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Week in Review (27 September)

EU General Court upholds Commission’s finding of state aid against Luxembourg but overturns decision against the Netherlands

On Tuesday, the EU General Court agreed with the Commission’s assessment that the tax ruling Luxembourg gave to the financing company of Italian carmaker Fiat had artificially lowered its taxes but overturned

the Commission decision that a tax ruling granted to Starbucks amounted to state aid.

Neither decision bodes well for Ireland and Apple’s appeal against an €8 billion state aid finding by the Commission. The principles behind both the Apple and the Fiat rulings are closely linked and the same judges are hearing both appeals. A concession on a point of law in one case would likely apply in the other. Even in overturning the Starbucks decision, the Commission ruled that the Commission was correct in assessing transactions between different parts of Starbucks, which determined what profits were taxable under the Dutch tax rate, on an “arm’s length principle” – as if they were not related companies. This could play into the commission’s secondary argument in relation to the Apple case, that Ireland did not use the arm’s-length principle correctly.

Brussels has Libra in its sights

With Germany and France advocating an approach which would prevent private companies from challenging “state sovereignty” with their own currencies and the G7 set to report back on a strategy to deal with stablecoins in mid-October, the European Commission is also getting involved. It sent a list of questions to Facebook with a view to addressing the challenges presented by the Libra project.

One option reportedly under discussion in the European Commission is a new regulatory framework for digital assets while a second option involves amending existing legislation that would force Libra and similar stablecoins to comply with data protection, tax transparency and online-payments measures. Either way, Libra has its work cut out to ensure a favourable regulatory environment in Brussels and in Europe more broadly.

Lautenschläger continues Teutonic trend of resigning in the face if loose monetary policy

On Wednesday, ECB executive board member Sabine Lautenschlager resigned in protest at loose ECB monetary policy, highlighting the existing split within the board. Axel Weber (February 2011) and Jürgen Stark (September 2011), both Germans, resigned in similar circumstances.

The resignation will do little to quell resentment in Germany towards ECB monetary policy. The German tabloid with the highest circulation, Bild, is likely to continue its campaign against negative interest rates where it has portrayed Draghi as “Count Draghila” sucking the money out of savers’ accounts.

EBA launches 2019 EU-wide transparency exercise

On 23 September the European Banking Authority (EBA) launched its annual transparency exercise. This will involve about 130 EU banks and will lead, in November 2019, to the publication of some 2.2 million data points. The data will cover capital positions, financial assets, risk exposure amounts, sovereign exposures and asset quality.

It comes at a time with surveys by the Deutsche Bundesbank and Federal Financial Supervisory Authority (BaFin) show the profitability of smaller players in the German banking system was low and likely to decrease further.

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