Wednesday, May 16, 2018

COLLEGE AGENDA: SAVE THE IRAN DEAL

The College of Commissioners today will be looking at options to help ease the burden of America’s secondary sanctions on EU companies, particularly small and medium-sized ones, which have less exposure to the U.S. market. Bottom line: Brussels is taking this seriously. There are three options, according to EU diplomats Playbook spoke to.

1. More EU investment into Iran, and the means to facilitate that via the European Investment Bank.

2. That old policy of disregarding any U.S. (secondary) sanctions.

3. Paying for Iranian oil in euros instead of dollars. “The oil sector is crucial for Iran and there are to be euro payments for oil transactions,” one diplomat told Playbook. Energy Commissioner Miguel Arias Cañete is due to travel to Iran later this week.

Europe staring down Trump: “We reaffirmed together our resolve to continue to implement the nuclear deal in all its parts in good faith and in a constructive atmosphere,” Federica Mogherini told a press conference on Tuesday after talks with the foreign ministers of France, Germany, the U.K. and Iran. Full details here from Maïa de la Baume and Anca Gurzu.

Summit preview: European Council President Donald Tusk sent out this letter to EU leaders ahead of their Thursday EU-Western Balkans summit (which actually kicks off this evening with an informal dinner). The main themes to be discussed over dinner are Iran, U.S. steel and aluminium tariffs, digital and innovation and the Gaza crisis. The background briefing is available here. Tusk is expected to make a statement this afternoon.

Speaking of the summit: Andrew Gray reports that leaders of the EU and six western Balkan countries will aim to show they’re still committed to each other at Thursday’s summit, but the fraught diplomacy leading up to it “shows how hard it is to get agreement among the EU’s 28 members on policy toward its Balkan neighbors.”

Vučić interview: Read Serbian President Aleksandar Vučić’s interview with the FT ahead of the summit. Best quotes: “There is no Alexander who survived in power.” And: “I’m obsessed with Kosovo … Without resolving that problem everything I have achieved so far won’t be sustainable. The first crisis will kill us.”

DOMBROVSKIS ON THE RECORD

THE ART OF THE FUDGE: It’s “relatively unlikely” that the International Monetary Fund will hand Athens any money as Greece prepares to exit its €86-billion bailout program “because the program is coming to the end,” European Commission Vice President Valdis Dombrovskis told me during our interview on Tuesday. That’s worth delving into.

Reminder: The German government only got the current Greek rescue program through the Bundestag on the condition that the IMF participate — financially, not just by shouting from the sidelines. The IMF has said it will lend Athens some $2 billion if its demands for debt relief are met, which Germany has been reluctant to grant. And, Dombrovskis said, he sees more continuity than disruption being brought to the table by the new German finance minister, Olaf Scholz.

But time is running out, as the institutions formerly know as the troika are back for what ought to be the last “review” before the official end of Greece’s program on August 20. “We’re working to ensure that the IMF is on board. It’s worth noting this doesn’t imply financial contribution on the IMF — by now I think it’s increasingly clear that the IMF is not contributing financially to the program,” Dombrovskis said.

The fine print: The IMF could set up a so-called standby arrangement that would allow Athens to quickly get a loan if it runs into economic difficulty, according to our own Bjarke Smith-Meyer’s sources. Moi here again: The IMF’s usual (high) interest rates are an incentive for Greece to avoid taking up that not-so-sweet offer — and, voilà, the IMF would have participated in the program without actually participating. Are German MPs buying it? We’ll let you know.

DOMBROVSKIS ON ITALY: “If we look at the … challenges that Italy’s facing, it’s still going to concentrate on fiscal issues, on reducing budget deficit, on putting public debt on a downward path … Actually Italy has the second highest public debt [among EU countries] — over 130 percent of its GDP — so it’s very clear that in current times of economic growth Italy needs to put this debt on a downward trajectory.”

But isn’t that the opposite of what the would-be governing coalition (more on that below) promises, or threatens, to do? The Commission is pinning its hopes on President Sergio Mattarella guaranteeing that any potential government will respect EU rules. Mattarella “has emphasized throughout this government formation process the need to stick to European commitments,” Dombrovskis said. Repubblica has more on the Italian elements of our interview here.

DOMBROVSKIS ON THE POWER OF GERMAN SPARKASSEN: “In 2015, the European Commission put forward a more ambitious proposal on EDIS [a European deposit insurance scheme]. We’re now in 2018, and discussions are ongoing. There hasn’t been much progress neither in the Council nor in the EU Parliament. That’s why we’ve now put forward ideas on how to do it in a more gradual way. I’m hoping that this can be the basis for compromise. Of course this may mean arriving at the next stage of EDIS by the next EU Parliament elections could be optimistic. It may take longer.”

On the next EU budget: Is the Commission looking for a more active role in telling countries what they should spend EU money on? “That’s true,” Dombrovskis said. “If we want to strengthen the resilience of the monetary union, we need to strengthen the resilience of its member states. This will depend on how structural reforms in those states are being implemented. We already have some tools on how to support structural reforms including some recently established support program … but here we’re coming with a more ambitious approach, not only to provide technical assistance, but also providing financial incentives for reforms. The idea is that member states would … get financial incentives for the implementation of reforms.”

On Esbies: This one’s for the connoisseurs: Any EU sovereign bond-backed securities (SBBS) should enjoy the same capital treatment as government bonds if they are to have a chance of succeeding, Dombrovskis told me. “For this concept to work, one has to have the same regulatory treatment as sovereign bonds, meaning zero-risk weights.” EU governments fear that SBBS, a.k.a. Esbies, could turn into eurobonds and hence fiscal mutualization. Not so, Dombrovskis said: The proposal “does not imply any risk mutualization … each member state is responsible for its own debt.”

On Brexit: Should bankers be prepared for a no-deal scenario? Absolutely. Or, in the commissioner’s own words: “What we are emphasizing is that market participants should prepare for all different scenarios,” the “cliff edge” included. “We know that there is a political agreement on a transition period, but this is subject to agreement on withdrawal, which is still open and under discussion.”

And on Bulgaria’s euro accession: The Commission would love that, but it’s up to the ECB and eurozone finance ministers to decide. “Works within the ECB are ongoing … and joining the euro area now also means joining the banking union.” Oh, and “it takes at least three years” to join the euro. Translation: Bulgaria, forget about getting into the common currency’s pre-accession space by the end of June.

Video here. Many thanks to POLITICO’s Gabriela Galindo, who transcribed the interview.

IN OTHER NEWS

WHAT ITALY’S POPULISTS WANT: An alleged copy of the potential government agreement between the 5Stars and League was leaked to Huffington Post Italy late Tuesday, our own Silvia Sciorilli Borrelli writes in to report. If the leak is real, it seems the two parties want: 1) to drop sanctions against Russia; 2) the European Central Bank to give Italy €250 billion in debt relief; 3) to re-negotiate European treaties and “radically reform” the stability and growth pact; 4) to revise Italy’s EU budget contributions. Meanwhile (ironically), they also stress that Italy should not leave the single currency bloc, but that there should be an “opt out” system to exit in an orderly fashion if the people so wish.

Silvia’s sideline: The demands in the supposed agreement are laughable. The numbers don’t add up, and the EU and Italian legal frameworks just don’t work this way. Being part of the single currency bloc, for one, doesn’t allow for all of their other suggestions.

THAT DIDN’T LAST LONG: North Korea has canceled a high-level meeting with South Korea and may withdraw from the highly anticipated meeting between U.S. President Donald Trump and Kim Jong Un over ongoing military exercises between the U.S. and South Korea. The latest from Christiano Lima.

EUROPE TURNS COLD ON CHINESE TECH: Europe is wising up to the fact that foreign-built 5G networks could be seeded with “backdoors” that allow communications to be funneled back to Beijing or Washington, Laurens Cerulus writes. Now German industry is pushing Brussels lawmakers to start laying out restrictions for foreign-owned equipment-makers on the Continent.

REMAIN IF YOU’RE GOOD: Qualified British officials will keep their European Parliament jobs after Brexit, according to an internal note sent by the assembly’s top staffer and obtained by Playbook. Parliament’s administration will “not require British officials to resign on the ground that they will no longer have the nationality of a member state,” reassured Secretary-General Klaus Welle. They’ll even be entitled to further pursue their careers: “I will continue to ensure that the colleagues concerned are offered meaningful career perspectives,” Welle wrote.

Welle had slightly worse news for temporary staffers, saying that “in principle, employment is terminated if an agent no longer has the nationality of a member state,” but adding that they will be able to stay on if they’re good at their jobs (to be assessed on “a case-by-case” basis). Worst off are British MEPs’ parliamentary assistants (or APAs, in Place Lux lingo). There’s a simple rule: No MEP, no assistant. “Whether the APA is a U.K. national or not,” their contracts will end on Brexit day. More, from moi, here.

CITIZEN OF NOWHERE: Paul Taylor writes in his latest Europe at Large column that he finally wants to become a citizen of France after being denied a vote in the Brexit referendum. “I’m not seeking French citizenship in a fit of pique because I believe my countrymen made the wrong choice … Nor am I motivated by material considerations … When I disagree with the government, I want to be able to vote the rascals out.”