Another day, another political and economic drama in Europe, it would seem.
If the protracted and often tortuous Brexit isn’t enough for the continent to deal with, there’s riots and civil unrest in France and budget-busting spending plans for Brussels to sort out with Italy. CNBC has a rundown of the flashpoints that have been hitting Europe this week.
No mention of the U.K., or European Union, seems possible these days without mentioning the dreaded B-word. And never more so than this week as Brexit, and Britain’s political landscape took another unexpected turn.
U.K. Prime Minister Theresa May cancelled a key parliamentary vote on the Brexit deal she struck with the EU that was due for Tuesday. That set in motion a wild (as wild as Westminster can get) chain of events culminating in May surviving a vote of confidence called by a significant number of members of parliament (MPs) within her own Conservative Party.
She survived the vote but Brexit is still as unpredictable as ever. May has to convince many within her party, and the opposition, to back her controversial Brexit deal and a parliamentary vote has to be held before January 21 2019. Brandon Lewis, the Conservative Party chairman, told to CNBC on Thursday that this would not be a difficult task for the prime minister.
“Nobody has ever said that this isn’t going to be difficult. The reality is that this is a very difficult and complicated issue,” he said.
She has asked Europe to make amendments to the deal, most notably to the future status of Northern Ireland, but Europe has so far (publicly at least) refused to budge. All this as the departure date fast approaches on March 29 2019.
Gina Miller, co-founder of SCM Direct and a key instigator of a parliamentary vote, told CNBC Thursday that nothing had really changed since the confidence vote.
“There’s a sense of paralysis that we saw before … We are now up against a deadline and the clock is ticking ever louder, the factions want very different things and the compromise is not there,” she told CNBC’s Willem Marx.
Hopping across the channel from the U.K., France has witnessed some dramatic scenes itself in recent weeks with anti-government protests turning to widespread civil disobedience and riots, violence and destruction in Paris and other French cities.
After another weekend of protests and damage in Paris last weekend, President Emmanuel Macron (a focus of anger for the yellow-vested protesters) announced tax cuts and a hike in the minimum wage.
While that may be great for working people in France, the measures are expected to cost around 10 billion euros and are going to bust France’s budget in 2019, pushing it over a budget deficit limit of 3 percent set by the European Commission.
Signalling that the EU could be lenient with France (unlike Italy) the EU’s Economics Affairs Commissioner Pierre Moscovici said Thursday that “European rules don’t forbid a one-off and limited overshooting of the 3 percent deficit threshold,” Reuters reported.
Economists said France’s actions could limit opportunities for further European integration, however.
Julien Manceaux, senior economist at ING, said in a note Wednesday that “as long as President Macron has not shown that France can be reformed, the rest of Europe, especially in the north, will not be ready to support risk sharing or tax transfers among euro zone members,” he said in a note.
If the European Commission is about to give France some leeway over its budget you can bet that Italy’s coalition government is going to make a lot of noise about it.
This especially after the Commission started a disciplinary procedure against Italy after it said its 2019 spending plans (that include pension reforms and a basic income for the poor) would create a budget deficit higher than initially promised (but still within EU limits).
There are signs of compromise, however, and Italy offered to lower its deficit target to 2.04 percent on Thursday, down from a previous target of 2.4 percent in a bid to avoid a fine from the Commission but has not given details on how it will achieve this.
Jacob Kirkegaard, senior research fellow at the Peterson Institute for International Economics said “the devil would be in the detail” when it comes to Italy promising to amend its spending plans.
“The key issue is what are they going to cut? … Certainly, the Commission will look very closely at these issues before they agree, or not, to a compromise with Rome,” he told CNBC’s Capital Connection Thursday.
Italy’s offer to reduce its deficit target come as the European Central Bank announced an end to its 2.6 trillion euro ($2.9 trillion) bond-buying program on Thursday, a program that helped the euro zone exit its sovereign debt crisis.
The winding up of the central bank’s quantitative easing (QE) program, although the bank said it will continue to reinvest cash from maturing bonds for an extended period of time, however, is a historic moment for the euro zone but it comes at a time of political and economic fragility in the euro zone with all the upheavals we’re seeing in some of Europe’s biggest economies – the U.K., France and Italy (not to mention a weakened Angela Merkel in Germany).
Speaking to CNBC from outside the ECB’s headquarters in Frankfurt, Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers, said that “even though the sun is shining on the ECB building, there are some clouds on the euro zone economy,” he told CNBC’s Annette Weisbach. “It’s important that Mr Draghi acknowledges that … the growth outlook is not looking that great,” he said.