Looking Ahead (24 June)

w/c Monday 24 June – Hunt faces uphill battle in Tory leadership election

The member’s ballot in the Conservative Party leadership contest will run for a month, from 22 June – when the first of 16 hustings is held – until 22 July, when the winner will be announced. Boris Johnson, who is facing off against Jeremy Hunt, remains the overwhelming favourite. Save for a major scandal engulfing the Johnson campaign, it would be a major surprise if he does not now become Prime Minister. While weekend reporting on a row between Johnson and his partner may briefly tarnish the frontrunner, we do not think that the story will be in the headlines long enough to seriously undermine him.

Following last week’s European Council meeting Irish Prime Minister Leo Varadkar warned that sentiment among EU leaders was moving towards denying further Brexit extensions. Varadkar suggested that it would take something substantial – either a referendum or a general election – to facilitate a further extension. The warning from Varadkar is likely aimed at Johnson. Although the likely new Prime Minster has committed to taking the UK out of the EU by 31 October, he assumes that he will be able to do so with a freshly negotiated settlement.

Varadkar’s warning is that, in this case, the EU will not be willing to make a last-minute concession to prevent no-deal, and that if Johnson wants to walk the walk on no-deal – so be it. We expect that – absent an election in the immediate term - Brexit negotiations will be stuck in a déjà vu like state until October, when it will become contingent on the Prime Minister to decide how to proceed.

w/c, Monday 24 June – All eyes on Erdogan reaction to defeat in Istanbul election rerun

The 31 March Istanbul election was narrowly won by Ekrem İmamoğlu of the secularist CHP, ending decades of control of Turkey’s largest city by President Erdogan’s AKP. Following İmamoğlu’s victory, the AKP closely examined the results and filed a legal appeal which led to the result being annulled and the election being rerun on 23 June. This rerun election produced an even wider margin of defeat for the AKP, with İmamoğlu winning almost 55% of the vote.

Istanbul holds deep symbolic significance for the AKP. The city mayor is also in control of a substantial budget. It is for this reason that some observers are sceptical that President Erdogan will allow control of the city to slip from his party’s grasp. The scale of the opposition victory may now make this difficult to achieve.

Should the AKP attempt to keep control of Istanbul through legal means, or work to undermine İmamoğlu it would stoke investor concerns about a further erosion of democratic standards under Erdogan.

Tuesday, 25 June – Commission to consider Italy-EU budget dispute

25 June and 2 July have been highlighted as the two dates when the European Commission Executive, following its weekly meeting, could choose to escalate its dispute with Italy by concluding that the government has failed to make concessions on its spending plans. The Commission could then recommend the opening of a disciplinary procedure against Italy.

If and when the Commission decides to act this would set off a chain of events that could culminate in financial penalties being levied against the Italian government. There is a certain amount of flexibility built into this timetable. The Italian government, and particularly Prime Minister Conte and Finance Minister Tria, have been working hard to try and secure a delay on the decision on an excessive deficit procedure, aiming to put it out at least until the Autumn. Matteo Salvini, meanwhile, continues to stoke up conflict. He visited Washington on 17 June where he effectively acted as Prime Minister, where he took the opportunity to praise the economic policies pursued by President Trump.

After the possibility of a deal appeared to be permanently closed, negotiations on the Fiat Chrysler Automobiles and Renault merger were reopened last weekend. A rebalancing of the new company’s ownership and a lower French government involvement seem to be the two starting points for the talks. The opposite fate seems to have struck Carige bank. Indeed, just as Apollo Global Management was close to reaching an agreement, Vittorio Malacalza, the former vice-president of Carige whose family owns 28% of the bank’s shares, expressed his strong criticism of the deal – effectively putting it to bed. The Italian Parliament extended the deadline of the government’s guarantee of Carige’s bonds by six months, from 30 June to 31 December.