“Brexit…..”

Brexit

On Monday a lunch was scheduled between Prime Minister Theresa May and European Commission President Jean-Claude Juncker. A deal on what will happen to the Irish border after Brexit remains difficult. Furthermore the role of the ECJ in enforcing the rights of citizens emerged as the biggest obstacle on Sunday after a weekend of intense talks. According to a UK official Theresa May has offered all that she can and a rejection from Europe now would risk a breakdown in talks. The UK aims to win the approval of the other 27 EU states for talks to move on from the separation to the future relationship at the summit of the leaders on 14 December. If there is no progress by the end of December, officials on both sides worry that Brexit negotiations will collapse. An outline agreement has been reached on the financial settlement and talks have intensified on how a hard border can be avoided on the island of Ireland once Northern Ireland exits the EU along with the rest of the UK. Another issue is what role the European Court of Justice can have after Brexit. On Monday, the UK government seems to have been pushed into a corner after a deal that seemed to have been reached was pulled at the last minute due to opposition from Northern Ireland’s Democratic Unionist Party. Theresa May relies on the party for a parliamentary majority. The DUP (Democratic Unionist Party) rejected any special status for Northern Ireland after the UK leaves the EU. Leaders in other UK regions and the mayor of London said they too could benefit from such a deal for their own areas. This increases the challenges being faced by Theresa May at this stage of the negotiations. Theresa is facing a revolt from inside her cabinet over her plan to keep UK regulations aligned with the European Union after Brexit. Keeping the whole UK close to EU regulation would make it easier to avoid a border on the island of Ireland without putting a new barrier between Northern Ireland and the rest of the UK – a red line for May’s Northern Irish allies. Foreign Secretary Boris Johnson and Environment Secretary Michael Gove, who together led the Brexit campaign in the referendum raised their concerns about the proposal.

German Politics

The political deadlock following Angela Merkel’s failure to form a new three-way coalition has clouded the outlook for businesses. According to IHS Markit, the services sector remains on a “solid but unspectacular “growth path despite the fall. The Purchasing Managers’ Index for services fell to 54.3 from 54.7 in October. The slowdown in the services sector growth was offset by the robust performance of manufacturing where the expansion reached its second-fastest level in more than two decades in November. The figure remained above the 50 mark that separates growth from contraction. There were concerns that the prolonged political uncertainty in Berlin could damage the confidence in the economy that has been growing since 2010 and picked up momentum in the third quarter. Angela Merkel has turned to the centre-left Social Democrats (SPD) after talks on an alliance with the left-leaning Greens and pro-business Free Democrats collapsed.

UK Services Firm

According to a survey, Britian’s dominant services sector lost some momentum in November while prices charged by companies rose at their fastest pace in nearly 10 years, possibly adding to the country’s inflation problem. The IHS Markit Purchasing Manager’s Index ranging from hotels to hairdressers fell to 53.8 in November from 55.6 in October. Consumer spending has been hurt with the jump in inflation and many companies are still feeling uncertain about the implications of Brexit. According to IHS Markit the economy probably grew by 0.45 percent in the three months to November, only 0.5 percent slower than in the three months to October.

US Tax Bill

On Saturday the Senate narrowly approved the most sweeping rewrite of the US tax code in three decades by slashing the corporate tax rate and providing temporary tax-rate cuts for most Americans. The vote of 51-49 brings the GOP (Republican Party) close to delivering a much needed policy win for their party and President Donald Trump. On Twitter Trump wrote that he looks forward to signing a final bill before Christmas. Before the bill goes to Trump, lawmakers will have to resolve differences between the Senate bill and one the House passed last month. The final product will end up being a central issue in the 2018 elections and Trump predicted that the tax package would be a winner for Republicans in the 2018 midterm elections. Both the Senate and the House measures would cut the corporate tax rate to 20 percent from 35 percent. The Senate version will however set the lower rate in 2019, a year later than the House bill would. Furthermore the Senate bill unlike the House version, would provide only temporary tax relief to individuals ending tax cuts in 2026. Both bills are expected to add more than $1.4 trillion to the federal deficit over 10 years before accounting for any economic growth. The House and Senate bills align on the issue of individual deductions for state and local taxes. They both eliminate all but a deduction for property taxes which would be capped at $10,000. Other areas in which they differ is the home mortgage-interest deduction where the House bill would restrict the break to loans of $500,000 or less with regard to new purchases of homes while the senate legislation would leave current $1 million cap in place. Other differences relate to the tax rates applicable to the accumulated offshore earnings of multinational companies. The House bill would tax the profits at 14 percent for earnings that were held as cash and 7 percent for less-liquid assets. The revised senate bill has no direct mention of the rates. Republicans were able to bring the legislation to a vote using Senate rules that allowed them to approve it with a simple majority that is without any democratic support. The tax bill which was passed on Saturday hit tech stocks and could have created a situation where planned tax breaks related to intellectual property and capital spending could be rendered worthless.

US – Possible Government Shut Down

The US faces a partial government shutdown after funds for the many of the federal activities, foreign and domestic is due to run out on 8 December if Congress cannot agree on a spending bill by then. Without a deal the US will encounter what is called a “spending gap”. However, senate majority leader Mitch McConnell predicted that the government would remain open past this week, a day after House Republicans announced a plan for a two-week extension of federal funding that would avoid a shut down on 8 December. During a shutdown federal government functions are frozen and many federal employees are furloughed. Some of the activities that stop are the shutdown and closure of national parks, monuments, the processing of applications for passports and visas, new enrolments in experimental treatments under the National Institutes for Health and the maintenance of US government websites, including the data used by businesses and researchers. The essential activities that carry on are those related to national security, safety and order and medical care. Since 1981 there have been 12 shutdowns ranging in duration from a single day to 21 days according to the Congressional Research Service.

US – Travel Ban

A major victory has been handed to President Donald Trump by the US Supreme Court as it allowed his ban on travel from six mostly Muslim countries to take immediate effect. Trump will now be able to bar or limit entry by people from the Mideast and North African nations even if they have a relationship with a US based person or institution.

UN Political Affairs Chief Visit to North Korea

The United Nations’ political affairs chief Jeffrey Feltman will visit North Korea this week from Tuesday to Friday, making it the highest level visit by a UN official in more than six years. The visit comes at a time when high tensions take hold in the region due to Pyongyang’s nuclear and weapons programs and the development of nuclear tipped missiles capable of hitting the United States. Amongst the scheduled visits, a meeting is to be held with North Korea Foreign Minister Ri Yong Ho and Vice Minister Pak Myong Guk. According to UN spokesman the visit was in response to a long standing invitation from the authorities in Pyongyang for a policy dialogue with the UN.

Jerusalem

President Donald Trump will formally declare Jerusalem as Israel’s capital and will direct the State Department to start the process of moving the US embassy there from Tel Aviv. The White House warned that any actual move would take years. Reports of the announcement have fuelled warnings from Middle East and European leaders that would undermine peace efforts and could potentially cause protests across the region. On Tuesday Trump called regional leaders including Palestinian Authority President Mahmoud Abbas and Jordan’s King Abdullah to inform them of the plan. Both warned the US president against moving the move and Abdullah said that it would “have serious implications for security and stability in the Middle East” and will “fuel the feelings of Muslims and Christians.” Other Prime ministers and presidents showed concerns as well.

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