Odds on Britain leaving EU shift again

By Mike Peacock
March 12, 2014

Kiev has appealed for Western help to stop Moscow annexing Crimea, where a referendum on joining Russia will be held on Sunday. Ukrainian Prime Minister Arseny Yatseniuk will take that message to Washington and the United Nations.

The West says the referendum is illegal. U.S. lawmakers are preparing sanctions against Russia and European Union leaders could impose penalties, such as bans on visas for key Russian officials, as early as Monday if Vladimir Putin does not come to the negotiating table. There is no sign that he will and there is no question of western force being deployed.

Germany’s Angela Merkel is in Warsaw for talks with Prime Minister Donald Tusk. Poland has been pressing for more aggressive action while Germany – with its deep economic and energy ties to Russia – is more reluctant. But it appears the EU is moving closer to imposing sanctions.
Ed Miliband, leader of Britain’s opposition Labour party, has stated in today’s FT that he would only hold an EU referendum if there was a new transfer of power from London to Brussels.

That ain’t going to happen – if there is any treaty change it will be focused on binding the euro zone closer together and Britain sits outside that. So if Labour wins next year’s election, or rules in coalition with the pro-EU Liberal Democrats thereafter, there will not be an in/out vote on the UK’s membership of the EU before 2020.

Now I call this important. The Conservative party is wedded to a 2017 vote having tried to repatriate powers from Brussels first. UKIP, the resurgent anti-EU party, had pushing Labour into a referendum commitment as its main goal.

Now the calculus on Britain leaving Europe has shifted once again though for Miliband it’s a gamble that the European question won’t be so uppermost in voters’ minds that it costs him at the 2015 election. History shows it figures low on the British people’s priority list. But is history any guide to the future?

Miliband will flesh out his plans in a speech this morning. He will have the bulk of British business on his side.

EU finance ministers agreed last night to strengthen a scheme to deal with failing banks but after two days of talks big questions were unresolved, particularly the degree to which countries would help each other tackle problem banks under a plan intended to break the link between indebted states and the banks that buy their debt.

European governments disagree amongst themselves and with the European Parliament, which must give its blessing for the project to become law.

That means talks with the parliament, to take place in Strasbourg today, may not succeed and it could fall to EU leaders, who meet in Brussels on March 20-21, to decide. That in turn may not leave the parliament enough time to ratify any deal before May’s EU elections which would then mean months of further delay.

In a bid to reach a deal, EU ministers sought to reduce the scope of countries to meddle in decisions by the agency empowered to shut a bank. This appears unlikely to win over lawmakers. To break the logjam it may require an agreement to speed up the building of a mutual fund to pay for failing banks. The current plan is for it to take 10 years with individual countries paying in contributions from the banks. Only after that would the fund be pooled. Critics say that leaves the bloc’s governments exposed for far too long.

What is agreed  is that the European Central Bank will regulate the bloc’s significant banks. Three key ECB policymakers speak during the day – Peter Praet, Benoit Coeure and Yves Mersch – with plenty to ponder.

The ECB has forecast inflation to remain well beneath its “just below 2 percent” target all the way through 2016 but dismissed the threat of deflation and took no policy action last week.

With interest rates close to zero, a cut will have little impact. We know there is a problem with a new round of cheap long-term money for  the banks since the ECB insists it would have to be lent on at a time that banks are still deleveraging ahead of health tests later in the year.
And Mario Draghi killed the “non-sterilisation” of bond purchases pretty much stone dead by highlighting its limited effectiveness since most of the bonds the ECB bought will mature soon.

So it looks like an all-or-nothing approach – no action at all or full-on QE if deflation takes hold. The former is far more likely.

EU Trade Commissioner Karel De Gucht will brief Belgian MPs on the state of negotiations on an EU, U.S. trade agreement. The fourth round of  negotiations stretch through the week. We reported exclusively that the EU will offer to lift tariffs on nearly all goods imported from the United States as part of negotiations towards the world’s largest free trade deal. But there are still plenty of hurdles to overcome.

Egypt’s new finance minister, appointed after a recent cabinet reshuffle, will hold a news conference at which he may pronounce on progress of a  new investment law, stimulus packages and any details of new Gulf aid.

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