Week in Review (10 May)

France and Germany push again for Financial Transaction Tax

On Tuesday, France and Germany sent a revised proposal to all EU Member States in the hope of signing up more participants. So far, Austria, Belgium, Greece, Italy, Portugal, Slovakia, Slovenia, and Spain are the only other EU states that have agreed in principle to implement a Financial Transaction Tax (FTT).

The tax rate would not be lower than 0.2% of a security’s purchase price at the time of acquisition and would apply to shares of listed companies whose head offices are located in the member states and whose market capitalisation exceeds €1 billion. Since only the net acquisition would be subject to the tax, intraday traders would not be included in the scope of the FTT.

The document suggests the Commission estimate, which we highlighted in our 8 March report, that the FTT would collect around €3.5 billion per year – significantly below the €20 billion estimate submitted by the original FTT, may undervalue the proposed FTT’s overall yield.

Istanbul election rerun causes Lira to slide

Investor concerns have intensified following the 6 May announcement by Turkish election authorities that the Istanbul local election result will be annulled, due to alleged irregularities, and that it will be rerun on 23 June.

The announcement has led to fresh weakness in the Turkish lira, which fell to an eight-month low of 6.24 against the dollar in the course of the week, before recovering some ground after the Central Bank moved to support the currency by suspending one-week repo auctions. The Central Bank is now likely to feel pressure to defend the lira, while holding rates, ahead of the 23 June election rerun in Istanbul.

The economic problems in Turkey are already having a greater than expected effect in Europe. Figures published on 11 April showed that, year on year, Turkey was the trading partner contributing the most to German GDP declines through Q1 2019 – with a decrease of 0.22% - almost four times that of the 0.06% accounted for by Chinese weakness.

Danish election set for 5 June

Denmark’s Liberal Party Prime Minister Lars Løkke Rasmussen announced this week that the country will go to the polls on 5 June.

Rasmussen’s announcement comes as the right-wing bloc is slipping in opinion polls. The Social Democrats currently appear set to be the largest party, but – rather than relying on support of the traditional left-bloc, who are more positive on immigration – have suggested they could work as a minority government with the support of parties from the right.

The Danske bank scandal is set to play a part in the electoral campaign, with all parties promising reforms to the way in which Danish banks are regulated. On 10 May Danske appointed Chris Vogelzang, former head of ABN Amro’s retail and private banking operations, as its new CEO. Vogelzang’s immediate workload will be to manage the plethora of ongoing investigations into Danske. The most serious threat to the bank continues to be American investigations, the management of which will be a priority for both Vogelzang and whoever emerges as Prime Minister following the Danish election.