and fora organization, exchange of visits, sharing of the best dirty campaigning practices are pressed into service. Meanwhile Moscow doesn’t forget about financial incentives to the top people and leaders. In fact, it’s a well-tuned and smoothly running bribery scheme. They are rendered assistance in exchange of some “insignificant” turn in the future. Qui pro quo. Usually they are asked to back or oppose a certain decision. One can see the impressive output of these coordinated actions. Some far-right and nationalist parties, for instance, expressed their approval for the “independence referendum” in the Crimea and acknowledged its results to please Russian tutors. The international community condemned even the fact of conducting this illegal voting; Russia’s allies, however, sent their observers to the Crimea… and there were many of them: “Jobbic” (Hungary), the Front National (France), the Freedom party of Austria, the Flemish interest (Belgium), the Attack party (Bulgaria).

Russia has been working hard to cement its influence in the post-Soviet and Eastern-European countries for a long time. The Revolution of dignity in Ukraine and signing the EU-Ukraine Association Agreement struck a blow to Russia’s imperial plans. The Kremlin reacted aggressively and violently. Russia annexed the Crimea and became a sponsor of the warfare in the Eastern Ukraine. Putin’s regime can’t afford Ukraine’s drifting apart towards the EU because it may set a precedent which the other former Soviet republics and the federal subjects of Russia will likely want to follow (It will surely lead to breakup of Russia).

Therefore, some experts consider that Ukrainian scenario recurrence in Latvia, Estonia, Lithuania is rather probable. Latvia is the most obvious target for the Kremlin’s campaigns. There is a large Russian diaspora there and an influential pro-Russian political alliance “Concord center”. However, Putin acts more cautiously towards the EU Member States. Russia’s threats are rendered by Eurasianism spinners and odious politicians (Vladimir Zhirinovsky and those of his ilk).

The Kremlin is effectively conducting propaganda among Russian-speaking population to form favorable for Russia public opinion. It is feeding popular dissatisfaction and sponsoring street protests. Moscow defames the Baltic states by manipulating public opinion and political mudslinging. It forms the image of Nazi-states, where Russian-speaking citizens are deprived of their rights; the governments cultivate hostile attitude towards Russia and Russians, etc.. Opinion polls confirm that the level of negative perception of government home policy is increasing among Russian-speaking population in the Baltic states, in particular, in Lithuania which is known for its anti-Russian stance.

Russian propaganda is disseminating the idea of so called “Russian world”. Taking actions through friendship societies, Russian language fans’ clubs, Russian compatriots abroad associations, Russia laboriously strengthens its humanitarian influence. Such organizations as “Good Russians”, “World without Nazism”, “Russian movement”, “For the progress in Latvia”, “The republic of Uzupis” are of great help to Moscow.

The Kremlin combines humanitarian expansion with threat of war. For instance, this year Russian warships approached to Latvia territorial waters more than 50 times. Russian aircraft also repeatedly conduct maneuvers near the Baltic states’ airspace. However, Moscow is not able to intimidate the Baltics because they are NATO members and the Alliance will always protect them. NATO has already approved wide-ranging plans to boost its defense capacities in the Eastern Europe, aiming to reassure anxious allies about Russia’s military ambitions. The Baltic states’ governments have already expressed their complete readiness to resist Russian war threats. Dalia Grybauskaite, the president of Lithuania, unequivocally called Russia a ”a terrorist state that is engaged in open aggression against its neighbor”. She is sure that if Russia “is not stopped then that aggression might spread further into Europe”.

Lithuania is planning to increase its defense budget by 40% in 2015. Moreover because of a rise in the activity of Russian forces in the western part of the Russian Federation, Lithuania made a decision to put several of its rapid response units on a higher state of preparedness. The country is also taking part, together with Poland and Ukraine, in the formation of a joint military init to participate in peacekeeping operations. Latvian president Andris Berzins has announced the defense budget increase up to 2% GDP. Estonia has taken measures to strengthen its defense capabilities too. The government has requested NATO to deploy its contingent in the country.

The Baltics has also agreed actions to withstand Russian propaganda. They consider that it’s necessary for the EU to finance alternative media broadcasting in Russian, to develop communication strategy towards Russia and toughen the EC regulations concerning audiovisual sector content.

What Is The Opposite Of Venture Capital?

Posted by on 11/12/14
Whilst walking home from a client meeting this afternoon I bumped into a close friend, the Danish novelist Christian Jungersen (here). My client is a highly innovative sports related technology start-up called Oulala. They are in the process of raising venture capital to enable them to help grow and scale the business. As I was [...]

Was Greece right to call a snap Presidential election?

Posted by on 09/12/14
Open Europe's Raoul Ruparel asks this question over on his Forbes blog, concluding it was probably the correct political choice but that plenty of risks remain in the process. Full post below:
The news out of Greece has been improving slightly in the past few months in a welcome change from the trend of bleak economic and political news out of the struggling Eurozone state. However, the next few months could see the country reverting to trend somewhat.

Eurozone finance ministers agreed yesterday to allow Greece a technical extension of 2 months to its bailout which is due to finish at the end of this year. This is to allow the final quarterly review of the bailout to be completed – a necessary step to ensure the reforms are in place which in turn will allow for release of the final cash payment from the Eurozone.

Following the agreement, the Greek government announced that it will hold the first round of its Presidential election on 17 December, moving it up from February.

Together these announcements have crystallised some long standing economic and political risks for Greece going into the New Year. However, there are some key questions which spawn from these decisions and also some further risks which remain unanswered, I outline them below.


How does the Presidential election work and what is the likely outcome?
  • The President (a largely ceremonial role) is elected by the Greek parliament. In the first or second round the candidate must gain 200 out of 300 votes from MPs. If this is not done then he needs 180 in the third round. If no candidate is found after three rounds, snap general elections are called (these would be around the end of January if they did happen).
  • Currently the New Democracy and Pasok coalition holds 155 seats, while the opposition Syriza party has refused to back a joint candidate (a compromise often used in the past) since it is leading in the polls and wants snap elections.
  • The government today announced former European Commissioner and Greek Foreign Minister Stavros Dimas as its candidate. 
  • There is a chance that the government can gain the 180 seats – many of the smaller parties and independent candidates would lose seats to Syriza in a new election and therefore want to avoid having one. Currently, Greek officials put the chance of success at around 50:50 (not exactly inspiring but better than some had expected previously).
What questions still need to be answered?
  • It remains unclear exactly how the extension of the bailout will play out. It is assumed the two sides will reach an agreement as before, with Greece eventually pushing through tough reforms. This is probable again but not guaranteed – the room for manoeuvre for the government is limited by the threat of elections. There is only so much they can do without harming their vote share further. Furthermore, the coalition partner Pasok is almost wiped out as a political force and therefore is scrambling for some way to boost its presence. This could lead to radical choices with an election looming.
  • There has also been little progress on exactly how Greece will fund itself for next year. The Eurozone has said it is supportive of granting Greece an precautionary credit line – but this is complicated by a number of factors, not least that it is not very precautionary since it seems almost guaranteed that Greece will need to tap it.
  • Furthermore, the involvement of the IMF remains unclear. Greece harbours significant resentment towards the IMF and wants to move away from their funding, even though they are still due to pay out another €9bn in 2015 and 2016. If they stay, they will need guarantees that Greece will be able to fund itself for 12 months, and if they leave their funding stream will need to be replaced.
Was the government right to move up the vote?
  • It is a risky play, but I think it was probably the correct decision (at least from a political perspective). The key reason is that the uncertainty around what comes after the current bailout (which now ends in February) takes some power away from Syriza. The government has proven it can negotiate with the EU/IMF/ECB Troika and has a track record of managing crises. Syriza does not. As we have seen in Greece over the past few years, fear of uncertainty and possible increasing the chance of Grexit once again can be an important factor in peoples’ voting and thinking.
  • Furthermore, the ideal position for Syriza is that a follow on programme would have been negotiated before the vote on the President and potential elections. This would have provided certainty and a platform which Syriza could try to negotiate a new bailout programme and a restructuring of Greece’s debt.
  • One key question which remains unanswered is, what would happen if elections take place and Syriza win? While Syriza claim to support euro membership they want a fundamental change in the way Greece approaches European issues. Notably they want a debt restructuring and a complete overhaul of the programme for reforms and consolidation in Greece which accompanies the bailout (or presumably which would tie into a restructuring). This seems very unlikely to materialise, but it is not clear if they would push for a Greek exit from the euro if their demands are not met or if they would temper their position.
  • All that being said, if this doesn’t pan out, then Greece will face elections early next year, in a climate of serious uncertainty with no clear plan to exit the bailout. Then again, this was always the risk and may always have materialised.
Overall, risks are coalescing in Greece once again. The fundamental questions over how to fund Greece in the medium term (as it economy tries to recover) or how it will continue to deal with incorrect interest rates and a too strong currency have never been answered. The government’s plan to move up the election is a risky one but politically probably the correct option. Ultimately, the next few months will be a bumpy ride for Greece, but the wider Eurozone should not be too affected since it has plenty of buffers in place to deal with such a crisis.

Bilanz der Griechenland-Hilfe

Posted by on 08/12/14

Die Bilanz der Griechenland-Hilfe seitens der Troika aus EU, IWF und EZB ist niederschmetternd: neben gestiegenen Steuern, gesenkten Sozialausgaben, Massenentlassungen und Lohnkürzungen stehen da ein Einbruch der Volkswirtschaft um 25 Prozent, eine auf 177 Prozent (des BIP) gestiegene und nie zurückzahlbare Staatsverschuldung, eine 26-prozentige Arbeitslosenrate, die unter den Jungen gar noch das Doppelte ausmacht, und die überschwängliche Freude über ein BIP-Wachstum im Ausmaß von einem halben Prozent… Die Griechen demonstrieren nun gegen die EU und gegen neue Sparmaßnahmen, die ihnen wegen Hilfen abgenötigt werden, deren Ausmaß gerade mal 0,008 Prozent des BIP ausmachen. Denn sie spüren auf ihrer eigenen Haut…, dass dieses Rezept nicht funktioniert.

Russian nuclear cheese for a Hungarian mouse

Posted by on 08/12/14
Geschichte ist irreparable Politik
(Sigmund Graff, a German writer)

Hungarian politician Victor Orban started his political career on the tide of anti-soviet rhetoric in the late 1980s, when communist regime lived out the remainder of its days in Hungary. At those times the young democrat’s attitude towards Russia and Russians was very negative and even aggressive. When Orban became a prime-minister in 2002 he gave preference to follow a Hungarian political tradition: The authorities maintain friendly relations with Moscow; opposition criticizes the authorities and is hostile to Russia. Orban’s active cooperation with Russians was quite productive. When Orban moved to the opposition camp, his party “Fidesz” launched active anti-Kremlin campaign again. Orban repeatedly stated that he had slammed the door in Russia’s face. He stressed again and again that Hungarian government had to do its best not to give Russians the opportunity to climb in through the window. Orban returned to power in 2010. Shortly after being appointed the prime-minister, he forgot completely his oppositional orations and announced “The Eastern Winds Doctrine” to strengthen relations with countries to the east of Hungary. Russia has been assigned a prominent part in the framework of this strategy. Many instruments of cooperation between two countries have been created or restored; contacts at the highest level have intensified. Orban pretends not to realize that his “friendly pragmatism” policy towards Russia is a part of Moscow’s strategy aimed to weaken Brussels through bilateral talks with an individual Member State.

Orban’s government internal policy actions have also given rise to amazement. “Fidesz” had pushed advantageous to it amendments to the Electoral law through the parliament and secured itself comfortable existence for a few election cycles. Opposition was deprived of key positions at all important state institutions. The governing party has gained control over judicial system, law enforcement bodies and media.

The EU doesn’t fully understand Hungarian maneuvers. Democracy is one of the cornerstones the EU is built on. However, the Hungarian leader affirms “The new state that we are building today is not a liberal state … freedom doesn’t make its core element”. It is clear that Orban has found the country he wants to follow the example of. “There are not western in nature and not liberal, and may be they are not even democratic systems, and yet they are successful, like … Russia”. It’s not surprising that Orban with his particular seeking-out-a-new-form-of-state approach has enlisted Putin’s full-scale support. They share the views and the values.

Budapest is impeding (with enthusiasm) European initiatives aiming to limit the Kremlin’s ambitions in exchange for Russian investments and credits. Official Budapest reaction to the Crimean crisis was rather unfortunate. Orban’s government has also made decisions that have been awkward for the Eastern Partnership initiative.

In line with friendly pragmatism strategy, Hungary allowed Russian company “Rosatom” entrance to its market. Budapest received 10 bn euro for its Paks nuclear power plant. However, the implications of the deal may be troublesome to Hungary in the context of EU integration of electricity sector as in the long run it will facilitate expansion of Russia to other EU markets. The Russia’s generous gift makes Hungary dependent on Moscow and its whims for many years to come. Hungary should always remember that there is no such thing as a free lunch. Russia with its disastrous economic situation is not in the position to be engaged in charity. Putin will compel Hungary to work off every euro.

Since Victor Orban took his chair, Hungary has undergone difficult times: economic situation has become grave, street protests have often taken place. Citizens of Hungary demonstrate their grievances against Orban’s administration, their dissatisfaction with the “Fidesz” political leadership and Orban’s dictatorship, corruption, suppression of opposition and independent media, impoverishment and unemployment growth. The extraordinary incident took place recently. The USA rejected to issue visas to 6 government officials suspected of money laundering. It was quite a situation. Washington is not used to treat its NATO allies this way.

Friendship with Putin and Russian money cannot compensate failures of Orban’s policy. The Eastern opening of Hungary should be subordinated to the growth in prosperity of the Magyar people.

Reforming European corporate income taxation

Posted by on 07/12/14

The recent revelations about complex financial transactions of some 300 major companies profiting from differentials between corporate income tax bases and rates among member states and specific tax deals reducing their tax bill raise questions about the compatibility of national company taxation regimes with an economic and monetary union.

After several fruitless efforts during the past the moment may have come for a leap forward.

Ideally, the EU should introduce an EU-wide corporate income tax for financing the EU budget.

In 2014, the average corporate income tax rate of the 28 member states was 23%, varying between only 10%-15% for Bulgaria, Cyprus, Ireland and Luxembourg and rates exceeding 30 per in seven member states (Belgium, France, Germany, Italy, Malta, Portugal and Spain).

This diversity allows companies to find ways and means for having their profits taxed in low-tax countries like Luxembourg or Ireland and for governments to use low corporate income taxes and specific tax arrangements to allure companies establish their legal headquarters kin their countries, though the bulk of the business may take place in other parts of the EU.

This what Ireland, Luxembourg, Netherlands and Cyprus have practised. The approach is perfectly legal, as member states continue to be full masters of their income tax systems. But it constitutes an unfriendly act towards their neighbours whom they deprive of tax revenue of billions of Euro.

The minimum answer to these dubious fiscal practises would be a harmonisation of the corporate tax bases and rates within the EU and full transparency of tax deals with companies.

The most ambitious response would be for the EU to place the corporate income tax under EU jurisdiction, which is the case in federal federal states like USA, Germany and Brazil.

The combined revenues from the corporate income tax in the EU account for 2.6% of GDP, more than twice the amount of EU budget. The simplest way would be for the EU to introduce a corporate income tax with a rate of some 12%, enough to finance EU expenditures.

Member states would be free to maintain a corporate income tax of their own, provided they apply the EU-wide tax base. National tax deals with companies would lose their attractiveness because of lower rates throughout the EU.

This system would greatly simplify the financing of the EU budget, which would be based on the corporate income tax, import duties/levies and penalties.

The opposition to an EU corporate income tax would be immense and come from three quarters: member countries critical of any additional transfer of competences to the EU; those with low-tax regimes and those which may feel better off with the present way of financing the EU budget.

For the EU to survive in the future it will need much more solidarity among member countries. The use of low corporate income tax rates and fiscal manipulations by mostly small and wealthy member states will no longer be tolerated when billions of Euro profits go untaxed because of fiscal paradises in certain parts of the EU.

Europe has to take the courage and  tackle these fiscal anomalies that have far too long escaped a political debate. The best way to do so is for the Commission to produce a white paper on profit taxation in Europe as a first step towards legislative proposals

Eberhard Rhein, Brussels, 25/11/2014

EU falling short on implementing bank capital rules

Posted by on 07/12/14
The BIS Basel Committee has today released its assessment of the EU’s (and the USA’s) implementation of the Basel III rules on bank capital and it does not make good reading for the EU. They key findings of the report are (as detailed in the press release and the graphic below, click to enlarge):

  • “Eight of the 14 components meet all minimum provisions of the relevant Basel standards and these were therefore graded as "compliant".”
  • “Four of the components were assessed as "largely compliant", reflecting the fact that most but not all provisions of the global standard were satisfied.”
  • “One component - the Internal Ratings-based (IRB) approach for credit risk - was assessed "materially non-compliant" and pertained primarily to the treatment of exposures to SMEs, corporates and sovereigns.” In particular, the report notes that exposures to SMEs are given concessionary risk weightings, presumably to try to encourage this specific type of lending, however it is nonetheless not in line with the rules. Furthermore, it finds that banks are given a significant amount of leeway in how to value their sovereign debt holdings, with most across the EU simply applying zero-risk weighting – again this is a deliberate attempt to limit any distortions to the sensitive Eurozone government debt markets.
  • “Another component was found to be "non-compliant". This relates to the EU's counterparty credit risk framework, which provides an exemption from the Basel framework's credit valuation adjustment (CVA) capital charge for certain derivatives exposures.” Essentially the current rules allow exemptions for instruments which are not traded on exchanges or the wider market and therefore may be hard to value. Furthermore, this “materially boosts bank capital ratios,” though the report accepts that the EU is considering changes to these specific rules.
  • Overall the EU was given the second lowest rating (on a scale of four) of “materially non-compliant”, making it the first jurisdiction to be found on the whole not the be complying with the Basel rules. The assessment is also particularly poor compared to the US, which was found to be “largely compliant” with the rules, in general its failings also seem to be more minor as well as less numerous.
The European Commission’s response can be found here, while there is also a response section following the executive summary in the main report. The EC claims the EU’s approach is “particularly ambitious approach, unique in the world”, which is true to an extent given the diverse nature of national banking systems. The response notes that some changes are already in the pipeline, but largely challenges the interpretation which the Basel Committee makes of the rules. On the whole it is not entirely convincing but then, since the Committee cannot force the EU to change, it seems the Commission is largely happy to ‘agree to disagree’ on a number of areas.

While all of this may seem rather mundane and technical it does have some important implications.

First off, it raises questions about the quality and thoroughness of the recent ECB and European Banking Authority stress tests. We, along with plenty of others, have already raised concerns about this and the report adds further weight to those concerns. Furthermore, the specific problems outlined would certainly have helped present European banks as having higher capital ratios largely by reducing the perceived riskiness of certain assets they hold.

A report by Yalman Onaran for Bloomberg earlier this week highlighted the problems relating to the use of banks internal models to weight risk by contrasting this approach to that of using the pure leverage ratio. As the article notes, under the leverage ratio approach 12 large European banks would need to raise a further €66bn in capital. While neither approach is perfect, the Basel Committee’s indictment of the bank’s internal models and the way a large number of exposures in a number of sectors are valued seems to support such analysis and criticisms.

The second important implication is that is once again clearly highlights that the EU probably remains the more important level of policy making and legislation than international level or international organisations – at least when it comes to how things are structure on the ground.

Despite agreeing to follow the Basel III rules the EU is the one that designs and implements the specific legislation. In this case it has clearly altered the rules significantly to suit its own needs – the gap with the original rules as well as how they are interpreted and implemented in other jurisdictions is clear. Furthermore, while the Basel Committee can issue a damning judgement of the EU’s approach, it cannot force it to change. In this relationship all the hard (legal) power lies with the EU. This also extends beyond just implementation to interpretation. Despite writing the Basel III rules the Basel Committee is not even able to guarantee primacy on how they should be interpreted as the EU’s response to the report clearly shows.

Energy security for Europe or profit for Lukoil?

Posted by on 04/12/14

Despite the Russian invasion in Ukraine leading to EU and US sanctions against Moscow and major Russian energy companies, public banks supported by EU countries are just gearing up to offer a one billion dollar loan to Russian company Lukoil for gas extraction in Azerbaijan.

by Fidanka Bacheva McGrath, cross-posted from the Bankwatch blog

Half a billion dollars from the European Bank for Reconstruction and Development (EBRD) and another half billion from the Asian Development Bank (ADB) are to be invested in Lukoil’s 10 percent share in the Shas Deniz offshore gas field in Azerbaijan (a final decision by the banks is expected in early 2015 but seems certain). (A little reminder: the EBRD is a public bank of both the EU and the US, with EU countries holding over half of voting rights. The Europeans also hold 15 percent of voting shares at ADB.)

The two banks will finance two bridge-linked offshore gas platforms, 26 subsea wells, 500km of subsea pipelines, the expansion of the gas plant at Sangachal Terminal and the South Caucasus Gas Pipeline expansion.

The Shah Deniz oil and gas field is envisaged to be the main provider for one of Europe’s pet energy projects, the Southern Gas Corridor, a set of planned pipelines meant to bring gas into Europe from the Caspian region. The transportation infrastructure included in the Southern Corridor includes three major pipelines — South Caucasus, Trans Anatolian and Trans Adriatic — and all the Corridor is expected to require a total investment of more that 35 billion euros (45 billion US dollars).

The Southern Gas Corridor has been on Europeans’ minds for years but support for it gained even more momentum since the crisis in Ukraine, with advocates arguing that it is necessary to ensure the EU’s energy security in the face of an ever more aggressive Russia. Various components for the Corridor are now deemed priority energy projects for the EU and are being fast-tracked for financing by European public banks.

The first announcement for European public money support for the Southern Gas Corridor was made by the EBRD President Suma Chakrabarti at a press conference in Baku in July 2013. This July, the bank’s Director for Energy and Natural Resources, Riccardo Puliti, said that the EBRD is considering financing of up to 700 million US dollars for the Trans-Adriatic Gas Pipeline (TAP) and the Trans-Anatolian Gas Pipeline (TANAP) projects.

Yet the promise of the Southern Gas Corridor as a guarantor of EU energy security and independence from Russia is questionable for more than one reason. For one, Azerbaijan is in no way a more secure country of supply than Ukraine or Russia. The unresolved conflict between Azerbaijan and Armenia over Nagorno Karabakh, Russia-backed separatist regions like Abkhazia and South Ossetia claiming independence from Georgia, the threat of Maidan-style social unrest provoked by increasingly oppressive and corrupt elites in the region all pose a threat to the stability of Azerbaijan and neighbouring countries on the route of pipelines.


Read also

Azerbaijan – Land of fire and repression. A Bankwatch photo story.

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The EBRD justifies its loans by claiming they have a positive „transition impact” on the countries where the projects are located. Yet gas infrastructure is rarely a guarantee of peace and security as the example of Ukraine shows very well. On the contrary, energy politics undoubtedly contributed to the civil war in the country which delivered the final blow to Ukraine’s unstable economy.

And perhaps the most obvious irony in all of this is the willingness of international financing institutions backed up by Western governments to work with Russian company Lukoil on this project deemed crucial to the EU’s energy security from Russia. And this despite countless bombastic political statements from the West blaming Russia as an aggressor and calling for independence from it.

As a matter of fact, Lukoil is a long term client of the EBRD. The company has already received five EBRD loans since 2000, amounting to 840 million US dollars, of which 310 millions went for the Shah Deniz field development in Azerbaijan. The currently proposed half a billion loan follows an earlier investment of 200 million US dollars for Shah Deniz stage 1 extension of field development, which was approved by the EBRD in January this year. At the time, the EBRD stated that ‘this project has a high level of transparency and is adhering to strict international and national standards’.

The EBRD claims that its experience with the Shah Deniz development is positive and that the lead operator, British Petroleum, ‘has demonstrated a responsible approach to environmental and social issues’. But such assessments are hard to confirm, due to the crackdown on independent critics of the Ilham Aliyev dictatorship, the threats to freedom of expression and the persecution of human right defenders in Azerbaijan.

And if Lukoil company practices back in home country Russia are anything to go by, then we have only reasons for concern. In 2007, the EBRD invested 300 million US dollars in Lukoil’s strategic environmental programme in Russia which included, among others environmental remediation investments, pollution clean-up, pipeline replacement and gas flaring reduction.

At the end of 2013, shortly before the latest EBRD loan to Lukoil was approved, Lukoil was fined 614 million rubles (18.5 million US dollars) for nine oil spills since 2011 in Russia’s northern republic of Komi, which covered an area estimated between 20.5 and 21 hectares of land in the province. Reportedly Lukoil-Komi spent 15 million rubles on recultivating the polluted land, but the court ruled it to be an insufficient measure.

Greenpeace Russia produced a shocking video and reported accounts of indigenous Komi people who failed to note the ‘environmental benefits’ that the EBRD financed, but instead complained about lack of consultation on well construction in their backyard and a cover-up attempt of a leaking oil pipeline. In April the municipal council of Izhma district supported claims of local community and voted to stop oil company Lukoil operations in the area. A rally on Sunday, Nov. 16 [ru] was only the last protest by indigenous people from Komi against the damage from Lukoil operations.

Lukoil is a company with a poor environmental and safety record, in Russia and abroad. This should be enough reason for the EBRD to halt loans to it. Since the Ukrainian crisis, support for Russian energy companies from European public finance is hardly excusable. Finally, the deal is being justified by energy security needs of Europe, though Azerbaijan is far from a secure country of supply and Europe’s energy security would be much better ensured through domestic renewables and energy efficiency than through mega-pipelines bringing fossil fuels from countries with authoritarian regimes.

The way the Sourthern Gas Corridor and the political situation in the EU neighbourghood look today, one has to wonder whether the only ones to surely win from these loans are not the oil and gas companies involved in the development of these oil and gas fields and pipelines. The likes of British Petroleum, Turkish TPAO, Azeri SOCAR, Russian Lukoil and Iran’s Nico, members of the consortium in charge of the Shah Deniz field. Should we really use scarce European public resources to prop up the profits of such companies?

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Read more>

Azerbaijan – Land of fire and repression
A Bankwatch photo story.

Read and watch >>

War in Ukraine is an alarm signal for Europe

Posted by on 04/12/14
By Tyszecki European leaders are trying to avoid expressing their real assessment of the situation in Ukraine in public. Such a reticence is caused by many factors, and the absence of unanimity inside the boat of European politics is the most important of them.

Europe’s economy is still sinking while its politicians rearrange the deckchairs

Posted by on 01/12/14

The European Union is facing an existential crisis, argues Whitehouse Chairman Chris Whitehouse.

To read Chris’ article, please click here.

The Whitehouse Consultancy is one of Europe’s leading public affairs and communications agencies.

Will the Juncker Commission initiate unified Eurozone external representation?

Posted by on 01/12/14

As the response to the Eurozone sovereign debt crisis has shown, when push comes to shove, EU Member States are willing to accept a further transfer of powers to the European level. However, they are – understandably – not so keen on reforms that diminish their international stature. The long overdue consolidation of the Eurozone’s external representation, identified as one of the building blocks of a ‘genuine’ Economic and Monetary Union (EMU), was perpetually delayed under the Barroso Commission. EU Member States, it appears, are still not ready to accept this particular curtailment of their powers. This raises the question whether the new Juncker Commission will be able to seal the deal fifteen years after the Eurozone came into existence.

By Chris Koedooder


A ‘genuine EMU’ calls for unified external representation, says the Commission…

The consolidation of the Eurozone’s external representation is a comparatively minor step on the road towards a ‘genuine EMU’; nonetheless, it carries great symbolical significance. Presently, various EU Member States represent the Union in international financial institutions. A seat at the table in top-level international negotiations brings status, so naturally Member States are reluctant to give up their privileged positions (which often reflect post-WWII power relations rather than our current international economic order). For quite a while now, the Commission has hinted that at some point in the near future it will finally try to break the political impasse which has existed on the issue since 1998, when an initial Commission proposal was not followed up by the Council.

When the sovereign debt crisis was at its peak, Commission President Barroso argued on multiple occasions that a strengthening and consolidation of the Eurozone’s external representation should be pursued. Barroso appeared confident that the Eurozone Member States could be persuaded to give up their seats in the International Monetary Fund (IMF). He even announced that the Commission would present “before the end of 2013” a proposal “to establish a unified position to achieve an observer status of the [Eurozone] in the IMF executive board, and subsequently for a single seat”. As will be explained below, the latter is currently not legally possible.

Why should the Union acquire a seat in the IMF Executive Board though? The IMF emerged from the global financial crisis as the premier international financial institution, so the Union – if it wants to be a strong global actor – should strive to maximize its influence within this institution. Moreover, in recent years, a number of EU Member States have had to call upon the IMF for financial support as a result of either the financial crisis or the sovereign debt crisis. Certain IMF Executive Board decisions, e.g. on policy conditionality, therefore have a direct impact on individual EU Member States and the Eurozone as a whole. Yet, although often perceived by third countries as over-represented in the IMF, the Union’s influence does not actually correspond with its Member States’ cumulative voting share, unlike in the World Trade Organization (WTO) for example. What is more, the coordination among Member States that already takes place “rarely results in effective representation”, because they seldom agree on common positions (see this CEPS report).

 

… but is a unified external representation feasible?

Can a unified external representation of the Eurozone be achieved under the current Treaties, as the Commission has argued? The answer is yes. Article 138(2) TFEU, which applies only to Eurozone Member States, provides that “[t]he Council, on a proposal from the Commission, may adopt appropriate measures to ensure unified representation within the international financial institutions and conferences. The Council shall act after consulting the European Central Bank.”

Somewhat problematic, however, is Article 17 TEU as read in combination with Article 219(4) TFEU. Article 17(1) TEU states that the Commission “[w]ith the exception of the common foreign and security policy, and other cases provided for in the Treaties, [...] shall ensure the Union’s external representation”. One such ‘case’ appears to be EMU. Article 219(4) TFEU provides that “[w]ithout prejudice to Union competence and Union agreements as regards economic and monetary union, Member States may negotiate in international bodies and conclude international agreements.” This means that Eurozone Member States, despite having fully transferred their sovereignty to pursue monetary policy to the ECB, can arguably keep their seats in the IMF and other international financial institutions without acting in breach of the Treaties.

Thus whenever monetary policy matters are being discussed at the international level, for example in the IMF executive board (which conducts the Fund’s day-to-day business), Eurozone Member States speak about – and decide on – issues without any longer possessing the corresponding powers domestically. True, there is already a certain level of coordination among EU Member States at the IMF, but there really ought to be one single Eurozone voice. After all, the Union’s exclusive competence in the area of monetary policy for the Eurozone Member States entails parallel exclusive competence in external relations, as is confirmed by the wording of Article 219(3) TFEU.

The continued presence of Eurozone Member States within the IMF, then, is often justified on the grounds that the Union’s competences in the area of economic policy are still limited. Crucially, though, such a view neglects the fact that the IMF is first and foremost a monetary institution; the Fund’s involvement in economic policy merely derives from its primary functions. In sum, the feasibility of a unified external representation of the Eurozone is thus not so much a legal question, but rather a political one. Of course Member States do not want to lose control over their foreign and economic policies, but undeniably the Union’s internal competences, tasks, and responsibilities in the area of economic policy coordination (and financial supervision) have been upgraded considerably. This should tilt the balance in favour of unified Eurozone external representation.

 

The issue of IMF membership

There is, however, one significant legal hurdle that should not be left unmentioned here. Article II, section 2 of the IMF Articles of Agreement, the Fund’s founding charter, provides that membership is only open to “countries”. Thus, for the Union to become a member of the IMF, the Articles of Agreement would first have to be amended. This requires the acceptance by three-fifths of the IMF Members, having 85 % of the total voting power. In the past, negotiations to have the Union become a member of other international organizations proved to be laborious. Even if a sufficient number of IMF Members would agree on the need to amend the Articles of Agreement for this purpose, EU Member States would likely have to make major concessions in terms of their overall voting share.

Be that as it may, in so far as Eurozone Member States are no longer able to fulfil their obligations under the IMF Articles of Agreement without encroaching upon the Union’s exclusive competence, it can be argued that they have a duty to take “all appropriate steps to eliminate the incompatibilities” between the Union Treaties and the Articles of Agreement (see Article 351 TFEU). Such steps could involve a cumbersome renegotiation of the Articles of Agreement or more pragmatic solutions, like enabling the Union to substitute for its Member States as a de facto IMF Member, following the example of the GATT 1947.

 

New mandate, new opportunity?

The new Commission President, Jean-Claude Juncker, has in the past expressed his dissatisfaction with the status quo in quite harsh terms. It is therefore no surprise that consolidation of the Eurozone’s external representation is also implied in the Commission’s stated aim to make the Union a stronger global actor.

When the European Parliament recently asked Frans Timmermans, the Commission’s first Vice-President, in charge of Better Regulation, Inter-Institutional Relations, the Rule of Law and the Charter of Fundamental Rights, to present his views on the institutional implications of the crisis before his hearings in the Parliament, he answered that the Union should respond to the crisis with “more coordination, more convergence, more social dialogue and a better external representation”. On the latter, he added:

The external representation of the euro area is something that merits being addressed more closely. Articles 17 TEU and 138 TFEU would allow this. The euro area needs to be represented in a way that is aligned with its economic weight, in particular in fora such as the IMF. If I am confirmed as Commissioner I will be keen to see the Commission launch a discussion about how to achieve this with our Member States, many of whom have traditionally been reluctant.”

Yet when asked how he intends to overcome Member States’ resistance, Timmermans’ position was decidedly less straightforward. He warned that a move towards a single representation for the Eurozone would at present diminish Europe’s clout in the IMF and noted that reform of the IMF’s governance structure, necessary to allow for Eurozone representation, would take time. Furthermore, he added that the question of the Eurozone’s external representation will arise in all its seriousness once the Eurozone comprises virtually all Member States. This would seem to suggest that unified Eurozone external representation is still very far away.

Nonetheless, statements by two of Timmermans’ new colleagues suggest a proposal may actually be forthcoming. Pierre Moscovici (Economic and Financial Affairs) stated that “[r]einforced external representation of EMU” strikes him as “a natural and desirable consequence of greater integration within EMU”. Valdis Dombrovskis (Euro and Social Dialogue), for his part, indicated that he will “work towards a proposal for a more efficient external representation of [the] Economic and Monetary Union”. What is more, Dombrovskis informed the Parliament that both their cabinets are currently “working in order to come up with pragmatic arrangements to be presented by the beginning or within the first weeks of [the new Commission’s] mandate, as demanded by President-elect Juncker”.

At present, though, the division of labour between Moscovici and Dombrovskis is unclear. As reported by the Financial Times, when asked which of the two will represent the Commission in international meetings like the IMF and the G20, Dombrovskis was unable to produce a satisfying answer. Juncker, in a follow-up letter to the Parliament, subsequently kept things unnecessarily vague by stating that he expects “the decision to be taken depending on the topics on the agenda”.

 

The Commission will have to play it smart

The idea that Eurozone external representation should be organized more efficiently is evidently gaining support at the European level. As a matter of fact, the European Parliament quite regularly calls upon the Commission to put forward a proposal on the basis of Article 138 TFEU. The Commission has reportedly already been working out the details of a proposal behind the scenes, contemplating how and – importantly – when the argument that a strengthened external voice of the EMU is an integral part of the current efforts to improve the economic governance of the Eurozone can best be presented.

All things considered, the Juncker Commission seems to have the intention of initiating unified Eurozone external representation during the first year of its mandate. Yet if it wants to succeed where its predecessors failed, the Commission will have to show some audacity in confronting uncooperative Eurozone Member States in the Council; audacity that the Barroso Commission so obviously lacked. This requires political brinkmanship, but it can be done. In any event, the new Commission would be well-advised to partner up with the European Parliament this time.

Convincing Member States is, however, only part of the challenge that the Commission faces. By renegotiating the IMF Articles of Agreement, the Union and its Member States may be opening Pandora’s box. Other IMF Members, the BRICS countries in particular, would likely want to see their growing economic weight translated into increased voting rights at the expense of EU Member States in return for a single seat, if they are willing to cooperate at all. For this reason, political actors at the European level should consider carefully which form of unified external representation ultimately best serves the Union’s and the Member States’ interests.

 

This blog post was first published at europeanlawblog.eu on 13 November 2014.

Chris Koedooder, MA, LLM is a PhD researcher at the Amsterdam Centre for European Law and Governance. His personal page can be accessed here.

Objectifs et actions de la Commission Juncker.

Posted by on 29/11/14

Quels sont les objectifs et quelles vont être les actions de la Commission Juncker ?

Extraits de la chronique RCF du 12 novembre 2014

D’abord redonner des couleurs a une Union inquiète et fébrile. La montée des nationalismes est, avant d’être une source d’inquiétude pour le système démocratique européen, le résultat d’un immobilisme et d’une incapacité à faire de l’Union une puissance plutôt qu’un simple marché. Le défi est là pour Juncker qui qualifie lui même “sa” Commission de celle de “la dernière chance”.

Pour y arriver il a définit devant le Parlement européen 10 priorités et ouvert 5 grands chantiers. L’ensemble tournant autours de trois axes principaux: Compétitivité et emploi en Europe, une Europe au service de ses citoyens et capable d’agir sur la scène internationale.

On n’est pas étonné de voir que la croissance est inscrite dans le projet de la nouvelle commission.

Elle en est même le thème central. il y a aussi une poursuite dans la mise en oeuvre depuis 2010 de la stratégie de réponse aux crises de 2008 et 2009. Une croissance qui se veut intelligente en utilisant les leviers de l’éducation, de la formation et du numérique, durable en agissant sur l’environnement, la biodiversité et l’énergie et inclusive car il s’agit de réduire la pauvreté et les inégalités sociales qui de développent dans les 28 états membres de l’Union européenne.

 

Who leaked the Luxleaks?

Posted by on 28/11/14

Yesterday a Ukrainian television asked me who leaked the Luxleaks. Not that they thought I knew. Their basic question was “Quid prodest”, who benefits from Luxleaks? They had in mind their country, which badly needs a strong Europe, rather than a weak one. The assumption is that by weakening Juncker, Europe is weakened. So who was pulling the strings?

Short question, short answer.

I said two things. First, I have no doubts that the Luxleaks, the famous Luxembourg tax files, were given to journalists by an intelligence service. We journalists are not equipped to get such files ourselves.
Secondly, the respective intelligence service has obviously been tasked to weaken Juncker. And indirectly, to weaken the EU.

I said I could think of two leaders who want to weaken the EU – David Cameron and Vladimir Putin. Cameron was against the appointment of Juncker in the first place, and according to my information, the Luxleaks were given to the journalistic consortium in May. That’s when Juncker won the European elections as “spitzenkandidat”.
Also, now that Luxembourg is under the spotlight, the London City can breathe.
But on the other hand, Luxleaks is now pushing the EU toward tax harmonisation, something London doesn’t want.

Putin too would like to weaken the EU, I said, and didn’t elaborate, as I was speaking to a Ukrainian audience.

Journalists protect their sources. That’s good; our profession is based on this trust. Journalists have also the duty not to be manipulated. Should they have refused to run the files? It’s a tough choice, because the Luxleaks are very valuable material.

we need a new and effective global regulation of finance to overcome crises

Posted by on 27/11/14

ONLY THROUGH A GLOBAL REGULATION (not overregulation) OF LOCAL AND INTERNATIONAL FINANCIAL MARKETS IT IS POSSIBLE TO AVOID NEW DANGEROUS FINANCIAL AND ECONOMIC WORLDWIDE CRISIS

The recent dramatic financial crisis demonstrates that the international and local financial markets must be regulated from a new global system of laws .. this does not mean an OVERREGULATION .. but NEW and LESS RULES that must be applied unconditionally in all countries and to all financial operators without exception. The United Nations and the International Monetary Fund must guarantee the correct application of these rules .
Only this new global system of rules accepted by all countries can avoid not only the anarchy in speculation with dramatic economic and social effects on the whole economy but also stop the dangerous flow of money coming from criminal activities

The UK’s EU policy, progressive meltdown and rejection of `bankers’ bonus’

Posted by on 27/11/14
by Graham Bishop, EU Political, Financial, Economic and Budgetary policy expert and founder of www.grahambishop.com /// The pace of collapse seems to be accelerating – and the commercial consequences for the UK may well intensify correspondingly, especially for the City of London. The timeline of the divergence between the UK’s attitude to the EU and [...]

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