Looking Ahead (13 May)

w/c Monday, 13 May – Theresa May to meet with 1922 Committee Executive, as Brexit déjà vu sets in

Theresa May’s hold on her job is gradually being weakened by her own party. May met with the head of the 1922 Committee, Graham Brady, on 8 May to discuss her future. She will meet with the full Executive on the 1922 Committee this week, most likely on 16 May. The series of meetings are most likely the start of a process that will see May leave her position in the coming months.

From the Prime Minister’s perspective her resignation would ideally be following the successful parliamentary passage of her withdrawal agreement. The most likely scenario is, though, one in which May’s agreement is voted down again upon its return the House of Commons in the next two weeks. She will then oversee the European Elections, in which the Conservatives may finish as low as sixth in the polls. At that point, it would be very difficult to maintain her position.

We do not necessarily expect that any public confirmation on a resignation timetable will be forthcoming after the meeting with the 1922 Executive. Rather it may amount to an extension of private clarity, already given by May to Brady, to the rest of the executive.

If, as seems likely, May does resign in the coming weeks or months, the Brexit process will again be transformed into a Tory internal affair, as leadership candidates spell out how they will bring through a deal. If the leadership is won by Boris Johnson or a similar candidate then subsequent discussions with the EU will be coloured by déjà vu, as a British Prime Minister demands changes to an unchangeable agreement, while the clock ticks down towards the Article 50 deadline.

Tuesday 14 May – Officials from 10 EU Member States to discuss renewed push for Financial Transaction Tax (FTT)

Tomorrow, officials from France, Germany, Austria, Belgium, Greece, Italy, Portugal, Slovakia, Slovenia, and Spain will meet to discuss a new draft of the proposed Financial Transaction Tax (FTT).

Disagreement over the extent to which FTT revenue could be mutualised among participating member states by replacing a share of the individual contributions of participating member states to the EU budget has stalled negotiations thus far. Some progress will be required this week if the FTT is to be presented to other EU Member States at the June meeting of EU Finance Ministers in Luxembourg. In anticipation of this, France and Germany sent a revised proposal on 7 May to all EU Member States in the hope of signing up more participants.

Thursday, 16 May – Eurogroup discussion likely to touch on Greek and Italian spending

It is likely that – even informally – ministers will discuss new spending promises from the Greek government and the continued problems with the Italian budget at this week’s Eurogroup. This could set the stage for more formal interventions following the European elections.

Greek Prime Minister Alexis Tsipras has announced a raft of VAT cuts and pension giveaways. The total cost of the measures for 2019 is estimated to be €1.14 billion. EU officials are understood to be unconvinced and are anxious to assess the measures to see if they are in line with commitments made by the Greek government to the Eurogroup.

Renewed conflict between the EU and Italy is likely over the coming months, amid fresh concerns about the impact of the Italian government’s spending promises on its budget. The European Commission Spring Forecast, published on 7 May, predicts that the Italian budget deficit will expand to 3.5% of GDP in 2020,

up from 2.5% for this year.

Italy has returned to mild economic growth recently, reinforcing the desire of its populist coalition government to see through its headline promises. The European Commission is due to deliver its verdict on the final budgetary plans of Eurozone governments shortly following the European Elections. The Dutch government has already signalled its displeasure with the Italian budget and there was discussion of Italy’s ‘fairytale’ numbers in the Netherlands Parliament during the week.

Friday, 17 May – ECB deadline for Carige proposals after Blackrock rescue plan collapses

We noted in our 4 January report, and again in our 3 May report, our expectation that Carige would have to reach the point of resolution before a buyer is found, similar to the Intesa acquisition of Banca Popolare di Vicenza and Veneto Banca. We also noted that after all potential purchasers had fallen out of the bidding process bar Blackrock, even Blackrock’s interest was far from emphatic. This proved to be the case after Blackrock’s investment committee last week rejected a plan to participate in the €720 million cash call.

Rome is scrambling for a market solution and has re-established contacts with Varde, Apollo and Warburg. There is also some suggestion that a merger with another Italian lender will be explored. The SSM has set a deadline of 17 May for a solution to be found. A state bailout looks increasingly likely, despite government denials.