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Looking Ahead (17 June)


Tuesday, 18 June – Second Conservative leadership ballot as candidates scramble for second place


The 13 June first round ballot of Conservative leadership candidates eliminated three contenders. On 14 June Health Secretary Matt Hancock withdrew from the campaign. Candidates will need at least 33 votes in the second round to proceed to subsequent votes. Only three managed to clear that threshold in the first round of voting – Michael Gove on 37, Jeremy Hunt on 43, and – far ahead – Boris Johnson on 114.


The prospect of Johnson as Prime Minister has sharpened the focus on the risk of a Halloween no-deal Brexit. We expect that, if Johnson comes to power, he will make a great show of trying to renegotiate aspects of Theresa May’s deal with the EU. As with all of May’s efforts, this is unlikely to achieve any substantive changes. It will be at that point that Johnson’s true willingness to oversee a no-deal Brexit will become clear.


There has been some suggestion that, Nixon in China style, only Johnson would be able to sell a deal substantially the same as May’s to Parliament. Even if this optimistic reading were the case, however, Johnson would still need to deal with the DUP who will not back any deal that contains the Irish backstop. Faced with the prospect of being dragged into the Parliamentary chaos that brought an end to Theresa May, Johnson may be more tempted to try and see through a hard-Brexit followed by an election.


Chancellor Philip Hammond will deliver the Annual Mansion House speech on 20 June, in which the policies advocated by Johnson are likely to be excoriated even if the former Foreign Minister is not mentioned by name. BoE Governor Mark Carney will be present at the speech, having earlier met with the BoE Monetary Policy Committee to consider interest rates. Given the continued uncertainty around Brexit, we do not expect any changes will be made.


Thursday, 20 June – European Council to discuss senior EU positions, while Italy continues to plead case on budget


The forthcoming shakeup of the top positions across the EU and Eurozone institutions now forms the backdrop to a whole range of policy areas. Discussions on the identity of the next President of the European Commission will dominate the sidelines of the 20 & 21 June European Council meeting.


For now, the EPP remains firmly behind its candidate Manfred Weber, who has drawn the disdain of other groupings, as well as French President Emmanuel Macron. Weber’s candidacy has received a boost however, from the suggestion that the Italian government and possibly the Spanish government will be willing to support him.


Italian Prime Minister Giuseppe Conte has continued to present himself as a moderate influence in Italy’s dispute with the Commission, and it is likely that – if pressed at the Council – he will reiterate his belief that Italy should respect the rules but that the Commission should also be willing to listen to the Italian government on why it believes its figures add up. This treading water approach has, for now, also been adopted by Eurozone finance ministers, who last week noted the Commission’s recommendation of an excessive deficit procedure, but declined to act on it.


The Italian government will also be paying close attention to the attempt of Banca Popolare di Bari to receive compensation from the European Commission. In 2015 the Commission had found that aid given by FITD to rescue Banca Tercas constituted illegal state aid. As part of that rescue, Banca Popolare di Bari purchased Banca Tercas. The Commission decision required the Italian government to recoup some €300 million in grants and guaranteed that it viewed as constituting the illegal aid. This was overturned by the ECJ on 19 March of this year.


Popolare di Bari has said that it has tasked external consultants to quantify the exact amount of damages it suffered as a result of the wrongful Commission decision and that it will then pursue compensation. On 13 June Margrethe Vestager indicated that the Commission would itself appeal the ECJ decision.

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