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What's happening this week? (14-01-19)

Tuesday, 15 January – Brexit ‘meaningful vote’ highly likely to end in defeat for May, prompting Plan B considerations


The House of Commons vote on Theresa May’s Brexit deal, delayed from last December following fears of a defeat, should take place at around 7pm on 15 January.

The widespread expectation is that May’s deal will be voted down, with the question being the scale of the defeat. BBC research suggests that May could even lose by more than 200 votes – an eventuality that would throw her government into even deeper crisis. We expect that, while May will lose the vote, the scale of defeat will be smaller than this.

A cross party amendment to the finance bill means that – in the event of a defeat – Theresa May will need to return to the Commons within three days with a Plan B Brexit deal. The lack of an obvious majority for other options at this time, as well as the fact that the withdrawal agreement itself will not be reopened, makes it possible that the first steps toward a Plan B could involve discussion of the need to extend the Article 50 period.


Tuesday, 15 January - Commission set to unveil proposals to end tax unanimity


On 15 January European Commissioner for Economic and Financial Affairs Pierre Moscovici will present a communication proposing that the European Union moves toward ending the requirement for unanimity in tax decisions.


A push to end unanimity would be a deeply political decision. It would end the power of single – generally smaller – Member States to block plans for EU wide tax reforms, as happened in late 2018 with French digital tax proposals. The Commission is understood to be investigating ways in which the change could be introduced without the need for alteration of the EU treaties. This could involve the invocation of the ‘passarelle clause’ which allows for changes in voting procedures without amendment of the treaties. Changes made under the clause are, though, subject to unanimity, meaning that proposals for unanimity could be killed off at birth by opposing Member States.


Wednesday 16 January, Confidence vote in SYRIZA government to be followed by Standard & Poor’s review of Greek credit rating on Friday


On 18 January Standard and Poor's will be the first ratings agency to assess the Greek economy this year. The review comes amid considerable political instability in Greece. In opposition to the Prespes agreement, which was ratified by the FYROM Parliament on Friday, Tsipras’ coalition partner and ANEL leader Panos Kammenos has followed through on this threat to leave the government. For his part, Tsipras has also indicated that he will follow through on his threat to call a vote of confidence in his government, even though the constitution would allow him to continue to govern with a minority government.


Tsipras appears to have secured the necessary 151 votes to survive the no-confidence motion, which we expect to take place on Wednesday. Should he survive, the ratification of the Prespes agreement is likely to take place by the end of this month. The uncertainty has pushed the cost of Greek ten-year debt above 4.3% at the time of writing and will do little to improve the already slim chance of S&P upgrading Greece’s sovereign debt rating on Friday.


Thursday, 17 January – Finalised inflation figures for January likely to confirm slump in headline price growth, as ECB begins to consider weakening economy


Finalised inflation figures for December are unlikely to deviate much from disappointing flash readings, which confirmed the difficulties that the ECB has had in moving toward its 2% target. The five year forward inflation rate – a favourite measure of Mario Draghi’s – is currently on a downward trend, standing at 1.58% - well down from the most recent peak of 1.74% - touched in May last year.


As we noted following the publication of the 4 January figures, when the persistently low inflation is considered beside mounting indications of a slowing economy ‘we believe that the balance of risk will remain tilted towards a delayed normalisation process which means we cannot rule out the possibility of a rate hike being delayed beyond Q3 2019.’

The minutes of the ECB’s December meeting appear to support this assessment. While a September rate hike is still possible, it would require a sudden and sustained uptick in inflation as well as demonstrations of resilience from a weakening Eurozone economy. In the absence of these, we believe that the ECB rate lift off is likely to be delayed through winter 2019.

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