Week Ahead (26 October)
Wednesday, 27 October – EU to present review of the capital requirements legislation (Basel III)
After months of delicate negotiations, on Wednesday the European Commission is set to implement the final pieces of the Basel accords. The draft proposals have been publicly leaked and are at odds with a plan proposed by France and Germany earlier this year which would have given EU banks more leeway in terms of capital requirements.
Bank industry commissioned studies suggest that the European banking industry will face a capital hike of around €400 billion while the European Banking Authority (EBA) has estimated that the capital hike will be closer to €52.2 billion.
Franco-German objections notwithstanding, the European Commission has argued that adhering to regulations laid out in the Basel accords is necessary to avoid a ‘regulatory race to the bottom’. Both the EBA and the ECB have also highlighted the necessity to implement Basel III faithfully.
Thursday, 28 October – ECB Governing Council Monetary Policy meeting
On Thursday the Governing Council of the European Central Bank will meet to discuss monetary policy where divisions over inflation are likely to dominate.
Chief Economist Philip Lane told an audience of German economists in September that the ECB's "medium-term reference scenario" showed inflation rebounding to 2% "soon after the end of its three-year forecast period", indicating that the Central Bank expects to reach its inflationary target by 2025. Others, such as the Dutch Central Bank chief Klaas Knot, have said that the current spike in inflation is justification for the phasing out of the ECB's Pandemic Emergency Purchase Programme, PEPP.
Changes in monetary policy seem unlikely at this juncture although press reports suggest the ECB is considering raising its limit on purchases of EU-issued bonds. This will also be Jens Weidmann’s penultimate ECB GC monetary policy meeting following his announcement that he will leave the Bundesbank by end 2021.
Friday, 29 October – Eurostat flash inflation for October
On Friday, Eurostat will release its flash inflation data for October. In September, the highest contribution to the annual euro area inflation rate came from energy (+1.63 percentage points) and a similar pattern is anticipated in October.
ECB chief economist Philip Lane and his boss Christine Lagarde continue to argue that the current price increases are primarily driven by one-off factors, such as energy price spikes. Market observers will monitor October inflation figures for indications of second round effects.
Friday, 29 October – Deadline for MEPs to comment on first round of draft compromise amendments in the Markets in Crypto Assets (MiCA) Regulation
The Markets in Crypto Assets (MiCA) regulation is being shepherded through the European Parliament by German MEP Stefan Berger of the European People’s Party. The deadline for MEPs to comment on the compromise amendments he has collated is the end of this week.
Among the changes proposed by MEPs is to reassign supervisory duties of crypto away from the European Banking Authority, which the Commission had originally tasked with the job, to the European Securities and Markets Authority (ESMA).
Member state finance ministers discussed their own (Council) amendments to the MiCA bill at the Eurogroup meeting in Luxembourg on 17 June. Further rounds of negotiation are expected to see more alterations to the legislation.