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Week Ahead (7 December)

Monday, 7 December - MPs to vote on Internal Markets Bill; trade deal negotiations continuing

The Internal Markets Bill (IMB) will receive its next reading in the House of Commons this afternoon, with MPs to vote on the reinstatement of controversial provisions contained therein which, by the UK’s own admission, violate the Protocol on Ireland and Northern Ireland which form part of the Withdrawal Agreement – an international treaty.

Maros Sefcovic, the EU’s representative on the Joint Committee, which implements the Protocol, said he would be meeting his counterpart Michael Gove in Brussels today. This has resulted in some optimism that the offending provisions of the IMB could be withdrawn.

However, this would require a sequence of events, the first of which would be the conclusion of a free trade agreement. To that end, the same obstacles remain, namely; fisheries and state aid/level playing field requirements.

Talks will continue today and, probably, beyond. Speaking on the BBC last night, French MP and close Emmanuel Macron ally Alexandre Holroyd said “I think there is one deadline which is set in absolute stone which is December 31, and that is the absolute deadline”. It remains to be seen whether EU leaders, meeting on Thursday and Friday of this week, will allow the uncertainty continue.

Wednesday, 9 December - Ryanair v. Commission state aid challenge to be heard

Ryanair's case against the European Commission over its decision to allow the Portuguese government to invest in TAP will be heard on Wednesday. In July, the low-cost airline filed a suit seeking the annulment of the Commission's decision, along with costs, after the Portuguese government increased its shareholding in TAP to 72.5% from 50%. The Irish company immediately announced that it would "challenge this illegal state aide to TAP in the European Courts and will continue to campaign for a level playing field in Portugal for all airlines".

Thursday, 10 December – ECB Governing Council expected to deliver further monetary easing

Given the additional Covid-19 related restrictions in November, ECB staff GDP and inflation projections will have deteriorated from previous forecasts. As a result, markets anticipate that, at a minimum, the ECB will expand its €1.35tn PEPP by another €500bn on Thursday. The focus here is likely to be on the duration of the PEPP rather than the intensity of asset purchases. As regards TLTRO, similarly, an extension of the discount period until June 2022 is probably the minimum markets expect. A cut to the deposit rate itself appears unlikely in our view, due to inter alia German objections.

Markets remain unconvinced by the ECB’s ability to meet its inflation targets with five-year inflation-linked swaps expecting consumer prices to rise at just 1.25% a year from 2025 – well below the ECB’s 2% target. In the absence of more radical measures, such as a further cut to the deposit rate combined with, for example, a commitment to buying senior bank debt, the best the ECB can do is to keep borrowing costs at record low levels in order to enable governments to increase spending.

Friday, 11 December – European Banking Authority to post bank-by-bank data on payment holidays

With Covid-19 disrupting economies, on 3 April 2020 the EBA published guidelines whereby customers would be granted payments holidays in order to avoid their loans being automatically classified as forbearance or non-performing. On 2 December, the EBA reactivated its Guidelines which shall apply until 31 March 2021.

In its initial assessment of the impact of the new guidelines, published on 20 November, the EBA found that, as of June 2020, a nominal loan volume of €871 billion was granted moratoria on loan repayments, comprising about 6% of banks’ total loans and close to 7.5% of total loans to households and Non-Financial Corporations. Cypriot, Hungarian and Portuguese banks reported the highest share of loans subject to moratoria while French, Spanish and Italian banks reported the highest volumes of loans subject to moratoria. On Friday, the EBA will provide a more detailed assessment of the impact of these guidelines with bank by bank data.

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