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Letter from Brussels: Bumpy road ahead

As far as investment is concerned, the EU faces a turbulent 2015. The efforts of Jean-Claude Juncker are central to arresting the EU economy from its zombie state. His motivation is to create jobs and to strike back at the anti-EU ‘populist’ political movements. 

In parallel with Junker’s policy are early indications of a new dynamic in the European Council, the institution where the EU member state governments meet. 

This could change the Brussels picture as matters that formerly took years to pass through the bureaucracy could be accelerated. On IORP II, for example, the Council concluded its position ahead of the Parliament, which is extraordinary.

Apart from facing up to anti-EU movements, the ominous start to 2015, when the euro fell 15% against the US dollar, may have sharpened minds. 

For the EU economy, the danger of euro weakness is that it could encourage assets to shift outside the euro-zone in search of better returns. This could reduce the stock of investment, catalysing further economic downturn. 

One move to boost economic growth is its Capital Market Union (CMU). This is expected to be launched as a policy paper by this April. Another move is the European Fund for Strategic Investments (EFSI), which intends to raise €315bn for infrastructure growth, including €75bn for SMEs and mid-caps.  

However, EU history tells a story of worthy projects that are initiated by the Commission, backed by the Parliament but put on indefinite hold by the Council. 

Highly vocal on this is the centrist Dutch MEP, Sophie in’t Veld. In a debate with the new Latvian Presidency, she complained: “The Council is a bit like the Bermuda Triangle: we [the European Parliament] send in a legislative proposal and it disappears, never to be heard of anymore.” 

However, in the case of EFSI, the Council’s ECOFIN committee had tackled the matter by January and did so again in February. According to the Council’s press service, the EU national economics and finance ministers aim to agree a position during March. 

Agreement with the European Parliament, hoped for by May, could “pave the way for adoption, enabling the EFSI to making its first disbursements in mid-2015”, the Council statement continued. 

Other reasons for the Council’s invigoration could be leadership from its new chairman, Donald Tusk, former Polish PM. Another could be an end to blocking movements to legislation caused by Luxembourg and other member states. They are no longer defending their positions on personal savings. 

As for the CMU, one component of importance to portfolio managers is legislation on a Common Consolidated Corporate Tax Base (CCCTB).  The rules could simplify life for those seeking to invest in firms across borders. And here, the Council is shaking off its sluggish behaviour. 

The CCCTB’s history has been lacklustre and dates back to 2004 and the Lisbon Strategy, whose intention was to make the EU “the most competitive and dynamic knowledge-based economy in the world”.

Sadly, the agenda remained a dream. Only by 2011 did the Commission believe that it had enough support from national governments to propose a Directive. One aim was to combat “disincentives for investment in the EU”. But that got stuck too. 

Negotiations in the Council are under way and its discussions are running in parallel with the OECD on tax base erosion and profit shifting. Progress is said to be influenced by International Financial Reporting Standards. 

Jyrki Katainen, EU commissioner for investment, describes the Council action as “extremely helpful”; his spokesperson says progress is hoped for later in the year.

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