Opinion

Hugo Dixon

What is EU capital markets union?

Hugo Dixon
Jul 21, 2014 09:31 UTC

What is capital markets union? Jean-Claude Juncker, the European Commission’s president-elect, has embraced the goal of creating one for the European Union. But so far it is more of a slogan than a set of policy actions. There’s no harm in having a catchy term to encompass a myriad of specific plans, but the idea needs fleshing out.

The first thing is to clarify the goals. One is to finance jobs and growth throughout the European Union. Another is to have a financial system that is better able to absorb shocks. Banks are shrinking and so can’t do the job of funding economic expansion on their own. Nor are they good at coping with crises. Indeed, they often magnify them, as the credit crunch and euro zone saga showed.

The solution is to beef up non-bank finance – everything from shares and bonds to shadow banking and much else too. It is also to integrate further the EU’s capital markets. That will lead to greater critical mass and lower financing costs, as well as soften the blow of an economic shock by sharing the pain across a wider area provided risk is really transferred from bank balance sheets.

The phrase “capital markets union” is a conscious echo of the EU’s new banking union. But there are several important differences. Britain is not part of the banking union, but it should be in the capital markets union – the project wouldn’t amount to a row of beans if it excluded the City of London. And a capital markets union should not involve the European Central Bank supervising the EU’s securities markets on top of euro zone lenders. Supervision is certainly needed to stop market participants engaging in shenanigans such as manipulating interest or exchange rates. But that can be achieved mainly through existing national authorities.

So what then is needed? There are five main pillars.

First, deregulation. The EU is supposedly committed to free movement of capital. But there are still barriers. For example, non-bank lenders established in one country are not automatically free to extend credit across the EU unless they get banking licences in other countries. This gums up the flow of capital. Such restrictions should be removed.

UK prepares for possible EU failure

Hugo Dixon
Jul 16, 2014 09:22 UTC

David Cameron looks to be preparing for the possibility that his plan to renegotiate Britain’s relationship with the European Union will fail. The UK prime minister would then campaign for the country to quit the EU in a referendum he plans to hold by 2017. That seems the best way to interpret his appointment of a eurosceptic foreign minister and the nomination of a little-known former lobbyist as Britain’s European commissioner.

This is not to say that Cameron wants to take Britain out of the EU – which would be a historical mistake. It is rather that he apparently thinks quitting could be an acceptable Plan B that would keep him in his job and his Conservative party reasonably united.

The British premier has never publicly said how he would campaign if he doesn’t manage to reform the EU and the country’s relationship with it. He used to dodge the question by saying he was confident of securing significant changes, while being fairly woolly about what reforms he was actually looking for.

EU would also be harmed by Brexit

Hugo Dixon
Jun 30, 2014 09:02 UTC

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

It is not just Britain which would be damaged if it quit the European Union. So would other members. Jean-Claude Juncker’s nomination as Commission president at last Friday’s summit increases the chance of Brexit – Britain’s exit from the EU. Leaders from all countries now need to work to limit the risk it happens.

David Cameron went out on a limb to block Juncker, and failed. The UK prime minister mishandled the diplomacy, notably by seemingly threatening to pull out of the EU if the former Luxembourg premier got the job.

Cameron’s cack-handedness risks Brexit

Hugo Dixon
Jun 16, 2014 08:57 UTC

David Cameron’s cack-handed European diplomacy risks leading Britain out of the European Union.

The latest example is the way the UK prime minister has mishandled his campaign against Jean-Claude Juncker becoming president of the European Commission, the EU’s executive arm. Cameron is right to try to block the former Luxembourg prime minister’s candidacy – both because Juncker is not the right person to reform the EU and because the way he is being promoted constitutes a power grab by the European Parliament. But the British prime minister’s tactics have actually made a Juncker presidency more likely.

If Cameron loses this particular battle, the chances of a Brexit – Britain’s exit from the EU – will shoot up. This is partly because Juncker himself will presumably not want to help the British prime minister with his plan to renegotiate the UK’s relationship with the EU. And if Cameron can’t secure many goodies from his renegotiation scheme, he won’t have much to show the electorate in a referendum he plans to hold on Britain’s membership in 2017. (This will only happen if he is still prime minister then, which is far from certain since there is a general election in 2015).

EU leaders need to kickstart reform

Hugo Dixon
May 26, 2014 08:32 UTC

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

When European Union leaders dine in Brussels on May 27, conversation is likely to revolve around three Ps: the poll, the priorities and the people.

Many of those sitting around the table, notably France’s François Hollande and Britain’s David Cameron, received a drubbing in the European Parliament elections. They will be reflecting on the rise of euroscepticism in many EU countries and the appropriate forms of response.

Don’t bet on EU treaty change

Hugo Dixon
Mar 31, 2014 09:14 UTC

Both continental European euro-enthusiasts and British Conservatives received a boost last week when the German and UK finance ministers called for a rewrite of the European Union’s treaties. The goal, outlined by Wolfgang Schaeuble and George Osborne, is to kill two birds with one stone: shore up the euro zone and keep Britain in the EU.

The entente is significant. German-UK relations have certainly warmed since December 2011, when London tried to block one of Berlin’s pet projects – a treaty that restricted borrowing by euro zone countries – unless it was given guarantees to protect the City of London.

But have the two countries really found a formula that simultaneously solves the EU’s two main problems? There are reasons to be sceptical.

How EU can wean itself off Russian gas

Hugo Dixon
Mar 24, 2014 10:10 UTC

European Union leaders at the summit last week made a commitment to cut their dependency on Russian gas. The Ukraine crisis has highlighted the issue: about 30 percent of the gas the EU consumes comes from Russia.

Not that there is any immediate risk of the Kremlin turning off the taps. After all, Russia gets around 14 percent of its entire export earnings from gas it sells to other European countries.

What’s more, the EU is better placed to withstand a disruption of gas supplies than it was in 2009 when Moscow last cut off gas supplies to Kiev. Then 80 percent of Russian gas was routed via the Ukraine, according to the Oxford Institute for Energy Studies. Now it is around 50 percent, largely because of a new pipeline that connects Russia to Germany via the Baltic Sea.

Cameron lowers Brexit risk

Hugo Dixon
Mar 17, 2014 11:28 UTC

Angela Merkel’s visit to the UK last month seems to have worked wonders. Within three weeks of the German chancellor’s speech to the House of Commons and her private meetings with political leaders, the two most risky “Brexit” scenarios are now less likely.

First, the Labour opposition has virtually ruled out holding a referendum on Britain’s European Union membership if it wins power in 2015. Such a plebiscite might well have led to an Out vote given that, in such a scenario, the Tory party and press could have formed a united front opposing membership.

The second risky scenario was that David Cameron would win reelection and set “impossibilist” demands for how he wanted to reform Britain’s relationship with the EU. But he has just come out with a list of reforms which, while wishy-washy, are moderate. He has also said that, if he gets his way, he will campaign for an In vote – which means the people are less likely to vote Out.

Europe should give Cyprus a hand

Hugo Dixon
Mar 17, 2014 10:51 UTC

Sunday marked the anniversary of Cyprus’ shock plan to raid the tiny island’s bank deposits. The envisaged tax, backed by the euro zone, covered all banks and all deposits, whether insured or not.

Although that unwise scheme was later rescinded, much damage was done to a country already deep in financial crisis. Uninsured deposits of the island’s two large troubled lenders still suffered big haircuts. Capital controls were imposed as well.

These restrictions were supposed to be a short-term measure, not that this ever seemed likely. A year on, the most important controls – preventing people or companies taking more than small sums of money out of the country – are still in place and depressing the economy’s animal spirits.

Labour has just shrunk Brexit risks

Hugo Dixon
Mar 12, 2014 10:24 UTC

The risks of a Brexit have just shrunk a lot. Ed Miliband, the UK’s leader of the opposition, has virtually ruled out a referendum on Britain’s European Union membership if he becomes prime minister in 2015. David Cameron’s Conservatives will need to win an overall majority in the next general election and then lose an In/Out vote to allow the UK to quit before 2020.

This is good news for business: a plebiscite, coming after a populist campaign, might easily produce the “wrong” result. An Out vote would put Britain at risk of losing full access to the EU’s single market, with which it conducts almost half its trade. It would also unleash a long period of uncertainty. Whoever is prime minister then will have to resign, likely to be replaced by a staunch eurosceptic who will then engage in acrimonious divorce talks with the rest of the EU. In the meantime, business would sit on its hands, and the economy suffer.

Meanwhile, Miliband’s priorities for reforming the EU – boosting competitiveness, tackling youth unemployment, completing the single market and decentralising power – are broadly pro-business.