Brussels Edition: When the Votes Don’t Work

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

Spain’s fourth election in four years yielded a familiar result: a leader without a majority. Prime Minister Pedro Sanchez may still cling to power — but in an even weaker position than he was before he triggered the snap vote, thanks to a surge in support for the far-right Vox party. With the German coalition facing its own troubles and Italy’s ruling partners struggling to stay on the same page, getting any consensus on national policies, never mind Ursula von der Leyen’s ambitious European plans, looks to be more challenging than ever.

What’s Happening

Romania Result | President Klaus Iohannis won the first round of presidential elections and will face a runoff in two weeks against ex-Prime Minister Viorica Dancila, exit polls showed. Iohannis, a steadying force in a nation where political chaos has become the norm, won almost double the amount of votes as his rival and is expected to pick up voters from the third-placed anti-corruption candidate. 

Turkey Sanctions | EU foreign ministers are due today to approve a legal framework for sanctions against Turkey over its energy drilling off Cyprus, paving the way for possible asset freezes against particular people and entities at a later stage. The move will likely exacerbate tensions between Ankara and its European neighbors, adding to a series of disagreements straining ties between them. 

Merkel to Rome | Angela Merkel flies to Rome this evening for a dinner with Italian Prime Minister Giuseppe Conte. On the agenda, among other things, could be the EU’s efforts to manage migrant arrivals and Italy’s far-from-enthusiastic response to Finance Minister Olaf Scholz’s ideas to restart the euro reform process — especially on the controversial issue of a common deposit insurance. 

Rare Visitor | Belarusian President Alexander Lukashenko will make his first bilateral visit to the EU since it dropped sanctions against him in 2016, as he strives to balance growing pressure from Russia for closer ties. His trip to Vienna tomorrow seeks to mend relations with the West only a week before Russian and Belarusian leaders hold talks in Moscow on integration “roadmaps” intended to bind the two economies more tightly together. 

In Case You Missed It

War and Bubbles | The European Central Bank’s next German policy maker will bring with her an extensive portfolio of research into how financial systems throughout history have coped with war, bubbles and hyperinflation. Here’s all you need to know about the policy positions and expertise of Isabel Schnabel, the other powerful woman to soon start at the central bank. 

British Battle | With less than a month to go until the U.K. general election and with the Conservatives leading in the polls, rival campaigns are picking up steam. Boris Johnson’s Conservatives sought to undermine Labour’s credibility on the economy, saying its spending plans would cost 1.2 trillion pounds over five years — an analysis that was branded “fiction” by the opposition party. 

State of the Union | A common deposit insurance scheme has long been seen by many as the missing piece in Europe’s financial architecture, yet firm political opposition has until recently rendered it a distant dream. But with Germany now signalling a softening of its stance, the idea of completing Europe’s banking union is back on the table. Here’s all you need to know about where we stand. 

Midas Touch | At the height of the Danske Bank  dirty-money scandal, the lender started offering gold bars to wealthy clients to help them keep their fortunes hidden. Its Estonian branch told a select group of mostly Russian customers that they could convert their money into gold bars and coins, according to documents from 2012. Aside from offering a hedge against risk, it was also a way for clients to avoid the limelight.

Chart of the Day

European banks have reduced the stock of bad loans that has weighed on lenders’ balance sheets by 50% in four years. Total non-performing loans fell to 636 billion euros ($702 billion) as of June, down from 1.15 trillion euros in June 2015, according to the European Banking Authority. Greece, Cyprus and Italy still have high ratios of bad loans, the EBA said.

Today’s Agenda

All times CET.

• 9 a.m. EU foreign ministers meet in Brussels to discuss situation in Gulf and Iran, sanctions against Turkey, Venezuela, Afghanistan, hold an exchange of views with Prime Minister of Sudan Abdalla Hamdok
• U.K. GDP third-quarter estimate
• Chinese President Xi Jinping meets Greek premier Kyriakos Mitsotakis in Athens
• Polish nationalists set to march on Independence Day in central Warsaw
• German Chancellor Angela Merkel visits Rome
• German climate-change activists reveal plan to ground all domestic flights for the best part of a week in February

--With assistance from Jonathan Stearns and Alessandro Speciale.

To contact the editor responsible for this story: Heather Harris at hharris5@bloomberg.net, Andrew Blackman

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