Brussels Edition: Mamma Mia

(Bloomberg) -- Welcome to the Brussels Edition, Bloomberg’s daily briefing on what matters most in the heart of the European Union.

Italy’s populist government thumbed its nose at the EU, setting its budget deficit target for next year at 2.4 percent of output in what is likely to deepen investor concerns about the path the country is taking. The size of the shortfall puts Italy in breach of its conventional obligations, an EU official told us, adding “Mamma Mia.” In a  joint statement, Deputy Premiers Matteo Salvini and Luigi Di Maio called it a “budget for change.” The fiscal target also marks a defeat for Finance Minister Giovanni Tria, who had advocated greater prudence, putting his future in the government in doubt. The big question now is how markets will react.

What’s Happening

Swiss Bond | The Swiss government today discusses the future of its trading relationship with the EU, by far the Helvetian nation’s most important such bond. There are about 120 bilateral accords between the two, detailing everything from free trade and movement of people to farming and air travel. Negotiations — part of the EU’s overhaul of ties to nations outside the bloc following the Brexit vote in 2016 — have hit an impasse. Progress between Bern and Brussels is essential if access for European and Swiss equities traders to each others’ stock markets is to be maintained after December.

Week Ahead | The agenda is pretty packed next week: euro area-finance ministers gather in Luxembourg on Monday and — notwithstanding the formal schedule — they 're likely to be bombarded with questions about Italy. On Tuesday, EU finance ministers will focus on the other elephant in the room — money laundering — against the backdrop of the Danske scandal. On Wednesday, the European Parliament is due to vote on tougher CO2 caps on cars, while the prime ministers of Romania and Estonia address the assembly earlier in the day.

NATO, Trade | Also on Wednesday and Thursday, NATO defense ministers meet in Brussels on cyber and hybrid threats and “deterrence and defense” (NATO-speak for Russia). Expect a loaded debate over dinner on “burden-sharing,” the first since Donald Trump berated Europeans for not pulling their weight at a leaders' summit in July. On Thursday and Friday, EU trade ministers meet in Innsbruck, Austria for an update on the fragile Transatlantic trade truce. The WTO yesterday cut the outlook for global commerce though 2019.

In Case You Missed It

Danske Fallout | The Danske Bank money-laundering scandal has triggered another probe as Swiss regulators look into whether lenders in the Alpine nation failed to detect the transfer of 12 billion euros in possibly illicit funds. The probe is at least the fourth in Europe to look at a scandal that the Danish government has said could lead to a fine of as much as $630 million and has triggered the resignation of Danske’s chief executive officer.

Economic Nationalism | Capitalism as we knew it is on the retreat. Gone are the days when there was no border that could stop money flowing, as the rise of nationalism now puts takeovers on ice. From Beijing to Brussels, governments are treating corporate mergers as weapons of industrial policy. Deals that may have passed muster on competition grounds are being weighed — and, increasingly, blocked — for the risks they may pose to a country’s security or strategic industries.

German Power | Germany's 500 billion-euro shift to renewable power is being thwarted by concerns ranging from lost jobs and soaring electricity prices to the incessant hum of wind turbines and “electrosmog” from new power lines. The phasing out of nuclear factories has made coal and lignite, which still account for nearly 40 percent of German electricity generation, all but indispensable, even though the country wants to exit the fuel. The messy overhaul is now turning into painful reality.

Bannon Rebuked | Steve Bannon’s crusade to unify right-wing forces in the EU before the bloc’s parliamentary elections next year may have hit a speed-bump. The mastermind of Donald Trump’s 2016 election victory met Czech President Milos Zeman, an early fan of the U.S. leader, this week in Prague but there was no meeting of minds on trade. “He asked for an audience, got 30 minutes, and after 30 minutes I told him that I absolutely disagree with his views and I ended the audience,” Zeman told the Parlamentni Listy website.

Wake-Up Call | The CEOs of Societe Generale and Piraeus Bank were debating the state of the European banking industry on stage at the Belgian central bank yesterday when several alarm clocks hidden under seats in the auditorium went off simultaneously, causing a security alert. Lobbyists, bankers and officials were sent out into the street and eventually on a 20-minute walk to a different location, leaving police to search the building. Host Wim Mijs, head of the European Banking Federation, was not amused: “I'm open for debate,” he said, but “whoever did this, I have zero respect for him.”

Chart of the Day

Brussels Edition: Mamma Mia

Growth in Poland is humming at more than twice the rate of the euro region, new tax inflows are plugging the budget deficit and, as of Monday, the country is no longer designated as an emerging market for stock investors. “Developed” status, though, comes with developing challenges, and Poland may be storing up trouble.

Today’s Agenda

All times CET.

  • 11 a.m. Eurostat to release flash estimate of euro-area inflation for September 
  • NATO Military Chiefs of Defense meet in Warsaw
  • EU Commission VP Valdis Dombrovskis participates in panel discussion on the “Mid-term economic outlook for the European Union” at the Riga Conference 2018
  • EU Competition Chief Margrethe Vestager in Washington, participates in the Axios event “Competing in a 5G World”

Like the Brussels Edition?

How are we doing? We want to hear what you think about this newsletter. Let our Brussels bureau chief know.

©2018 Bloomberg L.P.