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A wasted summer for EU trade

Written by Javier Maquieira, senior associate 
Edited by Kevin Pringle, partner
27 August 2020

Good morning,

The European Commission lost one of its most powerful leaders this week after trade commissioner Phil Hogan handed in his resignation on Wednesday. Hogan, who is known affectionately on home shores as ‘Big Phil’ for his six-and-a-half foot stature and reputation as a political heavy hitter, took the decision to step aside after he broke Ireland’s coronavirus restrictions to attend a golfing society dinner last week.
 
Like other public figures addled by self-inflicted coronavirus faux pas, Big Phil’s departure may mark the end of his political career. But no one will miss him as much as Ursula von der Leyen, the president of the European Commission. Widely credited with being a hard and effective negotiator, Hogan had been entrusted with resolving the trade war with President Trump and negotiating an investment deal with China.
 
EU commissioners are rarely sacked for such controversies. In this instance, however, potential loss of face for von der Leyen was critical, lest she be seen to be failing to deliver on her own promises to address the EU institutions supposed democratic deficit.
 
Von der Leyen must now find a new commissioner for one of the EU’s portfolios with wide exclusive powers, and has asked Dublin to nominate a successor. All eyes will be on the nominated candidate’s potential leadership style, and how that suits different approaches to trade within the EU’s ideological big tent. Does von der Leyen opt for a candidate with protectionist tendencies that might please French president Emmanuel Macron? Or will they avoid rocking the boat by continuing to commit to free trade?
 
Meanwhile in Berlin, German chancellor Angela Merkel has assumed a more interventionist role in lingering trade disputes. The head of the German government, which holds the rotating presidency of the Council of the EU, has dropped the EU-UK trade deal as an agenda item for the meeting of EU ambassadors taking place on 2 September amid an apparent lack of “tangible progress”.
 
Continuity with EU state aid and the bloc’s fisheries policy are the suspected stumbling blocks, over which the EU’s chief negotiator, Michel Barnier, has refused to progress talks until Downing Street reveals its hand. Both sides are now looking at October’s European Council meeting as a de facto deadline to reach an agreement.
 
It may have become a cliché, but such background music doesn’t help the chances of avoiding a no-deal Brexit. Worst of all, it could poison EU-UK relations for years to come. And as Max Bergmann writes in Foreign Affairs, the EU could emerge with the upper hand in the long run, benefitting from a larger population base and successful diplomacy between Paris and Berlin throughout the pandemic.

News

Japan’s national broadcaster PHK has reported that the country’s longest-serving prime minister, Shinzo Abe, plans to announce his resignation later today amid increasing concerns about his health. Although a leadership race in the Liberal Democratic Party will likely follow after his resignation, Abe’s deputy and finance minister Taro Aso is expected to take over as acting prime minister in the interim period.
 
Speaking on the final night of the Republican National Convention after his formal nomination as the party’s candidate for US president, Donald Trump has depicted his Democratic rival, Joe Biden, as “the destroyer of American greatness” and warned Democrats would unleash “violent anarchists” upon cities across the US. With 68 days until the general election, Biden has a steady single-digit lead over Trump.
 
Hurricane Laura has killed at least six people after making landfall in the US state of Louisiana, where the category four storm devastated communities with wind gusts of more than 120 mph. As Laura makes its way northeast, Arkansas has pre-deployed search and rescue teams along with members of its National Guard.

Business and economy

Pret A Manger is axing 2,890 jobs – almost a third of its workforce – as the UK sandwich chain reported a steep drop in demand for its takeaway food during the pandemic. With sales down to levels last seen a decade ago, the company, which had been expanding until the start of the coronavirus crisis, is set to announce an extensive restructuring in coming months.
 
Walmart plans to join Microsoft in its bid for the US operations of TikTok ahead of President Trump’s impending ban on the app. Although Walmart has confirmed that it is considering the acquisition, saying the partnership would “meet both the expectations of US TikTok users while satisfying the concerns of US government regulators”, Microsoft has told the BBC it had “nothing to share at this time”.
 
The number of skilled worker visas granted in the UK fell by 95% in the year to June as a result of a decrease in overall applications following record levels of immigration from countries outside the EU earlier in the year. According to data released by the Home Office, the number of study visas issued in the second quarter also fell abruptly, declining by 99% to 1,276 in the year. (£)

Columns of note

Writing in The Times, Andrew Wilson argues that Scotland’s public spending deficit makes the case for independence. Reflecting on yesterday’s publication of the Government Expenditure and Revenue Scotland (Gers) figures, he suggests that the UK economy remains unbalanced with 40% of spending in Scotland outside the control of the Scottish government and local councils. Wilson argues that public borrowing in an independent Scotland could be funded at historically low interest rates. (£)
 
In City AM, Nadine Smith writes that there is an opportunity to move power away from the UK’s Westminster-oriented system, and build trust by strengthening “local and regional institutions.” She argues that a coalition of new voices and organisations should be welcomed to a discussion on the UK’s post-Covid recovery.

Cartoon source: The Times

Markets

What happened yesterday? 

London stocks closed in the red on Thursday as investors took profits despite the chair of the US Federal Reserve announcing a shift towards so-called inflation averaging to offset shortfalls. The FTSE 100 was down 0.75% at 5,999.99 while the pound was unchanged at $1.32 against the US dollar and €1.12 on the euro. Across the pond, Wall Street closed slightly higher, with the S&P 500 ending the day up by 0.2%.
 
On the commodity markets, the price of gold was up by 0.7% at $1,941.55 a troy ounce.
 
In company news:
 
Rolls-Royce slipped after the aircraft engine maker said it was selling its Spanish business to raise £2bn. The company has also reported large interim losses and that it would be scrapping its dividend.
 
Flutter Entertainment was down after posting a 22% jump in pro-forma first-half revenues to £2.39bn for a 35% surge in earnings before interest, taxes, depreciation and amortisation to £684m.
 
WPP was at the top of the FTSE 100 despite the advertising company saying it had plunged to a £2.6bn first-half loss as revenue fell.

What’s happening today?

Interims
BBGI
Cathay Intl Ld 
Essentra
Fgc Ues Pjsc
Acron Regs

AGMs
Ariana
Distil   
Edge Perf.h
Kropz Plc
Oryx International Growth
Simec Atlantis
Total Produce

UK economic announcements
(07:00) Nationwide House Price Index

Int. economic announcements
(07:00) GFK Consumer Confidence (GER)
(10:00) Services Confidence (EU)
(10:00) Economic Sentiment Indicator (EU)
(10:00) Business Climate Indicator (EU)
(10:00) Consumer Confidence (EU)
(10:00) Industrial Confidence (EU)
(13:30) Personal Spending (US)
(13:30) Personal Consumption Expenditures (US)
(14:45) Chicago PMI (US)
(15:00) U. of Michigan Confidence (US)

Source: Financial Times

did you know

Queues at Disney World always advertise that they will take longer than they actually will, so that visitors are pleased when they get to the front of the queue faster than anticipated (source: @qikipedia).
 

Parliamentary highlights

House of Commons

In recess until 1 September

House of Lords 

In recess until 2 September 2020.

Scottish Parliament 

No business scheduled

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