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Week Ahead (14 December)

W/C Monday, 14 December - UK-EU trade talks continue after Johnson and von der Leyen agree to extension

Trade talks between the EU and the UK will continue this week after the UK Prime Minister, Boris Johnson, and the European Commission President, agreed to bypass Sunday's deadline. Despite both sides publicly expressing pessimism with regards to the prospect of a deal last week, reports suggest that some progress was made over the weekend on long-standing issues. Johnson has stated that "no deal" is still the most likely outcome of the talks, but markets responded to the extension by rallying strongly on opening on Monday morning.

The Bank of England will watch developments on the trade deal negotiations this week with interest ahead of its final policy committee meeting of the year on Thursday. If a trade deal is struck the committee is likely to vote unanimously in favour of maintaining its current approach. However, in the event of a "no deal", it may consider more active steps, including potentially cutting rates to 0% from the current record low of 0.1%, and stepping up its QE programme.

W/C Monday, 14 December - European Commission's NPL action plan to be released

The European Commission's action plan for non-performing loans will be released this week. The plan will aim to prepare member states for the impact of an expected new wave of distressed assets next year on foot of the pandemic and associated financial crisis. A draft of the action plan showed that the Commission will review how NPLs are priced by the sellers and specifies that prices should not exceed the "real economic value" of the assets under state aid rules. The Commission will also develop guidance, in conjunction with the EBA, on best practice for the execution of debt sales to ensure that buyers in secondary markets are treated fairly. The plan is also likely to include, inter alia, a provision for temporary capital buffers for struggling banks, lighter regulation for specialist distressed asset purchasing companies, and support for the idea of member state "bad banks"

Enria said recently that due to macroeconomic uncertainty in many areas European banks must prepare for a worse-case scenario in terms of a proliferation of NPLs. Enria said that a scenario in which total NPLs exceed the levels of the financial and sovereign debt crisis of a decade ago is "plausible".

Monday, 14 December – Atlantia board meeting to discuss extension request from CDP led consortium

The Italian government is determined to force Atlantia to sell its stake in Autostrade per l'Italia SpA (ASPI) to Cassa Depositi e Prestiti (CDP), a state bank. Atlantia has complained to the European Commission that this “forced sale” by the Italian government is in contravention of the rules of the European Union Single Market.

Atlantia asked a CDP led consortium to put forward an offer for Aspi in time for today’s board meeting. Last Thursday, however, the bidding consortium asked for more time to inter alia ensure government sign off on a new economic and financial plan (PEF) for the motorway concession. This must be approved by a cabinet sub-committee, which does not intend to discuss the PEF at its 15 December meeting, according to the draft agenda.

For the time being, we expect ATL to keep the 'dual track' in place, moving ahead with the spin-off of ASPI. Should a satisfactory offer arrive before its EGM scheduled for mid-January, the board can decide to discontinue the ASPI spin-off and proceed with a sale.

Tuesday, 15 December – Digital Services Act and Digital Markets Act to be unveiled

The EU is expected to unveil its Digital Services and Digital Markets Acts this week. Documents leaked this week show that the EU is proposing to impose fines of up to 6% of the previous year's turnover on the largest tech companies if they fail to comply with the act.

Some of the new requirements to be placed on big tech companies have also been revealed, including the requirement to vet third-party suppliers - which will bring those selling products on platforms such as eBay and Amazon under the spotlight - and a requirement to share data with authorities on how they moderate illegal content. Advertising will also be subjected to greater transparency requirements, with a provision that users are informed "in a clear and unambiguous manner and in real time" that they are viewing an ad, who is behind the ad, and why the ad has been targeted at them.

The document includes the first definition of a "very large platform" as being those with more than 45 million users - equivalent to 10% of the population of the European Union, and states that those companies are to be targeted due to their "disproportionate influence" on the internet habits of EU users.

Tuesday, 15 December – Facebook Judicial Review Proceedings against the Irish Data Protection Commission due before the Irish High Court

The Irish High Court will hear Facebook’s judicial review proceedings against the Irish Data Protection Commission (DPC) on Tuesday, following on from the European Court of Justice’s (CJEU) decision to invalidate the Privacy Shield – a mechanism for transferring European data to the United States – in the Schrems II case on 16 July 2020.

After the DPC decided to launch an investigation into Facebook’s transatlantic data transfer activities, it issued a Preliminary Draft Decision on 28 August 2020 asking the company to cease these operations. In response, Facebook began proceedings against the Irish watchdog, alleging a breach of its right to fair procedures.

The company told the Court in a previous hearing that the DPC’s plans to suspend transfers under the Standard Contractual Clause (SCC) mechanism could force Facebook to withdraw from Europe. A decision is expected in early 2021, which will determine whether this investigation can continue.

Max Schrems, the Austrian privacy activist, has also been added as a party to the proceedings. Meanwhile, Facebook has been added to Schrems’ own judicial proceedings against the DPC, which is due to be heard on 13 January 2021.

Wednesday, 16 December – Eurozone flash PMI to be published

The flash Eurozone Composite PMI will be published on Wednesday, showing early data for December. November's PMI showed a return to contraction for the first time in five months as lockdowns returned across Europe. The composite output index fell to 45.3 from the 50.0 recorded in October, although this was slightly higher than the flash reading of 45.1 earlier in the month. A steep decline in services sector activity accounted for the downturn. Manufacturing growth continued for the fifth consecutive month, but at the slowest pace since July. December’s data is not expected to show much sign of improvement.

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