Tag: Europe News

Italy signed up to China’s Belt and Road Initiative. Now it’s having second thoughts

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Giorgia Meloni, Italy’s prime minister, has a tough choice to make

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Italy’s rather surprising decision to join China’s Belt and Road Initiative a few years backs is being thrusted back into the fore, with a deadline to potentially end it fast approaching under Rome’s new leadership.

Italy has previously been described as a “middle-power” bridge used by Beijing and Moscow to strike deals with a country that’s a member of NATO, the European Union, and the G-7 group of advanced economies.

In 2019, Rome sent shockwaves throughout the Western world when it signed up to the BRI — China’s massive infrastructure and investment plan aimed at boosting its influence across the world. At the time, analysts said that by joining the project, Italy was undermining Europe‘s ability to stand up to Beijing.

When former European Central Bank governor Mario Draghi took power in Rome in 2021, he froze the agreement and led a critical screening of Chinese investments in the country — having vetoed at least three Chinese takeovers during that year.

Two years down the line and with a new government in place, Rome is now having another think about its ties with China.

“It is a very controversial issue for the Italian government,” Silvia Menegazzi, professor of international relations and Chinese studies at Luiss University, said over the phone, adding that this is due to one key reason: Taiwan.

China sees Taiwan as a breakaway province, while Taiwan sees itself as separate from China, having ruled itself since splitting from the mainland in 1949 following a protracted civil war. Tensions between the two have risen over the years and high-level U.S. politicians’ visits to Taiwan have drawn Beijing’s ire.

New Italian Prime Minister Giorgia Meloni said via Twitter prior to her election in September — and standing next to a representative from Taiwan — that she stands alongside those who believe in democracy.

If Italy chooses closer ties to Taiwan that will surely jeopardize its relations with China. At the same time, deepening investment links with Beijing might go against what Meloni promised pre-election.

A delegation of Italian politicians was due to travel to Taiwan in April. But the trip was postponed to an unspecified date, according to media reports.

“I believe they might not decide anything,” Menegazzi said, suggesting the Italian government will continue its Belt and Road participation for now.

Under the agreement the two parties can end the deal after five years, otherwise the partnership gets extended for another five-year term. Italy has until the end of the 2023 to inform China on whether it wants to end the deal.

Back in 2022 and prior to being elected, Meloni said that joining the BRI was a “big mistake.”

“Since becoming PM, she’s chosen to present herself as aligned with the U.S. on the Chinese front. Yet she’s under pressure from her coalition partners, [Lega’s Matteo] Salvini and [Forza Italia’s Silvio] Berlusconi, whose respective constituencies are softer on China being interested in closer economic ties through the Belt and Road initiative,” Alberto Alemanno, professor of EU law at the H.E.C. business school, said via email.

The office for the prime minister was not immediately available for comment when contacted by CNBC Wednesday. Meloni leads a coalition with two other right-wing parties: Lega and Forza Italia.

Future for EU-China relations

The upcoming decision for Rome comes at a time when the wider European Union is framing a new relationship with China. The bloc is finding it increasingly hard to strike a united front toward Beijing, with some nations favoring economic links and others pushing for a more critical approach.

In 2022, China was the largest source of EU imports and the third largest buyer of EU goods, highlighting the economic importance that Beijing has for Europe. This is particularly relevant when economic growth in the EU is vulnerable to the ongoing war in Ukraine.

This economic argument is also supported by those who think a close relationship with Beijing is needed to accomplish advancements in climate policy.

But for many European governments, China could and should do more to support Ukraine in the wake of Russia’s invasion. China has failed to condemn Russia’s onslaught of its neighbor and in a visit to Moscow in March, China’s leader Xi Jinping referred to his Russian counterpart as a dear friend.

On top of that, Beijing has proposed a 12-point peace plan for the Ukraine war. The plan fails to specify whether Russia needs to leave Ukrainian territory for a deal to be completed. Ukraine has made it clear it will not agree to any peace deal that does not involve regaining full control of its territory.

Furthermore, the United States has added pressure on EU nations to be more critical of China in line with national security concerns. Countries in Europe that are keen on a healthy transatlantic relationship will not have a problem following that path.

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April 30, 2023
UBS net profit drops 52% in the first quarter due to hit from U.S. legal battle
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UBS reported its first results since the deal to buy Credit Suisse.

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UBS reported a 52% annual drop in net profit on Tuesday amid a legacy litigation matter, but maintained it is a “source of stability” for its clients during periods of high uncertainty.

These are the bank’s first results since announcing its takeover of rival Credit Suisse.

UBS said net profit came in at $1.03 billion for the first quarter, coming in well below analyst expectations of a net profit near $1.75 billion for the period, according to Refinitiv.

The hit in net income came from increased provisions of $665 million following a U.S. residential mortgage-backed securities litigation matter.

Speaking to CNBC’s Geoff Cutmore, UBS CEO Sergio Ermotti — who resumed his post on April 5 — said, “We are in advanced discussions. Hopefully we can close this 15-year old chapter very soon.”

Ermotti also described the latest results as “very solid.”

“We saw some inflows coming from Credit Suisse, but, most importantly, we continue to see even after the transaction, we saw inflows, so the demonstration that our clients believe we are a source of stability.” he told CNBC.

“We are part of the solution and not part of the problem,” he added.

Here are other highlights of the quarter:

Revenues reached $8.75 billion vs 9.38 billion a year ago

Operating expenses were $7.2 billion from $6.6 billion a year ago

CET 1 capital ratio, a measure of bank solvency, came in at 13.9% vs 14.1% a year ago

The lender also said that it attracted $28 billion in net new money in its global wealth management unit, of which $7 billion were registered in the last 10 days of March — after the announcement of its acquisition of Credit Suisse.

Credit Suisse Deal

UBS shares have jumped more than 10% since the news that it was buying its embattled Swiss competitor last month. At the time, UBS said that the deal, brokered by Swiss regulators, would create a “leading global wealth manager” with more than $5 billion in total invested assets.

However, analysts at Barclays said that the market is “significantly underestimating” the complexity of integrating Credit Suisse within UBS, Reuters reported. Ermotti told CNBC on Tuesday that the merger should be completed within the second quarter.

“In the next couple of weeks I will redefine our target operating model for the future, (I) also come out with some organizational announcements and clarity,” he said, adding that the merger with Credit Suisse is not a “risky” transaction and will deliver for shareholders.
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April 24, 2023
China says it respects ex-Soviet nations after envoy’s ‘unacceptable’ comments on sovereignty

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European officials are gearing up for talks on how to deal with China after a series of controvertial events.

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China said Monday it respects the independence of former Soviet nations after remarks by its ambassador in France were deemed “unacceptable” in Europe.

It comes as the 27 members of the European Union reassess their diplomatic and economic relationship with Beijing.

Lu Shaye, China’s ambassador to France, told French media on Friday that countries formerly part of the Soviet Union lacked status in international law. A transcript with the ambassador’s remarks was removed by the Chinese Embassy on Monday morning, according to Bloomberg.

The comment sparked criticism in several European capitals, particularly in the Baltic nations, which broke free from the USSR after it collapsed in 1991.

“We are not ex-Soviet countries. We are countries that were illegally occupied by the Soviet Union,” Lithuania Foreign Affairs Minister Gabrielius Landsbergis told reporters in Luxembourg.

That sentiment was echoed by Estonian Foreign Affairs Minister Margus Tsahkna, “We are an independent country, member of the EU, of NATO. I hope there will be an explanation.”

Speaking also in Luxembourg, Czech Foreign Minister Jan Lipavsky said the comments of the Chinese ambassador were “totally unacceptable.”

“We are denouncing such statement and we hope the bosses of this ambassador will make things straight,” Lipavsky said.

It was within this context, that the spokesperson for the Chinese foreign affairs ministry, Mao Ning, said Monday, “China respects the status of the former Soviet republics as sovereign countries after the Soviet Union’s dissolution.”

This is just the latest episode in a series of controversial events between China and the European Union.

EU to ‘recalibrate’ China strategy

Returning from a visit to China earlier this month, French President Emmanuel Macron said the EU needs to have its own policy on Taiwan and to avoid following the U.S. agenda on the matter. He later added that being allies does not mean being vassals, reinforcing the idea of an independent EU policy.

Macron’s intervention was criticized in the U.S., but also in Germany and other European nations. Overall, some EU countries are afraid of clashing with the United States, particularly given its critical role on security and defense.

Macron’s comments also exposed a divide within the EU about what sort of relationship the bloc wants with China. Some are afraid of antagonizing China and endangering deep economic ties, while others favor the transatlantic alliance.

The subject will be debated among the 27 heads of state, including Macron and Germany’s Chancellor Olaf Scholz, at a meeting in June.

“We will reassess and recalibrate our strategy towards China,” the EU’s top diplomat, Josep Borrell, said Monday.

However, this is likely to be a long and hard discussion and it remains to be seen whether the bloc will be united on the matter.

In 2022, China was the largest source of EU imports and the third-largest buyer of EU goods, highlighting the economic importance that Beijing has for Europe. This is particularly relevant when economic growth in the EU is vulnerable to the ongoing war in Ukraine.

European Commission President Ursula von der Leyen said in March that China is a systemic rival, an economic competitor and a strategic partner. This then applies differently to various policies. For instance, for climate matters, the EU believes China can be a strategic partner; but when it comes to providing market access, the bloc complains that Beijing is a competitor.

However, combining all of these different dynamics could be hard to achieve.

“Managing this relationship and having an open and frank exchange with our Chinese counterparts is a key part of what I would call the de-risking through diplomacy of our relations with China,” von der Leyen said ahead of a trip to Beijing.

“We will never be shy in raising the deeply concerning issues I have already set out. But I believe we must leave space for a discussion on a more ambitious partnership and on how we can make competition fairer and more disciplined,” she added.

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April 24, 2023
Goldman Sachs changes call on European Central Bank rate hikes as banking crisis subsides

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Christine Lagarde, president of the European Central Bank (ECB).

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Goldman Sachs changed its expectations for European Central Bank policy, arguing that recent data, comments from board members, and fewer concerns over the banking sector has allowed for further hawkish action.

The investment bank had lowered its expectations for the ECB’s terminal policy rate to 3.5% in the wake of the collapse of Silicon Valley Bank earlier this year. The event sparked concerns that central banks were moving at too fast a pace and needed to take a break from increasing rates.

However, “banking tensions have receded in recent weeks as the risk of an outright U.S. banking crisis has declined sharply and European bank stock/wholesale funding measures have retraced a large proportion of their large drop in early March,” Goldman Sachs analysts said in a research note Monday.

The bank now believes it will stop hiking (the so-called terminal rate) at 3.75%. The ECB’s benchmark rate has been at 3% since its latest rate decision in March.

In addition, Goldman Sachs said that inflation data is still “very strong,” fueling the argument for more rate hikes. Headline inflation across the euro zone dropped to 6.9% in March, according to preliminary data. In February, the headline rate stood at 8.5%.

Despite this drop, core inflation — which excludes volatile energy, food, alcohol and tobacco prices — rose slightly from the previous month, highlighting the persistence of high prices in the region’s economy.

Olli Rehn, the governor of the Bank of Finland and a member of the ECB’s board, said that “inflation is still by far too high.” Speaking to CNBC last week at the IMF Spring meetings, he added that the central bank must “carry on and act consistently.”

At the March meeting, the ECB did not provide any guidance for upcoming rate decisions, saying these will be data-dependent and happen on a meeting-by-meeting basis.

However, ECB watchers expect a rate increase of 25 or 50 basis points when the Governing Council meets next month.

“We view the choice between 25 basis points and 50 basis points in May as a close call given receding banking risks, growth resilience and ongoing strength in underlying inflation,” Goldman Sachs said.

However, the investment bank is, for the moment, working under the assumption that the ECB will push rates higher by 25 basis points at the May, June and July meeting.

“Reasons for a more gradual speed of tightening from here include that the recent banking stresses are likely to leave some mark on bank lending, we expect some cooling in sequential core inflation in coming months, and the uncertainty around the global outlook has risen,” the analysts said.

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April 19, 2023
Macron bypassed parliament and angered French citizens. Setting the far-right up for a bounce

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French President Emmanuel Macron.

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President Emmanuel Macron‘s controversial pension overhaul, pushed through by overriding the country’s parliament, could eventually erase what the French leader has been working for over the last six years, political analysts told CNBC.

Macron has placed himself as a centrist politician. When aiming to become president in 2017, he chose to establish his own party (La Republique en Marche!, which has been rebranded Renaissance) and tried to break away from the traditional conservative and socialist stances. He positioned himself as an opposite to extremism and a solution to the rather staid politics of the past.

At elections in 2017 and 2022, he comfortably overcame the far-right challenge of Marine Le Pen — but analysts now predict a more clouded outlook with Macron not eligible to run in 2027.

Macron’s recent decision to use special legislative powers to push through a hike in the retirement age adds to a wider dissatisfaction with the political system, Armin Steinbach, a professor of European law and economics at H.E.C. Business School, told CNBC last week.

A poll published earlier this month by the French business channel BFM TV showed that if there were a vote today between Macron and the National Rally’s Le Pen, the sitting president would lose with 45% of the votes. Macron won the 2022 election with 58.5% of the support.

Macron is not grooming anyone and that’s part of the problem.

Shahin Vallée

senior research fellow, German Council on Foreign Relations

Macron’s popularity rating has worsened in the wake of the pension reforms. At the end of March, almost 70% of people surveyed disapproved of the president, versus 61% at the start of the year.

“The bottom line is that it is definitely increasing the split in the society,” Steinbach added.

France has seen 11 days of protest against the new pension laws. The proposed legislation pushes the retirement age up from 62 to 64, and for Macron, and his government, it’s a necessity in order to balance the public finances.

Without enough parliamentary support for the reforms, the French government used Article 49.3 of the constitution, which means the law passes through the lower chamber without a vote. The move angered many French lawmakers and citizens and France’s top court on Friday is due to rule on whether the proposals follow the country’s constitution.

When asked if Macron’s actions would boost more extremist parties, Shahin Vallée, a senior research fellow at the German Council on Foreign Relations, said: “Yes, absolutely.”

Vallée, a former economic advisor to Macron when he served as French economy minister, added that the reforms are “polarizing” voters and will have “disastrous medium-term consequences for the French public.”

Le Pen has voiced her opposition to the pension reform. In the 2022 election, she said she was in favor of keeping the retirement age at 62 and lowering it to 60 for workers who started their careers before the age of 20.

No successor

On top of potentially more support for parties from the political extremes, experts have mentioned how Macron’s lack of a clear successor will also impact future elections.

“Macron is not grooming anyone and that’s part of the problem,” Vallée said, adding that “Renaissance [party] is a one man party.”

Macron is serving his second mandate as president and the French constitution prevents him from running again for the job in 2027. Without a strong candidate to lead his party at the next election, the centrist group might struggle to pick up enough votes.

Three different spokespeople for the Renaissance party, including Secretary General Stéphane Séjourné, were not immediately available for comment when contacted by CNBC.

But the fact that there’s not a clear successor from Macron’s own party could also be tactical.

“None of them have an interest in being the official successor,” Steinbach said, mentioning Bruno Le Maire, the current finance minister, and Edouard Philippe, the former prime minister, as potential successors. He argued that a “natural break” from Macron would be more helpful for potential successors when gathering votes, as they could more easily distance themselves from the negative connections of the sitting president.

Vallée also said he wouldn’t be surprised if Macron takes on a job in the European Union after this mandate, “it could be a great holding spot, especially if Le Pen gets elected in 2027.”

In an interview with Politico, François Bayrou, a top ally of Macron, also said that Macron’s participation in French politics will not end after his second mandate as president.

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April 11, 2023
IMF cuts GDP forecasts, says global economy heading for weakest growth since 1990

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The International Monetary Fund has released new economic forecasts and warns that it will be hard for policymakers to bring down inflation while keeping a growth momentum.

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The International Monetary Fund on Tuesday released its weakest global growth expectations for the medium term in more than 30 years.

The D.C.-based institution said that five years from now, global growth is expected to be around 3% — the lowest medium-term forecast in an IMF World Economic Outlook since 1990.

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“The world economy is not currently expected to return over the medium term to the rates of growth that prevailed before the pandemic,” the Fund said in its latest World Economic Outlook.

The weaker growth prospects stem from the progress economies like China and South Korea have made in increasing their living standards, the IMF said, as well as slower global labor force growth and geopolitical fragmentation, such as Brexit and Russia’s invasion of Ukraine.

These forces are now overlaid by and interacting with new financial stability concerns.

In the short term, however, the IMF expects global growth of 2.8% this year and 3% in 2024, slightly below the fund’s estimates published in January. The new estimates are a cut of 0.1 percentage points for both this year and next.

“The anemic outlook reflects the tight policy stances needed to bring down inflation, the fallout from the recent deterioration in financial conditions, the ongoing war in Ukraine, and growing geoeconomic fragmentation,” the IMF said in the same report.

Looking at some of the regional breakdowns, the IMF sees the United States economy expanding by 1.6% this year and the euro zone growing by 0.8%. However, the United Kingdom is seen contracting by 0.3%.

China’s GDP is expected to increase by 5.2% in 2023, according to the IMF, and India’s by 5.9%. The Russian economy — which contracted by more than 2% in 2022 — is seen growing by 0.7% this year.

“The major forces that affected the world in 2022 — central banks’ tight monetary stances to allay inflation, limited fiscal buffers to absorb shocks amid historically high debt levels, commodity price spikes and geoeconomic fragmentation with Russia’s war in Ukraine, and China’s economic reopening—seem likely to continue into 2023. But these forces are now overlaid by and interacting with new financial stability concerns,” the IMF warned.

Banking turmoil

The IMF said that its baseline forecast “assumes that the recent financial sector stresses are contained.” It comes after a number of banks failed in March, causing volatility across global markets.

Silvergate Capital, Silicon Valley Bank and Signature Bank all failed, with regulators taking action in an effort to prevent contagion. Since then, First Republic Bank has also received support from other lenders, and in Switzerland, authorities asked UBS to step in and acquire its struggling rival Credit Suisse.

The pressures in the banking sector have dissipated in recent weeks, but they have made the overall economic picture worse in the eyes of the IMF.

“Financial sector stress could amplify and contagion could take hold, weakening the real economy through a sharp deterioration in financing conditions and compelling central banks to reconsider their policy paths,” the fund said.

The bank failures shed light on the potential consequences of hawkish monetary policy across many major economies. Higher interest rates, raised by central banks battling to bring down stubbornly high inflation, are hurting companies and national governments with high levels of debt.

“A hard landing — particularly for advanced economies — has become a much larger risk. Policymakers may face difficult trade-offs to bring sticky inflation down and maintain growth while also preserving financial stability,” the IMF said.

The institution expects global headline inflation to drop from 8.7% in 2022 to 7% this year, as energy prices come down. However core inflation, which excludes volatile food and energy costs, is expected to take longer to fall.

In most cases, the IMF does not expect headline inflation to return to its target levels before 2025.

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April 11, 2023
EU regulators distance themselves from Credit Suisse bond writedowns

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BRUSSELS — European regulators distanced themselves from the Swiss decision to wipe out $17 billion of Credit Suisse‘s bonds in the wake of the bank’s rescue, saying they would write down shareholders’ investments first.

Dominique Laboureix, chair of the EU’s Single Resolution Board, had a clear message for investors in an exclusive interview with CNBC.

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“In [a banking] resolution here, in the European context, we would follow the hierarchy, and we wanted to tell it very clearly to the investors, to avoid to be misunderstood: we have no choice but to respect this hierarchy,” Laboureix said Wednesday.

It comes after Swiss regulator FINMA announced earlier this month that Credit Suisse’s additional tier-one (AT1) bonds, widely regarded as relatively risky investments, would be written down to zero, while stock investors would receive over $3 billion as part of the bank’s takeover by UBS, angering bondholders.

In a joint statement with the ECB Banking Supervision and the European Banking Authority, the Single Resolution Board said on March 20 that the “common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier 1 be required to be written down.”

The standard hierarchy or framework sees equity investments classed as secondary to bonds when a bank is rescued.

The Swiss decision has led some Credit Suisse AT1 bondholders to consider legal action, and it sparked uncertainty for bondholders around the world.

Switzerland’s second largest bank Credit Suisse is seen here next to a Swiss flag in downtown Geneva.

Fabrice Coffrini | AFP | Getty Images

“As a resolution authority in charge of the banking union resolution framework, I can tell you that I will respect fully and entirely the legal framework. So in resolution, when adopting a resolution scheme, I will respect this hierarchy starting by absorbing equity stack, and then the AT1 and then the Tier 2 and then the rest,” Laboureix said.

Switzerland is not part of the European Union and so does not fall under the region’s banking regulation.

The Single Resolution Board became operational in 2015 in the wake of the Global Financial Crisis and sovereign debt crisis. Its main function is to ensure that there’s the least possible impact on the real economy if a bank fails in the euro zone.

Tougher on Silicon Valley Bank

The recent banking turmoil started in the U.S. with the fall of Silvergate Capital, a bank focused on cryptocurrency. Shortly after, regulators closed Silicon Valley Bank and then Signature Bank following significant deposit outflows in an effort to prevent contagion across the sector.

Since then, First Republic Bank received support from other banks and in Switzerland, authorities asked UBS to rescue Credit Suisse. Late last week, Deutsche Bank shares slid leading some to question if the German bank could be next, although analysts have stressed that its financial position looks strong.

For regulators in the euro zone, the collapse of Silicon Valley Bank, and perhaps subsequent events, could have been avoided if tougher banking rules were in place.

“A bank like this would have been under strict rules,” Laboureix said. “I’m not judging … but what I understand is that these mid-sized banks, so-called mid-sized banks in the U.S., were in reality, big banks compared to ours in the banking union.”

European lawmakers have previously told CNBC that U.S. regulators made mistakes in preventing the failure of SVB and others.

One of the key differences between the U.S. and Europe is that the former has a more relaxed set of capital rules for smaller banks.

Basel III, for instance — a set of reforms that strengthens the supervision and risk management of banks and has been developed since 2008 — applies to most European banks. But American lenders with a balance sheet below $250 billion do not have to follow them.

Despite the recent turbulence, European regulators argue the sector is strong and resilient, particularly because of the level of controls introduced since the Global Financial Crisis.

“If you look at the past events — I mean, Covid, Archegoes, Greensill, the Gilt crisis in the U.K. last September, etc, etc — during the three last years, the resilience of the European banking system was very strong based on very good solvency and very good liquidity and a very good profitability,” Laboureix said.

“I really believe that yes, there is a good resiliency in our banking system. That does not mean that we don’t have to be vigilant.”

— CNBC’s Elliot Smith contributed to this report

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March 30, 2023
Europe’s leaders battle banking crisis as market rout hangs over Brussels summit

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Germany’s Chancellor Olaf Scholz said Deutsche Bank is profitable after shares dipped more than 10% during European trading.

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BRUSSELS — European leaders on Friday were keen to stress that the region’s banking sector was stable and sound following Deutsche Bank‘s sudden slide as markets opened for trade.

German Chancellor Olaf Scholz told reporters at an EU summit that Deutsche Bank is a profitable business with no reasons for concern.

The German lender “has modernized, organized the way it works. It is a very profitable bank and there is no reason to be concerned,” he said, according to a translation.

Shares of the German lender traded more than 14% lower at one point Friday after a Thursday evening surge for its credit default swaps — a type of contract to insure against a default. This comes just days after the emergency rescue of Credit Suisse and the collapse of Silicon Valley Bank as well as several measures from authorities stateside to avoid contagion across the financial sector.

French President Emmanuel Macron also told reporters in Brussels that the banking system is solid, while European Central Bank President Christine Lagarde said the euro area is resilient because it has strong capital and solid liquidity positions.

“The euro area banking sector is strong because we have applied the regulatory reforms agreed internationally after the Global Financial Crisis to all of them,” she said, according to EU sources.

The 27 EU leaders were gathered for their usual end of quarter meeting. Geopolitics dominated the first day of talks, but the banking turmoil ended up being the focus for Friday. This became the case, in particular, as the leaders’ conversations developed in parallel to the sharp sell-off in Deutsche Bank shares.

In the run up to the gathering, European officials had expressed their frustration with the lack of regulatory controls in the United States, where the recent banking turmoil first emerged. They have been nervous about potential contagion to their own banking sector, mainly as it’s not been that long since European banks were in the depths of the global financial crisis.

“The banking sector in Europe is much stronger, because we have been through the financial crisis,” Estonia Prime Minister Kaja Kallas told CNBC Thursday.

In the wake of the 2008 shock, European banks underwent massive restructuring and had to significantly shore up their balance sheets.

But the EU is still somewhat vulnerable to shocks given that it has a monetary union within the euro area, where 20 nations share the euro, but lacks a fiscal union. Fiscal policy is still the responsibility of the individual governments rather than one single institution.

“We need to progress on completing the banking union; further work is also necessary to create a truly European capital markets,” Lagarde also told the 27 EU heads of state on Friday.

The banking union is a set of laws introduced in 2014 to make European banks more robust. The debate has been politically sensitive, but the reality that high interest rates are here to stay has made it even more pressing.

The idea for a true capital markets union is to make lending easier across the region, where often national bureaucracy can differ from country to country.

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March 24, 2023
China’s liaisons with Russia are fueling an awkward split among European leaders

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Russian President Vladimir Putin and Chinese President Xi Jinping at the Kremlin in Moscow, Russia, March 21, 2023.

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BRUSSELS — China’s relationship with Russia is causing unease and division in the European Union, with some in the bloc arguing that it’s time to rethink their ties to Beijing.

Chinese President Xi Jinping traveled to Russia earlier this week, where both leaders shared mutual concerns, warm words and called one another “dear friend.” Speaking alongside Russian President Vladimir Putin, the Chinese leader Xi predicted voters would reelect his Russian counterpart next year and described his leadership as “strong.”

Their conversations are closely followed by officials in the U.S. and the EU, particularly in terms of potential military support that Beijing may give to Moscow, which could materially help the latter in making advancements with its war in Ukraine.

However, more broadly, the stronger ties between Moscow and Beijing are creating problems within the European Union, which has thus far looked to strengthen its own economic links with China.

There’s a school of thought that the EU needs to tightly curb its relationship with Beijing — something that the United States would welcome. But some EU leaders would instead prefer to be careful with their words and actions in case they antagonize Beijing.

Xi’s visit to Russia “is a little bit of an eye opener for us in Europe,” Arturs Krišjānis Kariņš, the prime minister of Latvia, told CNBC on Thursday.

“If maybe many, many people were hoping that China could somehow be or take the role of a [peace] broker, China’s not doing this at all. China is certainly moving right now overtly on the side of Russia. And this is actually a very big challenge and a big difficulty for all of us,” he said.

Last month, China presented a 12-point plan for peace between Russia and Ukraine. The proposal fails to specify whether Russia needs to leave the territory of Ukraine for a deal to be completed. Kyiv has made it clear it will not agree to any peace deal that does not involve regaining full control of its territory, including Crimea which the Kremlin annexed in 2014.

“We have looked very carefully at [the] communication coming out of the Xi Jinping meeting with Vladimir Putin,” Dutch Prime Minister Mark Rutte told CNBC. “We very much hope that the phone call will take place as soon as possible between Xi Jinping and Volodymyr Zelenskyy.”

There’s been speculation that the Chinese leader will now, after leaving Moscow, have his first conversation with the Ukrainian president since the invasion began in February 2022.

However, there are doubts in Western nations that China can be an effective mediator between Russia and Ukraine. When asked if he trusted Beijing to do that, Rutte said, “That’s difficult to assess.”

While Ukraine has previously called out Hungary and Germany for getting too close to Russia, it has kept a more amicable tone toward Beijing.

“I don’t want to do China bashing just for China bashing,” Luxembourg’s prime minister, Xavier Bettel, told CNBC in Brussels on Thursday. He said China is a competitor to the EU, but also a partner. Indeed, in 2022, China was the third-largest destination for goods from the EU.

“It’s the same for TikTok,” Bettel said. “In my country TikTok is still not forbidden. I don’t forbid TikTok because it’s Chinese, but if I have evidence that there is something, I will ban it — but I am not in favor of doing bashing or banning without having evidences.”

European institutions, Belgium and Denmark — among others — have banned the use of the Chinese-owned app on government-issued work phones with concerns over national security.

Speaking in Davos, Switzerland, in January, France’s finance minister, Bruno Le Maire, said the French view was to engage with China.

“China cannot be out, China must be in. This is the difference of view we have between the U.S. and Europe,” he said. “We don’t want to oppose China, we want to engage with China.”

Overall, the EU is stuck between a rock and a hard place. Its trade links with China are important, particularly when economic growth in the EU is vulnerable to the ongoing war in Ukraine. But at the same time, it is witnessing a closer bond between Beijing and Moscow which could be in direct conflict with the EU’s aim for peace in Ukraine.

Moreover, the EU has become even more reliant on the United States for security matters since the invasion and Washington rhetoric, meanwhile, is increasingly more critical of China.

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March 23, 2023
European lawmakers are quietly miffed at U.S. regulators over SVB’s collapse

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Chair of the ECB Supervisory Board Andrea Enria and Chairperson of the European Banking Authority (EBA) Jose Manuel Campa in the European Parliament on March 21, 2023.

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U.S. regulators made mistakes in failing to prevent the collapse of Silicon Valley Bank and other financial institutions, according to lawmakers in the European Union who believe this is also a moment for some self-assessment in Europe.

Silvergate Capital, a bank focused on cryptocurrency, was the first to fall, saying March 8 that it would be ceasing operations. Shortly after, Silicon Valley Bank failed after a run on deposits. Signature Bank, which focused on lending to real estate firms, then saw deposit outflows leading regulators to seize the bank to prevent contagion across the sector.

Since then, First Republic Bank has also received support from other banks amid fears of a wider shock to the financial system. And in Switzerland, a non-member of the European Union, authorities had to rescue Credit Suisse by asking UBS to step in with an acquisition.

Meanwhile, regulators and officials across the European Union have been nervous about potential contagion to their own banking sector. After all, it’s not been that long since European banks were in the depths of the global financial crisis.

“There is no direct read across of U.S. events to [the] euro area significant banks,” Andrea Enria, chair of the European Central Bank’s supervisory board, said Tuesday. Like him, an array of officials have made an effort to stress that the European banking system is in much better share compared to 2008.

The U.S. lacks some controls.

Paul Tang

Lawmaker in the European Parliament

This reinforces the view in the EU that the U.S. should learn from some of the regulatory works put in place in the euro area since the financial crisis.

“You need stronger regulation … in that sense the U.S. lacks some controls,” Paul Tang, a lawmaker and a member of the European Parliament’s economic committee, told CNBC.

When asked if U.S. regulators made some mistakes, thus failing to prevent the recent banking turmoil, he said: “I definitely think so, you need to have scrutiny. That was the message from 2008.”

In the heart of European policymaking, in Brussels, an official, who did not want to be named due to the politically sensitive nature of the topic, told CNBC that several meetings between EU officials in recent days “stressed the failures of regulation [in the U.S.] particularly when compared with the EU.”

One of the key differences is that the U.S. has a more relaxed set of capital rules for smaller banks.

“The main difference is the Basel III requirements,” Stéphanie Yon-Courtin, a member of the European Parliament told CNBC. “These banking rules,” she said, “apply to very few banks — this is where the problem lays.”

Basel III is a set of reforms that strengthens the supervision and risk management of banks and has been developed since 2008.

It applies to most European banks, but American lenders with a balance sheet below $250 billion do not have to follow them.

‘Remain vigilant’

Despite some of the criticism toward American regulators, the EU recognizes this is not the time to be complacent. “We have to remain vigilant,” Yon-Courtin said. “We have to be careful and ensure these rules are still fit for purpose,” she added, pushing for a constant monitoring of the rulebook.

One of the main discussions in the EU in recent days has actually been the need to improve the European Banking Union — a set of laws introduced in 2014 to make European banks more robust.

The debate has been politically sensitive, but the reality that high interest rates are here to stay has made it even more important.

“We are well aware that the ongoing fast pace normalization of monetary policy conditions is increasing our banks’ exposure to interest rate risk,” Enria, the chair of the ECB’s supervisory board, said Tuesday.

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March 23, 2023
HSBC bought Silicon Valley Bank UK in record time — here’s how events unfolded

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HSBC came to the rescue of Silicon Valley Bank UK in a crucial deal for the whole banking sector. But if you had told its CEO — just a few days beforehand — that this would be happening, he would not have believed you.

“I was going about my normal business on Friday. If somebody had said to me [that] we would be acquiring another bank within two or three days, I wouldn’t have believed it,” Ian Stuart, CEO of HSBC UK Bank, told CNBC’s “Squawk Box Europe” Thursday.

It was all very quick. Silicon Valley Bank — a U.S. lender with clients mostly in the tech and health-care startup world — was deemed insolvent by American regulators on Friday. That raised alarm bells across the pond, where SVB had a subsidiary.

Consequently, the Bank of England announced Friday that, “absent any meaningful further information,” it would be placing Silicon Valley Bank UK into an insolvency procedure.

“Woke up on Saturday morning, saw the announcement and by just after 10:30 a.m. we were in touch with the regulator offering our help, myself and our global CEO Noel Quinn both in contact. And it went a little bit quiet, I think at that point we were just trying to offer any assistance we could,” Stuart said.

More than 200 companies — depositors with SVB UK — wrote Saturday to the U.K.’s Treasury asking for help. They said that some would not be able to comply with payroll deadlines without accessing their deposits with SVB UK.

“We got access to the data bank early on Sunday. We had about five hours to do due diligence and by about 6pm on Sunday — and we had lots of meetings throughout the day — as far as we were concerned it was a competitive situation, and I can honestly tell that even up to about 10, 11 p.m. at night, I still thought it was a competitive situation and around about that time, we were in really close dialogue with the regulator.”

Other financial institutions were also in the mix and assessing the possibility of buying SVB UK, including OakNorth Bank, The Bank of London and Abu Dhabi investment firm Royal Group.

It’s a wonderful opportunity.

“It wasn’t until … early hours of Monday morning that we thought, ‘right, I think we have got a bank,’ and we started preparing comms at that point,” Stuart said.

HSBC UK announced at 7 a.m. London time Monday that it was buying Silicon Valley Bank UK for £1 ($1.21). The deal protected £6.7 billion in deposits.

“We have a U.K. bank that’s well run, very good people, good quality products and, yes, five hours isn’t a lot of time to do due diligence, but what we decided was, ‘Are there any black holes? No, not that we could see,’” Stuart said.

“Was it worth — your words, not mine — a gamble. We thought it was a sensible approach, we didn’t ask for government support, we didn’t ask for anything out of the ordinary,” he said, adding that the deal will help HSBC accelerate its strategic plan by two or three years.

“It’s a wonderful opportunity,” he said.

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March 16, 2023
The U.S. imposed semiconductor export controls on China. Now a key EU nation is set to follow suit

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An employee stands by cables inside a ASML Twinscan XT1000 lithography machine, during manufacture at the ASML factory in Veldhoven, Netherlands.

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“Given the technological developments and the geopolitical context, the government has come to the conclusion that the existing export control framework for specific equipment used for the manufacture of semiconductors needs to be expanded, in the interests of national and international security,” the country’s Foreign Trade Minister Liesje Schreinemacher said in a letter to parliament Wednesday.

Although the letter does not reference China, it comes after pressure from the White House, which in 2022 imposed export controls that limit Beijing from accessing certain semiconductor chips. At the time, American officials recognized that if other countries did not impose similar restrictions, the export controls would lose effectiveness over time.

Since 2018, the U.S. has reportedly been asking the Dutch government to stop ASML shipping its extreme ultraviolet lithography machines to China. ASML has not shipped the equipment to China so far.

In the wake of the Dutch government’s announcement, ASML said in a statement that, “it will take time for these controls to be translated into legislation and take effect.”

“Based on today’s announcement, our expectation of the Dutch government’s licensing policy, and the current market situation, we do not expect these measures to have a material effect on our financial outlook,” the company said Wednesday, adding that “the additional export controls do not pertain to all immersion lithography tools but only to what is called ‘most advanced’.”

ASML said that it is not clear what the Dutch government means by the “most advanced” machines.

However, it said the regulations mean that it will need to apply for a license to export its so-called immersion deep ultraviolet (DUV) lithography machine, which is used to manufacture memory chips. These chips are used in a plethora of devices, from smartphones to laptops and servers, and could ultimately be used for artificial intelligence applications.

Last month, ASML said that a former employee in China had misappropriated data related to its proprietary technology.

China has been working to bolster its domestic semiconductor industry, but it remains far behind the likes of Taiwan, South Korea and the U.S.

The Chinese Ministry for Foreign Affairs said on Thursday that it opposes the politicization of economic and trade cooperation and hopes that the Netherlands maintains an objective stance, according to Reuters.

Speaking to CNBC’s Street Signs on Thursday, Anna Rosenberg, head of geopolitics at the Amundi Institute, said that the latest announcement from the Netherlands is “a big deal” for President Joe Biden.

“The U.S. has been trying to get the EU to side with its policies towards China for a while, and it has significantly more leverage with the EU now than prior to the [Ukraine] war, simply because the EU is now pretty much entirely dependent on its security on the US,” she added.

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March 9, 2023
Tesla is not the only company reviewing its Europe investment after Biden’s IRA

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Elon Musk, Tesla CEO, on a stage at the Tesla Gigafactory in Grünheide, Germany.

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Tesla recently announced a strategy shift away from Europe as it seeks to benefit from unprecedented subsidies in the United States. But it’s not the only company reviewing investment decisions vis-à-vis Europe.

Many multinationals are reconsidering plans to deploy new money into Europe. It comes after U.S. President Joe Biden last year presented the Inflation Reduction Act, or the IRA, which includes a record $369 billion in spending on climate and energy policies.

The landmark legislation, which features green subsidies for businesses, has raised competition issues for European companies — and upset politicians in the region. Brussels has been left considering how best to respond.

Northvolt, a Swedish battery maker; Linde, a chemical giant from Germany; Volkswagen, the carmaker; Enel, the Italian energy giant, have all expressed an interest in profiting from U.S. subsidies. And there could be more.

“European companies, they prefer to have the present of the U.S. government rather than the penalty of the European authorities,” Evangelos Mytilineos, CEO and chairman at the Greek industrial conglomerate Mytilineos, told CNBC’s “Squawk Box Europe” about the additional bureaucracy in Europe.

When asked if he would be taking his business to the U.S., Mytilineos replied, “It is a possibility. Unfortunately, it is not just a possibility for our company.”

It is still early to assess just how much investment could drift away from Europe as a result of Biden’s policy. But so far the message from European businesses is clear: they want officials in the region to do more to support them.

In a speech in February, European Commission President Ursula von der Leyen said it was time for a “simpler and faster framework.” Previously, her team had welcomed the efforts stateside for a cleaner economy, while intensifying talks with their counterparts to ensure European businesses would not flock to America.

But there are fears it could be too little, too late.

Peter Carlsson, the CEO of Northvolt, told CNBC in February that his company has been working on a North American plant. “And with the IRA that plan kind [of] got turbo boosted given the very strong incentives,” he added.

Northvolt is in the midst of deciding whether to press ahead with its expansion in North America before doing so in Germany.

Meanwhile, Ilham Kadri, CEO of Solvay, a chemicals company headquartered in Belgium, said in January: “The reality is that the Biden administration incentivizes when Europe regulates — to put it black in white.”

EU ‘aware that it needs to do more’

Tesla last month decided to scale back some investments in Germany and focus on the North American market instead to benefit from the IRA.

“The focus of Tesla’s cell production is currently in the United States due to the framework created by the United States Inflation Reduction Act (IRA),” the company said on Feb. 22, according to Reuters. A spokesperson for the company was not available when contacted by CNBC Thursday.

It comes as both businesses and analysts argue that the simplicity of the IRA is too attractive to pass up on.

“The IRA is constructed in a way that is first of all, very simple. And simplicity is always a winner. By contrast, the European Union machinery is a lot more complex,” said Maria Demertzis, senior fellow at the think tank Bruegel.

“Will firms in the European Union or anywhere else postpone investment that they wanted to make in the European Union and actually profit from the direct and very simple and immediate benefit that the IRA actually promises?”

It’s something European officials are worried about, she added, and comes at a particularly difficult time.

Economies across the EU cannot afford to lose key investments as they struggle with a cost-of-living crisis. The bloc also wants to be independent of China and others for critical materials like lithium.

“The EU is particularly aware that it needs to do more to compete internationally,” Demertzis said.

The European Commission, the executive arm of the EU, is still working on a Sovereignty Fund to provide financing for green projects, but the full details are not expected before June.

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March 2, 2023
Ukraine’s Zelenskyy expected to ask for more aid from European leaders in Brussels trip

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Ukrainian President Volodymyr Zelenskyy addresses parliamentarians in Westminster Hall on Feb. 8, 2023, in London, England.

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BRUSSELS — Ukrainian President Volodymyr Zelenskyy is meeting European leaders on Thursday as he continues his second major trip abroad since Russia invaded Ukraine.

The Ukrainian leader is expected to address the European Parliament Thursday morning and then attend an extraordinary meeting of the 27 EU heads of state later in the day.

The discussions in Brussels come after a surprise visit to the United Kingdom on Wednesday and a last-minute meeting with French and German leaders in Paris that evening. It is the second time that Zelenskyy is known to have left Ukraine since Russia invaded the country on Feb. 24 last year.

The president is using his time abroad to thank allies for their support so far, while also asking for further commitments at a time when Ukrainian authorities are expecting a large-scale offensive by the Russians.

In London on Wednesday, Zelenskyy brought a helmet from a Ukrainian pilot with the message “we have freedom, give us wings to protect it.”

Last month, Zelenskyy asked Ukraine’s allies for fighter jets — a request that has so far not received the greenlight from Western nations. However, the U.K. said Wednesday it will provide training to Ukrainian pilots to fly fighter jets, and British Prime Minister Rishi Sunak said nothing was off the table when it comes to supporting Ukraine.

In Paris, Zelenskyy was also very clear with his requests to the French and German heads of state. “The sooner we get heavy long-range weapons and our pilots get modern planes, Emmanuel, the earlier our pilots can get modern planes, Olaf, the more powerful will be our tank coalition,” Zelensky said.

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February 8, 2023
SocGen reports 64% slide in annual profits but beats market expectations
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SocGen reported its latest results Wednesday.

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Societe Generale on Wednesday reported a 64% drop in annual net profits for 2022, weighed on by lower activity in its domestic banking unit, currency effects and increased operating expenses.

The French bank said net income came in at 1.16 billion euros ($1.24 billion) for the final quarter of 2022, bringing its annual profit to 2.02 billion euros. In comparison, the bank had posted 5.6 billion euros in net profit at the end of 2021.

The latest results came in higher-than-expectations. Analysts had estimated a net income of 905 million euros for the quarter and 1.5 billion euros for the full year, according to Refinitiv.

“The Group is confident of being able to reap the benefit of ongoing projects and business developments, confirms its financial guidance for 2025, and is embarking with determination on 2023, a year of transition in many respects,” CEO Fréderic Oudéa said in a statement.

Here are other highlights from the results:

Revenues rose 8% over the year to 28.1 billion euros.

Operating expenses increased by 5.9% over the last 12 months to 18.6 billion euros.

CET1 ratio, a measure of bank solvency, stood at 13.5%, versus 13.1% at the end of the third quarter.

Shares of the French lender are down more than 20% over the last 12 months.

This is a breaking news story and it is being updated.
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February 7, 2023
French bank BNP Paribas reports bumper profit for 2022, boosts stock purchase plan
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BNP Paribas reported Q4 2022 and full year earnings.

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BNP Paribas reported Tuesday a 7% rise in net income for 2022 and revised up its profit targets.

The French bank said net profit attributable to shareholders came in at 2.2 billion euros ($2.36 billion) for the fourth quarter, taking its full-year profit figure for 2022 to 10.2 billion euros. Analysts had expected a figure of 2.36 billion euros for the quarter and 10.9 billion euros for the year, according to Refinitiv.

Here are other highlights from the results:

Annual revenues rose to 50.4 billion euros versus 46.2 billion euros a year ago;

Operating expenses rose 8.3% from a year ago to 33.7 billion;

CET 1 ratio, a measure of bank solvency, stood at 12.3% versus 12.1% in the previous quarter.

Shares of the French bank are down about 7% over the last year.

Share buyback and outlook

“On the strength of this performance and with additional growth potential stemming from the redeployment of capital released by the sale of Bank of the West, combined with the positive impact of the rise in interest rates in 2022, the Group reaffirms the importance and relevance of the pillars of its Growth, Technology & Sustainability 2025 strategic plan and is revising upward its ambitions,” the bank said in a statement.

The French lender said it now aims to grow its net income by more than 9% between 2022 and 2025.

It said it will execute share buybacks each year — particularly in 2023, when its share buyback program will total 5 billion euros. It is planning to pay out a dividend of 3.90 euros.

This is a breaking news story and is being updated.
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February 6, 2023
Euro zone inflation dips for a third straight month as energy prices continue to fall

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Inflation in the euro zone eased in the last two months of 2022 but the economic indicator is still well-above the 2% mandate of the European Central Bank.

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Inflation in the euro zone dropped for a third consecutive month in January on the back of a significant fall in energy costs.

Headline inflation in the euro zone came in at 8.5% in January, according to preliminary data released Wednesday. In December, the rate was recorded at 9.2%.

Energy remained the biggest cost driver in January, but once more softened from previous levels. Energy charges fell to an estimated 17.2% in January, down from 25.5% in December. However, food costs rose slightly from 13.8% in December to 14.1% in January.

The 20-member region has gone through substantial price increases in 2022, after Russia’s invasion of Ukraine pushed up energy and food costs across the bloc. However, the latest data provides further evidence that inflation has started to ease.

Core inflation, which strips out energy and food costs, stood at 5.2% in December — in line with the previous month.

“The key point is that core inflation was unchanged at a record 5.2% so the ECB will remain very hawkish,” Jack Allen-Reynolds, senior Europe economist at Capital Economics, said via email.

The performance of Europe’s main index over the last 12 months.

“The apparent decline in euro-zone headline inflation in January, from 9.2% in December to 8.5%, came as a big surprise. But we wouldn’t be shocked if it was revised up significantly when the final euro-zone data are released on 23^rd February,” he added, citing delays in receiving official data from Germany.

What it means

The economic indicator is being closely watched ahead of a new interest rate decision due out on Thursday from the European Central Bank. Higher inflation has led the ECB to raise rates four times in 2022, and market expectations point to at least two other increases in the coming meetings.

“The upshot is that the larger-than-expected drop in headline inflation won’t deter the ECB from raising interest rates by 50 basis points tomorrow,” Allen-Reynolds said.

In a note to clients last week, Morgan Stanley had said that “a 50 basis point hike in February seems like a done deal, with the Council discussion to centre on the size of rate hikes in March and beyond.”

Market participants will be looking for clues on the central bank’s next steps. The main ECB rate is currently at 2%, but market expectations suggest an increase to 3.5% by the end of the first six months of the year, according to Reuters.

“Investors will be looking ahead to whether Christine Lagarde doubles down on previous signals for another half-percent hike in March and what words she uses to describe any future additional tightening,” Tom Hopkins, portfolio manager at BRI Wealth Management, said Wednesday via email.

Unemployment in the euro zone seemed steady at 6.6% in December . This is in line with the previous two monthly readings and also reduces fears of a significant recession in the euro zone.

Data released Tuesday showed a better-than-expected growth activity in the euro zone at the end of 2022 — despite economic contractions in Germany and Italy, the euro zone grew 0.1% in the fourth quarter of last year.

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February 1, 2023
UBS gets a boost from higher rates, but lower client activity brings down revenues
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UBS reported fourth quarter and full-year earnings.

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UBS beat market expectations with its latest results on the back of lower expenses and higher interest rates. But the lender’s revenues declined because of weaker client activity.

The bank reported $1.7 billion of net income for the fourth quarter of last year, bringing its total annual profit to $7.6 billion in 2022. Analysts had expected UBS would achieve a net income of $1.3 billion in the fourth quarter and of $7.3 billion for the year, according to Refinitiv data.

Looking ahead, the Swiss lender said that revenues for the first quarter of 2023 are set “to be positively influenced” by higher client activity and interest rates, as well as by the easing of Covid-19 restrictions in Asia.

“We delivered good full-year and solid fourth-quarter results in a difficult macroeconomic and geopolitical environment,” CEO Ralph Hamers said in a statement.

Here are a couple of highlights from the latest release:

CET 1 capital ratio, a measure of bank solvency, stood at 14.2%, down from 14.4% in the previous quarter;

Revenues dropped to $8.029 billion from $8.705 billion a year ago;

Return on tangible equity, a measure of bank’s performance, rose to 13.2% at the end of the quarter, up from 10% a year ago.

Among the bank’s units, Global Wealth Management posted a fourth-quarter net interest income increase of 35% on the year, given higher deposit margins off the back of higher interest rates. Personal and Corporate Banking also recorded a 21% year-on-year hike in net interest income over the same period, as a result of higher interest rates and loan revenues.

But market uncertainty hit the investment banking and asset management arms of the business. The former saw a 24% yearly drop in revenues, whereas asset management revenues fell by 31% year-on-year due to the “negative market performance and foreign currency effects.”

“The rate environment is helping the business on one side, and that offsets some of the lower activity that we see on the investment side,” Hamers told CNBC’s Geoff Cutmore on Tuesday.

He added that, following the first half of last year, there was a shift in the markets that put pressure on the investment side of the bank.

“We saw a move from what we would call micro focus, which is equity focused, to macro focus, which is rates focused,” he said, noting that the Swiss bank was not able to benefit from that transition as much as some of its peers, given its smaller presence in the U.S.

‘Uncertain’ Outlook

UBS said it will be purchasing more shares this year.

“We remain committed to a progressive dividend and expect to repurchase more than $5 billion of shares in 2023,” Hamers said in a statement.

However, the Swiss bank is cautious about the economic outlook, citing central bank activity as a potential catalyst for market volatility.

“While inflation may have peaked in the second half of 2022, and an energy crisis in Europe seems likely to be averted, the outlook for economic growth, asset valuations and market volatility remains highly uncertain, and central bank tightening may have an impact on market liquidity,” the bank said in its latest results.

UBS shares are up by about 15% over the last 12 months.
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January 30, 2023
‘Quick and dirty’: France’s Macron expected to push through pension reforms after years of pushback

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The French government is presenting new plans to update the pension system. Analysts expect some backlash from some workers.

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French President Emmanuel Macron is going at it again: a new pension reform will be presented Tuesday, and is expected to face some backlash.

Macron is serving his second term as France’s president but overhauling the pension system is a long-standing promise that dates all the way back to when he was first elected in 2017.

France’s legal retirement age is currently 62 — lower than many developed markets, including much of Europe and the U.S. The public sector also has “special regimes,” or sector-specific deals that allow workers to retire before they’re 62.

In late 2019, Macron’s government proposed a single, points-based system, which enabled a person to retire once they had gained a certain number of points. The idea was a harmonization of the rules across sectors.

But the plan was met with uproar. Public sector workers — arguably the ones with the most to lose from potential reforms — protested for several days in some of the country’s biggest strikes in decades. Amid such strong opposition and the coronavirus pandemic, Macron decided in early 2020 to put the plans on hold.

This year will be one of pension reform.

Emmanuel Macron

President of France

There was some talk of revisiting the plans in early 2022, but it was judged to be too close to the presidential election, which took place in April last year.

“This year will be one of pension reform, aiming to balance our system in the years and decades to come,” Macron said during his New Year’s address.

“As I promised you, this year will indeed be that of a pension reform, which aims to ensure the balance of our system for the years and decades to come.”

He added that he wants to conclude negotiations in time for new rules to be applicable from the end of summer 2023.

“There will be disruption, there will be strikes, [but Macron] has decided to go quick: the current procedure is supposed to last no more than 90 days,” Renaud Foucart, senior lecturer in Economics at Lancaster University, told CNBC’s “Squawk Box Europe” Tuesday morning.

“Quick and dirty maybe, but much more likely to pass than five years ago,” he added.

Étienne Ollion, sociology professor at Ecole Polytechnique, told CNBC’s Street Signs on Tuesday that Macron “is keen on keeping the image of a reformist president.”

His first term was dominated by key reforms, touching on items such as labor laws and taxation.

What to expect

One of the main issues will be the new retirement age. In the past, Macron suggested this could be raised from 62 to 65, but at a gradual pace with increases of about 4 months per year until 2031.

French media have reported that the government is considering increasing the amount those on the lowest pensions receive in an effort to make the transition to a longer working life more acceptable to the public. CNBC could not independently verify this information.

Macron’s first proposal, from 2019, also envisaged addressing the so-called “special regimes.”

Any new change to these accords is likely to lead to backlash from the industries affected.

France’s comparably low retirement ages is a drag on its public finances. The country’s pensions advisory council has reportedly estimated a deficit in the pension system of around 10 billion euros ($10.73 billion) each year between 2022 and 2032.

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January 10, 2023
European Central Bank warns that an EU gas price cap risks financial stability

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The European Central Bank has raised concerns over an idea to impose a cap on gas prices in Europe.

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The European Central Bank is worried about the potential risks to financial markets from an EU-wide cap on natural gas prices.

The bloc has been in intense discussions for several weeks over how to impose a limit on gas prices. The measure — designed to prevent sky-high costs for consumers — is proving controversial for Europe amid an acute energy crisis following Russia’s invasion of Ukraine.

The European Commission, the executive arm of the EU, suggested in November that the cap should sit at 275 euros ($290.33) per megawatt hour. However, several member states argued this did not go far enough and was unlikely be triggered.

The Dutch TTF, Europe’s main benchmark for natural gas prices, traded around 135.50 euros per megawatt hour Friday.

Discussions on the cap continue among the EU’s 27 member states ahead of a ministerial meeting Tuesday — as the ECB warns the cap could have repercussions for financial markets.

“The ECB acknowledges that mechanisms aimed at moderating extreme price levels and volatility in wholesale gas markets may, in principle, alleviate a number of risks to financial stability, including the risks exposed during periods of elevated and volatile gas prices in 2022,” the central bank said in a document Thursday.

“However, the ECB considers that the current design of the proposed market correction mechanism may, in some circumstances, jeopardise financial stability in the euro area,” it added.

The comments are in line with concerns raised by countries such as Germany and the Netherlands, which have asked for stronger guarantees that the cap is not going to disturb markets.

Supporters of the price cap have argued that the instrument will be monitored regularly and can be stopped if regulators, including the European Central Bank, identify any financial distress.

Some are hoping that a decision on the price cap can be reached at the meeting of EU energy ministers in Brussels, Belgium.

“We hope this will close at the ministers’ level next week. But there are still discussions on the sidelines. We will see,” an official working for the prime minister of an EU country, who did not want to be named due to the sensitivity of the talks, told CNBC Thursday.

Another official working in Brussels, who did not want to be named due to their proximity to the talks, said: “Consensus seems very much out of reach.”

The impasse over the measure highlights how sensitive — and technical — it is.

Indeed, some energy ministers have described the initial proposal to cap prices at 275 euros per megawatt hour as a “joke.”

Many nations, such as Poland, Greece, Spain and Portugal, are keen to implement the price cap. These countries are less able to mitigate the impact of the energy crisis on consumers, and have been pushing for EU-wide solutions as a result.

Kostas Skrekas, Greece’s environment and energy minister, told CNBC’s Julianna Tatelbaum last month that a cap should be below 200 euros per megawatt hour.

“[A] price cap at 275 euro is not a price cap. Nobody can … stand buying gas at this expensive price for a long time. We surely believe that the price cap below 200 euro, between 150 and 200 euro, would be more realistic,” he said.

Two European officials confirmed to CNBC that the current proposal being discussed is a cap of 220 euros per megawatt hour. However, this could change again before ministers meet on Tuesday.

Under the same proposal, the cap would only be triggered when prices are 58 euros higher than the LNG reference price for 10 consecutive trading days, and European gas prices exceeded the price cap for two weeks.

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December 9, 2022