Brussels Edition: Dirty Money

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

After months of investigating the failures that paved the way for a string of money-laundering scandals in the banking system, the European Commission will reveal its findings today. Member states like Estonia and Latvia, which served as conduits for illicit funds, have promised to get their act together. But the report could lay the groundwork for more fundamental adjustments to the the bloc’s anti money-laundering framework, which is seen as suffering from national fragmentation and a lack of coordination between authorities.

What’s Happening

Russian Funding | Italian Prime Minister Giuseppe Conte is expected to speak in parliament today about reports Matteo Salvini’s League party sought illegal funding from Russians through a complex oil deal. Conte’s defense will be key for Salvini as he mulls whether it’s time to force early elections.

Bracing for Boris | European leaders are trying to figure out how to deal with their new partner across the Channel after Boris Johnson won the contest to succeed Theresa May as British prime minister. On the one hand, they don’t want to reward what they see as populism. On the other, they want to avoid the economic catastrophe of a no-deal Brexit.

Dry River | The bustling boat traffic on Europe’s Rhine river may grind to a halt again, as another severe drought exacerbated by extreme temperatures across the continent is making the key transport artery impassable. The Rhine is critical to commerce in the region, serving as a conduit for raw materials and goods from coal and iron ore to chemicals, fertilizers and car parts. Last year’s disruption contributed to a contraction in the German economy.

Czech Loyalties | As the EU changes leadership this year, Czech Prime Minister Andrej Babis is leaving little doubt that his loyalties lie in the continent’s increasingly rebellious east. In an interview, Babis said he hopes incoming Commission President Ursula von der Leyen will bridge differences within the bloc. That could prove to be one of her toughest tasks.

In Case You Missed It

Tariff Retaliation | The European Union almost doubled to 35 billion euros the amount of U.S. goods it would hit with retaliatory tariffs should Donald Trump follow through on a threat to impose duties on EU cars and auto parts.

Second Try | Pedro Sanchez failed in his first attempt to form a new Spanish government yesterday, raising pressure on the acting prime minister to find common ground with key political partners to be able to try again in two days. Sanchez now needs to patch up his relations with left-wing party Podemos.

Unusual Victories | Frustrated at a parliament stacked with millionaire businessmen, Ukrainian voters handed an anti-establishment party the country’s first-ever ruling majority. They backed little-known candidates, including a wedding photographer, a fitness-club director and an anesthesiologist. Here’s why voters have had enough.

Confidence Boost | Data showing euro-area consumer confidence rose more than economists forecast this month may give European Central Bank policy makers more of a reason to take their time before adding stimulus. Their meeting this week is expected to set the stage for a September interest-rate cut and a possible resumption of quantitative easing.

Chart of the Day

Traders are pricing in a 40% chance that the ECB will cut rates by 10 basis points on Thursday, despite most strategists expecting policy makers to hold off until September. Investors are looking for clues about whether the central bank might restart quantitative easing and possibly relax the squeeze on bank deposits caused by negative interest rates.

Today’s Agenda

• EU Commission to present reports on money-laundering cases, application of new data-protection rules, proposal for a governance framework for the euro-area budget
• Italian Prime Minister Giuseppe Conte expected to speak in parliament about allegations that a close ally of League leader Matteo Salvini sought illegal financing in Moscow
• Formal handover of U.K. premiership to Boris Johnson
• Annegret Kramp-Karrenbauer sworn in as German defense minister

--With assistance from Nikos Chrysoloras, Andrea Dudik and Alessandro Speciale.

To contact the editor responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net, Iain Rogers

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