Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading

Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading

Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading

Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading

Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

Continue Reading

Categorized | Economy

EU budget talks will be tricky


Posted on August 31, 2016

©Getty

Budget negotiations among EU member states are never a pretty sight. With Britain on its way out of the 28-nation bloc, they are at risk of turning very ugly indeed.

Britain is one of the largest contributors to the EU budget. It pays in much more than it receives (according to the UK Treasury, Britain’s net contribution was £10.5bn in 2013, £9.8bn in 2014 and £8.5bn in 2015).

    Once Britain is out, the other 27 governments will face a range of politically unpalatable choices. First, they could leave the EU’s 2014-20 budget unchanged at €1.087tn and ask each member state to compensate for Britain’s departure on a scale proportionate to its gross national income.

    Barbara Böttcher and Laura Rosenberger of Deutsche Bank Research calculate that, under this formula, Germany would pay an extra €1.9bn a year, France would stump up €1.4bn and Italy €1bn.

    Germany, having racked up an €18.5bn budget surplus in the first half of 2016, equivalent to 1.2 per cent of annual economic output, might fork out this extra money without much domestic political controversy.

    But would the same be true for France and Italy, where economic growth ground to a halt in the second quarter of this year? The French and Italian political classes and voters might resent paying more into the EU coffers, when their governments are under persistent pressure from Brussels to curb their budget deficits.

    Under the Deutsche Bank scenario, Poland, Spain and other net beneficiaries from the EU budget would receive less EU money after Britain’s departure. How would that go down in Madrid, Warsaw and other capitals?

    As a House of Commons Library briefing paper explains, Britain is, on a per capita basis, the third largest net contributor to the EU budget. In 2015 the largest was the Netherlands (€331 per head), followed by Sweden (€262), Britain (€215), Germany (€211), Denmark (€175), Austria (€109), Finland (€96), France (€92), Italy (€59) and Cyprus (€32).

    All other 18 EU nations were net recipients — though the data are somewhat distorted for Belgium and Luxembourg, which are classified as net recipients largely because the EU spends billions of euros on administrative costs in these two countries.

    The conclusion is clear. If the EU decides not to change its 2014-20 budget, Britain’s departure will push up the contributions of some states and push down the receipts of many more.

    Of course, other possibilities exist. For example, all net contributors could pick up the British tab. That would go down like a lead balloon in the Netherlands and Sweden, where suspicions of EU spending appetites run high.

    Perhaps all net recipients might agree to receive less? It is hard to see Greece, Hungary, Slovakia and others accepting this.

    Why not, quite simply, cut the EU budget? That will never happen — the uproar at the European Parliament would be off the Richter scale.

    The final option would be to soften the blow of Britain’s departure by letting it keep access to the EU’s single market in return for a helpful but smaller UK budget contribution. This seems politically impossible in present British conditions.

    To sum up, among all the awkward consequences of Brexit, the difficulties surrounding the EU budget promise to be among the most acute.

    Sign up here to receive Brexit Briefing as a daily email.

    Background reading

    Theresa May is meeting her cabinet at Chequers today for what is being described as a brainstorming session over Brexit. As the FT reports, she has ruled out holding a referendum or an early general election to ratify whatever deal the UK strikes with the EU.

    The FTs Chris Giles reports that the Bank of England’s interest rate cut in early August persuaded some consumers to reject saving and spend instead — before prices of imported goods increased.

    People who felt that they had been pushed to the margins of society were the driving force behind Brexit, according to research from the Joseph Rowntree Foundation. (Guardian)