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Mr Sven Giegold – Letter from Brussels: Brussels People

By Jeremy Woolfe

While he derives some satisfaction from advances in green energy and the like, Sven Giegold is unhappy that most global investment can still be classed as environmentally unsustainable.  

“We see two things happening at the same time,” Giegold tells IPE. “We may be seeing growth in the green wave. There is more sustainable activity taking place. Evidence is clear from looking at developments in renewable energy, energy efficiency and in sustainable mobility.

“But, at the same time we are also facing a destructive wave that is growing even faster,” he says. “This is undoing the good being done elsewhere. Globally, one major factor is ecological destruction of land resources, such as forests. Here, loss biodiversity is at an all-time high. This is not what the planet needs.”

According to the political left’s leading economist in the European Parliament, it is not enough to “place a green wave on top of another which is unsustainable”. Giegold deduces that action must take place in two stages. The first can be achieved by CO² pricing and by applying rules against unsustainable activity.

The second step is to pressure the investment industry. Here he spells out recommendations that taxation measures must be taken to limit the profitability of unsustainable technology. At the same time, action should be applied to increase the profitability of sustainable activities.

Is he satisfied with the progress that the Green movement has been making in the European Parliament.? No.

However, Giegold sees “a growing interest in green finance”, he warns that “anyone who ignores this trend could lose out financially”. He explains: “Activities which are currently profitable could rapidly change to being unprofitable. This is because climate risk perceptions can easily adjust themselves abruptly”.

Much would depend on the ‘tipping point’, he says, which could change the investment risk perspective radically. Hence, he recommends that investors “should be much more conscious that climate change risk is not sufficiently being factored into price modelling”.

Of course, Giegold is aware that he is hardly alone in his position. For instance, the World Economic Forum (WEF), in a 2017 report, found that, “the choice of renewable energy is no longer just an environmentally sustainable choice, but an opportunity for long term investment with a good return”. The WEF quoted a Bloomberg Energy New Finance estimate that investment in renewable energy will reach $7.8trn (€6.9trn) by 2040.


Similar figures have been published by the International Energy Agency (IEA). It notes that global spending on renewable energy is already outpacing fossil fuels and nuclear power. It estimates that renewables will account for 56% of net generating capacity in 2025.

Further data is included in the Organisation for Economic Co-operation and Development’s (OECD) recently published Renewables 2018 report. The study, which comprises an analysis and forecast to 2023, states that “the electricity sector remains the brightest spot for renewables, with exponential growth of solar photovoltaics and wind in recent years”.

However, the OECD adds that electricity accounts for only a fifth of global energy consumption and adds that the role of renewables in transportation and heating remains critical to the energy transition.

Giegold also opines on the automative sector. In light of Tesla’s advances in battery technology with its Model 3, the Green politician says German and other EU manufacturers have fallen into “a dangerous position”.

On investment in hydrogen fuel-cells as a substitute for battery power in automatives, Giegold’s view is that hydrogen has already lost the race. “I simply don’t believe in it,” he opines. “We may have heard talk about fuel cells for ages, but we simply do not have the infrastructure in place.” Yet he notes that Europe’s network of superchargers is growing fast.

As for algae-based fuel, or biomass, for mobility, he would not oppose such developments, but says photo-voltaics are “unbeatably more effective”. The comparative energy derived per square metre from a solar panel makes for a difference he rates as “stunning”.

On the likely progress of Green thinking during the next European Parliament, Giegold says this will of course depend on election results. Giegold will continue to promote fair corporate taxation and combat money laundering and drives against the mis-selling of financial products.

Moreover, he will continue to support the pan-European Personal Pension Product (PEPP), and what he describes as pension savings products that are truly beneficial for consumers.

Reflecting his morals, derived from German Protestant teaching, he states: “It is intolerable for European banks to have their fingers playing with dirty money. Money laundering is the lubricant for corruption, terrorism and unfair competition.”


Letter from Brussels: Brussels seeks to bolster secondary market in non-performing loans

By Jeremy Woolfe

Are non-peforming loans (NPLs) an investor’s dream come true? Or do they represent immeasurable risks? Either way, a fresh batch of such opportunities is the subject of reform in Brussels. Here, legislation to liberalise secondary markets in the NPLs cast off by Europe’s banking sector is under consideration.

The Directive on Credit Servicers, Credit Purchasers and the Recovery of Collateral (COM (2018) 135), was proposed by the Commission in March. It has moved to discussion in the European Parliament and with member states. Also involved are amendments to Regulation (EU) No 575/2013 which covers non-performing “exposures”.
As for timing, the Commission hopes for a swift agreement before the European Parliament’s elections in May 2019. But as one commentator says, “it all depends on Italy”.
Officially, NPLs on the balance sheets of banks are loans where the borrower is unable to make the scheduled payments to cover interest or capital reimbursements, when the payments are more than 90 days overdue.
The new rules will be part of the risk-reduction measures, an element in the EU’s Banking Union programme. The plan, says the Commission, is to combat existing “high fees [which] credit servicing firms charge to purchasers… and low prices banks can realise if they sell NPLs to non-bank investors”.
The overall political background, as stated by the EU’s Single Supervisory Mechanism (SSM), is that NPLs “weigh on banks’ balance sheets… and divert resources from more proactive use”. The danger is a potential threat to bank stability in euro-zone countries. The SSM is a body that grants the European Central Bank (ECB) the supervisory role to monitor the financial stability of banks. The ECB initiates much of the NPL reduction, and recently held an online seminar to discuss NPL challenges.
Happily, as another EU institution, the Single Resoluti on Board (SRB) states, NPL ratios have been falling in nearly all member states. Overall, the NPL ratio in the EU has declined to 4.6% as of the second quarter of 2017, down by a third since the end of 2014.
But, says the SRB, which ensures “the orderly resolution of failing banks”, several member states still have high NPL ratios: Bulgaria, Ireland, Greece, Croatia, Italy, Cyprus, Hungary, Portugal, Slovenia, as at June 2017.
Willem Pieter De Groen, of the Centre for European Policy Studies think tank (CEPS), says more than 15% of the loans are, or have been, non-performing.
According to a bank insider, removal of impediments against NPL assets being sold on the secondary market will provide many interesting opportunities for investors. For instance, some so-called NPLs may already be properly covered by collateral. In those cases, a bank might well prefer to hold on to the asset.
Presumably sensitive to such undue pressure to sell, the ECB states that it is “not pressing banks to sell NPL…. [the bank] has not expressed a preference for certain NPL reduction tools over others”.
In any case, the Commission, in describing its proposal, writes that its aim is to overcome existing barriers faced by credit servicers to expand cross-border. It is seeking to scale up their activities on trading in secondary markets of assets following bank divestment of PLs.
It explains that the need is because only some member states regulate the activity. And, those that do, it continues, “define very differently the activities covered. This in practice poses a barrier to the development of expansion strategies through secondary establishment or cross-border provision of services in the internal market”.
Furthermore, the Commission continues, a considerable number of member states require authorisations for some of the activities that these credit servicers engage in. They impose different requirements and do not provide for possibilities of cross-border scaling up.
Finally, large differences in regulatory standards across the EU results in market fragmentation. This “restricts the free flow of capital and services within the EU, leads to insufficient competition and slows down the development of a functioning secondary market for bank credits”.

Preceding this picture, in March 2017, the ECB published its final guidance to banks to clarify “supervisory expectations regarding identification, management, measurement and write-offs of NPLs”. The ECB’s stated aim was to strengthen banks’ balance sheets.
Complicating matters are non-perfoming exposures (NPEs), which are more generic. Here, a bank may miss being repaid not only on loans, but also on other assets, such as a defaulted security. The ECB also notes that the new rules will not apply to NPEs originated before 14 March 2018.
Europe’s wholesale financial markets appear to be supportive in principle. Nonetheless, the Association for Financial Markets in Europe (AFME) goes on to set out a number of warnings and suggestions for changes.
For instance, AFME associate director Julio Suarez says the association’s members are concerned about the Commission’s approach to “minimum provisioning”, which means the extra capital that banks have to set aside as cover for NPLs. Suarez strongly urges the EU institutions “to collaborate more in standard setting to avoid multiple non-aligned and duplicative requirements”.
Unsurprisingly, considering the number of EU institutions involved, Constance Usherwood, Prudential director at AFME, complains that the ECB, the European Banking Authority and the Commission all have parallel initiatives with the same intention. Yet, she says, they “are not aligned with each other”.
The European Banking Federation divides NPLs into three groups. Some €329bn-worth are described by the federation as “non-problematic” or elsewhere as “a normal part of banking”.
Another group, described as “covered, by provisions or collaterals”, totals €237bn. At the bottom end is €266bn, of which €150bn-200bn is described as “posing a real problem in Europe”. European banks have about €43trn in assets.


Corporate tax reform in view

Corporate tax reform in view

May 2018 (magazine)

By Jeremy Woolfe

Radical upgrades to the EU’s corporate tax base norms have never been so close to fruition. Enthusiasm is clear in the European Parliament and elsewhere. But doubts still exist. In fact, opposing self interests of a handful of countries, or even just one, could force recourse to fall-back strategies. 


If approved, the measures could incentivise companies to prioritise equity capital-raising over debt, potentially lowering the level of leverage in European companies.

This initiative dates back to mid-2015, when the Commission adopted an Action Plan. As reflected in a PwC paper, this was “to tackle tax abuse, ensure sustainable revenues and support a better business environment in the Single Market”.

That move re-launched a previous version of the Common Consolidated Corporate Tax Base (CCCTB), as a solution to profit-shifting. Its aim is to reduce the complexities and compliance costs for cross-border companies. At the same time, it would tackle, and defend the Single Market against, aggressive tax planning from third countries. The measures are set to be mandatory for all companies with an annual turnover of more than €750m.

Also launched by the Commission, in October 2016, was a Common Corporate Tax Base (CCTB) Directive to apply measures including a ‘super-deduction’ for R&D costs and national interest deduction for equity financing (allowance for growth and investment).

In Brussels, welcome is generally prodigious. The European Parliament’s economic and monetary affairs committee (ECON) voted strongly in favour of both the main body of legislation, and for CCTB. Fiery support was expressed by the Dutch MEP Paul Tang, who took an EU perspective.

Tang stated in ECON: “I very much hope that, especially, the large countries, Germany and France, will put pressure on the smaller countries, countries like the Netherlands, Ireland, Malta, Luxembourg that are the pirates within the European Union.”

Politically centre-left, and the rapporteur for the CCTB Directive, Tang pilloried the small countries. He stated: “They come to another country and try to appropriate these countries’ tax bases. These are not the actions of European partners.”

Taking a subtler approach at the ECON meeting, the French centre-right MEP Alain Lamassoure and rapporteur for the CCCTB Directive, described the legislation as “a fabulous opportunity to make a giant leap in the field of corporate taxation…. It would also enable the taxing of the digital economy.”

Lamassoure added: “It would also halt unfettered competition between corporate tax systems within the single market, by targeting profits where they are made.”

The MEP took an optimistic viewpoint of the opposition. He felt that “member states could agree on the measure[s]… there was a very solid front of big countries.” These included France, Germany, Italy and Spain. He thought that the Netherlands and Ireland could be willing to accept common rules, provided that tax rates remained a national prerogative.

Not dissimilarly, from the broader scope of pan-EU business interests, Chas Roy-Chowdhury, of the Association of Chartered Certified Accountants, criticised the continuing co-existence of 28 tax systems “for offering sometimes very diverse tax exemptions and deductions”. Roy-Chowdhury is head of taxation at ACCA.  BusinessEurope’s position is that “CCCTB has the potential to support growth”.

Also positive is Insurance Europe, including on measures designed to counter aggressive tax planning. However, it believes that CCTB, in its present form, would not adequately meet its objectives.

Heated protests from opponents are reflected in a jointly written article in a Brussels-based newsletter. The authors are Dutch MEP Esther de Lange, Swedish MEP Gunnar Hoekmark, and Brian Hayes from Ireland, which has been regularly censured for its 12.5% corporate tax rate.

Hayes, a centre-right MEP, former rapporteur for IORP II and the current shadow rapporteur for the pan-European personal pension (PEPP) project, shared his two colleagues’ view that it would be “disingenuous” to suggest that CCCTB would do much to curb tax avoidance. He said: “Pretending it will comes close to a lie or is at least a serious misrepresentation of reality.”

Asked by IPE if Ireland would block the proposals, Hayes answered that, as about 10 member states had serious issues with them, we are “a million miles from achieving any consensus”. Speaking for Ireland, he explained: “Our taxation system would lose revenue to other member states with no guarantee that the ‘compensation mechanism’ would gain us what we would lose.” A text on Hayes’s own website points out: “It is clear in the EU Treaties that corporate tax rates are decided by member states alone and that should not be changed.”

Matthies Verstegen, senior policy adviser at PensionsEurope, cites the potential voting strength of individual members in the Council of the EU. Under the EU’s over-riding Treaty of the Functioning of the EU (TFEU) – derived from the Rome Treaty – its article 115 rules that, because taxation is in question, successful support by member states would require a unanimous vote. That is, any single country could block the tax-base measures.

Amplification of this comes from Mark Foster, of Kreab, the public affairs consultancy. Asked when are we likely to see implementation of both sets of rules, he  answered: “Unanimity in Council is a very high threshold…. Ultimate implementation therefore will very much depend on when political consensus is reached.”

As for any final impact on pension funds, Verstegen considers that the new measures “may somewhat address the existing corporate tax bias towards debt financing”. This bias currently favours companies financing via debt mechanisms, compared with equity, because interest payments are deductible. “If effected, these rules could incentivise companies to more often choose share issues over bonds issues, lowering the level of leverage in companies,” Verstegen  says.

Foster adds, “Politically speaking, tax policy has been under the spotlight and a priority for the Juncker Commission, with several tax files agreed in record time. As a result, in general terms, removal of barriers to economic growth should encourage greater volume of activity and reduce overall costs.”

In the Council, the plan for the current, second quarter, of 2018, is to adjust its compromise texts in the light of an interim report from the OECD and the Commission’s proposals. It would then present “some form” of progress report.

Proponents for the legislation have at least one option if the Council fails to adopt a unanimous decision on the proposal to establish a CCCTB. According to an advice paper from the European Parliament, “the Commission [could] issue a new proposal based on Article 116 of the TFEU [Treaty on the Functioning of the European Union]”. The paper’s recital 4 refers to the relevance of distortion of “the conditions of competition in the internal market”. If this were accepted, presumably by the European Court of Justice, it would enable the issuing of the “necessary legislation” without unanimity.

As a last resort, as revealed by Tang, a system of “enhanced co-operation [involving a group of member states] could be initiated by member states, which could be open at any time to non-participating member states”. This would be in accordance with the TFEU, he informs IPE.

Whatever the outcome, the gestation period of the legislation will have been protracted. As recorded in the Commission’s CCCTB Impact Assessment document of March 2011, the early history of plans to harmonise corporate taxation norms across the EU go back to 1999 at least.



Consumer group issues stark capital protection warning over PEPP


19 JULY 2018



Consumer group issues stark capital protection warning over PEPP

A financial services lobby group has raised concerns over lack of capital protection measures in the current development of legislation for pan-European personal pension products (PEPP).

Better Finance, a Brussels-based lobby group for consumer protection, aired its protests as European politicians worked towards a PEPP regulation, with discussions taking place involving the European Parliament and national government representations.

The group told IPE that it had repeatedly emphasised that a real capital protection or guarantee implied that capital must be “calculated on the basis of the amounts saved before the deduction of all accumulated fees, charges and expenses directly or indirectly borne by investors”.

It added that this should be in real terms, if possible, “offsetting the heavy negative impact of inflation over time”.

If not, then PEPP documents “should at the very least include a prominent warning about the devastating impact of inflation and fees on the real value of pension savings over time”, Better Finance argued.

“Otherwise, [we] will have no choice but to strongly recommend for EU citizens to steer clear of such a misleading and value-destroying option,” the group said.

A recent study conducted by Better Finance – albeit based on a limited sample – found that “fund documentation in the US… contains more and far clearer information on the evolution of asset allocation over time” than proposed documents for the PEPP.

“What’s more is that the average annual fee for these funds was found to be above 1.6% in the EU, versus about 0.6% in the US,” the lobby group added.

Better Finance has also argued in favour of PEPP providers having to “publish their past performance alongside the PEPP’s past performance for at least the last 20 years”.

Alternatively, the results should be made known “since the inception of the product”, it said. The group noted that this was suggested by the parliament’s Economic and Monetary Affairs Committee (ECON) in a draft report.

A compromise position for PEPP is being sought in Brussels by 10 September.




Brussels Sprout

political, satirical




Private Eye newspaper
Brussels Sprout column
May 2003

Approximately 200 members of staff belonging to EU institutions are awarded « invalidity » pensions – pensions granted for illness – each year according to a special report from the European Court of Auditors. In an information note from the auditors, the total net cost of the pensions awarded each year is estimated at €74 million

The audit found that there was an extremely low rate of « re-instatement, especially in the 50 per cent of cases involving psychological disorders. » That is, once a man or woman working for one of the EU institutions becomes too ill to work, they are highly unlikely ever to recover from his or her ailment.

The data applies to the approximately 30,000 people on the staff of the various European institutions, the largest single unit of which is the European Commission, with around 20,000. The other institutions include: the European Parliament; the Council of the EU; the Court of Justice; and the European Central Bank. Working on the figures available, it appears that in a normal year, on a statistical basis, 0.67 per cent of members of staff might be found eligible for an invalidity pension. This could give them 70 per cent of final salary for the rest of their life.

If one assumes that a typical career in the service of one of the institutions is 35 years, that would mean around 23 per cent of European Union institution staff retire on the grounds of ill health.

The Court of Auditors, whose mission is to independently audit the collection and spending of European Union funds, noted in its report that there is evidence that frustration in the working environmental is a significant element in de-motivating some staff. These unfortunates are eventually retired on ill-health grounds.

Performance indicators

However, the audit found scope for financial savings through the adoption of adequate administrative measures for prevention and early treatment, particularly in cases where the ground for invalidity is psychological. The Court of Auditors suggests that such measures should include the development by the institutions of an overall policy on absences due to illness and on invalidity. The policy should include the application of « performance indicators », and « strong support from senior management ».

It also advises the adoption of strong medical and administrative synergy. Careful and resource-intensive attention should be given to the needs of those members of staff who need support, it says. This policy should focus both on actions to be taken in the early stages though preventative measures that « consider the organisation of work and working conditions ». It would like to see action to help rehabilitate and encourage members of staff in poorer health to continue to work under reasonable conditions. An investigation by the Court found that the overall rate of invalidity retirement has remained stable over the last 15 years.




Tax threatens PEPP proposal

Letter from Brussels

September 2017 (Magazine)

 Tax threatens PEPP proposal

by Jeremy Woolfe

At first sight, the benefits of the European Commission’s Pan European Personal Pension (PEPP) regulation proposal seem clear – for pension savers, providers, and for Europe’s economy as a whole. Indeed, approving comments flooded in immediately after the official publication of the proposal in June. But it did not take long for commentators to point out the considerable hurdles


Indeed, the Commission has been frank about the hurdles. Speaking immediately prior to the launch, Nathalie Berger, head of the Commission’s insurance and pensions unit, said there was areluctance to discuss the tax implications.

At the same time, John Berrigan, a deputy director-general of the European Commission, described taxation as the biggest challenge.

Both are aware that taxation rules, including beneficial tax treatment of pension arrangements, are jealously guarded by member state governments under treaty obligations.

At a public hearing in October 2016, Carolyn Jones, Fidelity International’s pension specialist, said achieving the required relaxation of national tax strictures would be “a miracle”. Fast forward to June, and Berger herself described the necessary changes as in “need [of] a lot of negotiation”. She outlined

that the Commission’s proposal would include a recommendation to encourage the member states to apply the necessary tax relief.

The official recommendation hardly amounts to much: “Member states are encouraged to grant PEPPs… the same tax relief as the one granted to national PPPs [personal pension products], once these PEPPs are launched on the personal pension market, even in those cases where the PEPPs’ product features do not match all the national criteria required by the member state to grant tax relief to PPPs”.

It continues: “Where member states have more than one type of PPP, they are encouraged to give PEPPs the most favourable tax treatment available to their PPPs.” It was greeted by one informed source as a “triumph of optimism over experience”.

Ominously, the Commission appears to have been playing down what it clearly confronts – media questions on taxation were not included in a web video clip of the press launch. A four-page promotional document pedals softly, allocating only 39 words to the topic.

Overall, the post-launch reaction from numerous sources is a consistent tone of measured disappointment, qualified by a desire for the product to be successful. The consensus is that the Commission faces an uphill battle, if not an impossible task, in achieving any agreement on tax from the EU’s 27 national governments. It is not the only problem but it is the gravest.

James Walsh, EU and international policy lead at the UK’s Pensions and Lifetime Savings Association, says: “I’ve been discussing this with pensions associations all over Europe and they pretty well all see the tax issue as important.” Walsh, EU and international policy lead at the PLSA, adds that the PEPP proposal is “welcome… if only because it intends to get people saving more”. Perhaps understating the situation, he judges that it is “not at all clear how it will be developed”.

Darker shadows are cast by Mark Dowsey, a senior consultant at Willis Towers Watson. If details are key, Dowsey provides an abundance. On tax, he fears that the proposal could be shunned as a move towards pan-EU tax harmonisation.

Aside from that, Dowsey says a handful of countries working together could succeed, although PEPP would then not be a pan-EU scheme. This sentiment is echoed by Gert Kloosterboer, spokesman for the Dutch Pension Federation. He says PEPP “could be suitable in countries with less developed plans”. But he dismisses its relevance to the Netherlands, pointing to the nation’s well-developed second and third-pillar systems.

Dowsey notes that restrictions are imposed where accrued benefits are transferred across borders. Often these can impose conditions on the ‘receiving’ arrangement – the one domiciled in a country away from where the benefits were accrued. “These measures have been developed over time to protect the country’s tax base,” Dowsey says.

Differences in approaches to taxation mean a member state could grant beneficial tax treatment at the accumulation phase, with no ability to recoup it later on if the saver transfers abroad.

Resaver, the pan-European pension start-up for academic researchers, came into operation early in 2017 with the first contributions in May. Martino Braico, senior manager at Previnet, which handles taxation issues for Resaver, says PEPP products could possibly, but not easily, be able to comply with different local requirements, including tax. He does not expect local tax authorities to change their regulations purely for the sake of PEPP.

Providers will have to design a PEPP product that features compartments for all member states within three years of launch. Presumably this means each compartment must meet whatever domestic requirements are necessary to obtain beneficial tax treatment, according to Dowsey, although this is not entirely clear.

Walsh emphasises the need for universal compartments to avoid overstretch if a provider covers only two or three countries in practice.

According to the proposal, PEPP providers can make payments to savers in the form of annuities, lump sum, drawdown payments, or a combination of two or more of these. Dowsey is not convinced member states will support this suggestion.

Like others, PensionsEurope has issued a cautious welcome to the proposal. But it is hard to discern enthusiasm from CEO Matti Leppälä’s comment: “We underline that the decision to [take up] the Commission recommendation will exclusively remain in the hands of each member state”.

According to Bernard Delbecque, senior director for economics and research at the European Fund and Asset Management Association, the Commission had no choice but to leave the tax treatment of the PEPP to member states. He says this may facilitate the success of the PEPP: “This gives each member states the authority to support, or not, the PEPP at national level.”

Historically, wheel-lock guns would not fire if set at half cock. One authoritative source agrees that the tax question means PEPP is indeed starting at “half cock”. Overall, the big picture on PEPP remains negative.