It's a wrap... at least on Eurosystem-led quantitative easing and the stopping of the expanded asset purchase programs (PSPP, CBPP3, CSPP and ABSPP) as of December 19, 2018. Whilst the Eurosystem will continue reinvesting coupons from purchased holdings as well as offering its holdings to market participants via securities lending operations, the book will (for the moment) be run to maturity, and the central bank "funding tap" will cease in its current form. This change has been a long time in the making but does have some potential for impact beyond financial services, but the real-economy, especially in a challenging macro-economic outlook, and tough domestic policy choices have left the EU's Monetary Union i.e., the Eurozone, being not as complete as many would like.
As the Eurozone and the EU look to celebrate the 20th anniversary of the euro as "real currency" in the wallets of citizens, the policy commitment to make it more international may also need to be reinvigorated and perhaps made more realistic. Realization is starting to set in that, as with most EU integration processes, change is a journey and an on-going opportunity. If the Single Market is supposed to become truly more single—and the original aim was to do that by 2025—then policymakers need to pick up the pace even further and put down the piecemeal action on Banking Union and Capital Markets Union efforts. There is some sense that certain policymakers within authorities are already looking beyond "just" what supervisory convergence can offer getting the Single Rulebook more harmonized but also how to change the dialogue into more pragmatic engagement with firms. Some steps are already going that way, even if the ECB, SRB and the European Supervisory Authorities are at the same time toughening up their supervisory scrutiny in existing priority areas (NPLs, ICAAP/ILAAP, governance, IBOR transition) while also adding to or creating new focus areas at a centralized level (cyber-resilience, AML, sustainable finance).
Despite this, December has seen volatile politics on Brexit cause both sides of the divorce proceedings to (finally) activate their contingency plans for an ever more likely No Deal Scenario. Even if a deal is done in what is now less than 100 days to Brexit, the road to achieve a final deal on what the future of financial services access might look like remains uncertain at the political level—despite some very certain expectations from financial services providers and more recently end-users. Will Brexit get a last minute deal in a similar fashion to how the EU has parked the Italian Budget issues or EU-Swiss financial market access? With all eyes on a flurry of meetings in the second and third weeks of January, and with Romania (for the first time since joining the EU) taking the helm of the upper house of EU legislature, the Consilium, that question does not look easy. All of this comes on top of some other underlying changes in the EU with difficult budget discussions and European Parliament elections on the horizon. Those might sound like purely "European" agenda items, but they may, like a range of EU legislative items that are either proposed or in the pipeline, have quite an extraterritorial impact.
We will be back in January with a round-up of major developments that are likely to have both "change the business" and "run the business" impacts and our analysis of how to stay ahead of the curve as well as what lies further ahead. On behalf of Dentons' Eurozone Hub and the wider European Financial Regulatory Team, we would like to wish you all the very best for the festive season and a peaceful start to a prosperous 2019!
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