Aurelia Butler

Germany has announced plans to press ahead with a key element of the OECD’s global tax deal, in a move that piles pressure on Hungary to drop its resistance to EU proposals that set a 15 per cent floor on the tax that big businesses pay on profits. Attempts to pass an EU directive to introduce part of the OECD deal, signed in 2021 and aimed at stamping out use of tax havens by multinationals, have been blocked twice — first by Warsaw, and then by Budapest. In a bid to break the impasse, Berlin said on Sunday that it would start preparing domestic rules to enforce the tax floor. The move, which comes ahead of an informal meeting of the region’s finance ministers later this week, is seen by tax insiders as an attempt to force Hungary to agree to the EU rules or risk losing out on potential revenue. Sven Giegold, a secretary in the federal ministry for economic affairs and climate action in Germany’s coalition government, said on Twitter “we must no longer stand idly by and see how a veto by [Hungary’s prime minister Viktor] Orbán costs the German state billions.” “If we do not make progress with the implementation of the global minimum taxation of large companies in Europe, the hard-won deal risks slipping. We cannot permit that. That is why we are now acting on our own to ultimately enforce European law.”To eliminate tax avoidance and end a race to the bottom in corporate taxation, 136 countries agreed to implement the global tax floor on companies with revenues of more than €750mn at an OECD meeting last October. Progress at the EU level is viewed as key to making the global minimum tax work owing to the number of large multinationals headquartered in the region. The position of the major European economies became even more important last month after the US abandoned one of the tenets of the deal — to clamp down on tax havens — when it introduced a minimum tax of 15 per cent that would not apply on a country-by-country basis. “This is a big moment for the global minimum tax,” said Pascal Saint-Amans, director of tax administration at the OECD. “I would not be surprised if the French follow soon or co-ordinate with the Germans.”The European Commission produced a draft directive for the tax in December but progress is currently being blocked by Hungary. The next opportunity for a vote on the directive will be at the Ecofin meeting of EU economic and finance ministers on October 4.“The fact that Germany is forging ahead with minimum taxation could be the breakthrough at European level,” said Rasmus Andresen, a member of the European Parliament’s committee on economic and monetary affairs.“Germany’s decision . . . puts pressure on Hungary blocking the EU agreement,” Andresen said. “We can’t wait for the laggards or be thwarted by national vetoes . . . others could and should follow suit.”Changes to tax rules usually require unanimity among EU member states. However, Andresen has called for an implementation of the global minimum tax via a process called “enhanced co-operation”, meaning that other member states could press ahead even without Hungary’s approval. The global minimum tax only needs a critical mass of countries to implement it for it to succeed. Beyond the EU, the UK has already published draft legislation for the global minimum tax, known as ‘Pillar Two’ of the global tax deal. However, the government of new prime minister Liz Truss has yet to decide whether to block its implementation. “That would complicate things for Germany but not decisively,” said Grant Wardell-Johnson, global tax policy leader at KPMG. “I don’t think Germany would change its position because of the UK”.Additional reporting by Sam Fleming More

Bangladesh is India’s largest development partner and the largest regional trade partner, Modi said after talks with his Bangladeshi counterpart Sheikh Hasina, who is on a four-day visit to India.”We also decided to increase cooperation in sectors such as IT, space and nuclear energy,” Modi said.Both countries have been involved in a joint study on the economic partnership, which has been in discussions between the two neighbours for many years.Tuesday’s announcement comes at a time when Bangladesh has sought loans from global agencies, including the International Monetary Fund, prompted by its dwindling foreign exchange reserves caused by rising import bills. However, Hasina has said that Bangladesh’s $416 billion economy remained strong.The United Nations, which classifies Bangladesh among the least developed countries, said last year it was expected to make enough progress towards its development goals to reach the developing nation status by 2026.India’s Foreign Secretary Vinay Kwatra said the goal was to finalize the agreement, with talks due to start this year, by then.Tuesday’s discussions between Modi and Hasina also focused on security cooperation, infrastructure projects, including railway lines, and strengthening supply chains, Kwatra told reporters.”There is further headroom for bilateral trade to grow,” he said.India has extended nearly $9.5 billion to Bangladesh in preferential loans in recent years and has taken up several connectivity projects, the Indian foreign ministry’s spokesperson, Arindam Bagchi, wrote on Twitter (NYSE:TWTR). More

LONDON (Reuters) – The European Central Bank is expected to make a jumbo 75 basis point refinancing rate increase on Thursday, according to a slim majority of economists polled by Reuters, as it battles to contain inflation running at more than four times its target.That is a change from a Friday poll which showed the choice between 50 and 75 basis points on a knife’s edge. But the latest consensus shows the ECB’s key rate rising to 1.25% this week.Thirty-four of 67 economists now expect the bigger move on Thursday, compared to 30 of 61 last week. Twenty-nine said the Bank would go for 50 basis points, while four expected the ECB to only add 25 basis points to its key rate.Euro zone market makers were more convinced about the bigger move, with 19 of the 29 who participated saying 75 basis points and only nine expecting 50. One said 25 basis points.The updated survey shows that while markets are pricing in about an 80% chance of the bigger move, the decision for policymakers is much more nuanced. “In all honesty there is a case for an even bigger move than a 75 basis point hike if you look at where policy rates are, but I think that might be a bit much for policymakers,” said Jack Allen-Reynolds at Capital Economics.”The talk is if it is 50 or 75 and it wouldn’t be a big shock if it was 50, but I think given where inflation is and where we are starting off, with policy rates so low, there is a very strong case for a very big rate hike.”Having initially said it would move very gradually, the ECB only just raised rates for the first time in this cycle a few months ago by half a point. Waiting so long has made it have to consider an even bigger move just as the economy enters a downturn.The refi rate is expected to rise to 2.00% next quarter. The median forecast points to it remaining steady there through 2023, but there is a wide range of views. Friday’s poll gave a 60% chance of a recession within a year and, adding to the region’s economic and inflationary woes, Russia has closed its main gas supply pipeline to Europe indefinitely, particularly damaging to heavily industrialised Germany, Europe’s largest economy.Inflation is forecast to peak at an average 9.0% this quarter and next before gradually declining, but wasn’t seen at the ECB’s goal across the forecast horizon through next year.Despite those changing expectations for a bigger move the euro has had a torrid time, slipping below $0.99 on Monday for the first time since late 2002 as the region’s energy crisis deepens.The weakening in the currency, down around 13% this year, is highly likely to add to record high inflation, and analysts are not convinced even the supersized move would do much to stop the rout. More

After initially rising, by 1030 GMT yields were down sharply across the bloc. German yields were down between 6 and 20 basis points DE2YT=RR, with the 2-year as low as 0.96%, its lowest since Aug. 26.Other yields were down between 5 and 10 basis points, with several hitting their lowest since late August Jan von Gerich, an analyst at Nordea, said media reports, including one that pointed to ECB policymakers debating a 60 basis point move instead of 75 bps, were behind the drop in yields, although he wasn’t persuaded by them.”The market had decided clearly it was going to be 75 basis points but it is more open based on these reports,” he said.”I don’t think it’s been planted by the ECB to talk the market down. I still think that the hawks are in control and they will deliver 75 basis points,” he added, noting that before a blackout period ended ECB policymakers had plenty of chances to push back on rising expectations for a supersized hike. Money markets are now pricing in a 67% chance of a 75 bps rate hike, down from almost 90% earlier on Tuesday. Markets also anticipate a further hike worth at least 50 bps at the ECB’s October meeting as investors position for front-loaded rate increases before the economic outlook deteriorates further due to the energy shock. Bond yields have been very volatile in recent weeks. They had jumped on Monday, led by a rise in the Italian 10-yield towards 4%, after Russia’s decision to keep its main gas pipeline to Germany shut exacerbated inflation and ECB rate-hike fears.In Tuesday trade, the Italian 10-year yield was down 10 bps higher at 3.85% .In a busy day for government bond sales, Italy’s Treasury started marketing a new green government bond via a syndicate of banks on Tuesday, in a deal closely watched by the market against a backdrop of a looming snap election and new ECB tightening. France started the sale of a 20-year syndicated bond and has seen 23 billion euros of demand, according to a lead manager memo seen by Reuters. U.S. markets reopen after Monday’s public holiday, with a rise in U.S. Treasury yields pushing higher in London trade. More

WASHINGTON (Reuters) -The U.S. Commerce Department said Tuesday it hopes by February to begin seeking applications for $39 billion in government semiconductor chips subsidies to build new facilities and expand existing U.S. production.Congress in August approved $52.7 billion for semiconductor manufacturing and research and a 25% investment tax credit for chip plants, estimated to be worth $24 billion. That credit applies to projects that start construction after Jan. 1.President Joe Biden signed the legislation to boost efforts to make the United States more competitive with China and to subsidize U.S. chip manufacturing in a bid to alleviate a persistent chips shortage that has affected everything from washing machines and video games to cars and weapons.Commerce said Tuesday “funding documents, which will provide specific application guidance… will be released by early February 2023. Awards and loans will be made on a rolling basis as soon as applications can be responsibly processed, evaluated and negotiated.”The department said it plans https://www.nist.gov/system/files/documents/2022/09/06/CHIPS-for-America-Strategy.pdf to use $28 billion to “establish domestic production of leading edge logic and memory chips that require the most sophisticated manufacturing processes available today” and $10 billion for new manufacturing capacity for “mature and current-generation chips, new and specialty technologies, and for semiconductor industry suppliers,” which includes chips used by automakers, weapons and in medical devices.The chips bill also includes $11 billion for research and development spending.Commerce can use up to $6 billion to support loans or loan guarantees rather than grants and “could be leveraged to support a $75 billion credit program.”Commerce Secretary Gina Raimondo told Reuters in an interview last week that the first priority was to get a team in place to oversee the program and then issue “high level principles and guidelines for how we’re going to be running this program and then we’re going to have a period of pretty intensive stakeholder engagement” over “the next handful of months.” More

Sikela said the Czechs, who hold the rotating EU presidency, were collecting member states’ views on the proposals, which include either separating the high market price of gas from the prices of power plants generating electricity from gas; or setting a cap on prices charged by producers from lower-cost plants such as those using renewable sources, nuclear fuel and coal.EU countries are scrambling to tame record-high power prices that have shot up as Russia halted most gas flows to Europe in response to sanctions and to European support for Ukraine’s defence against Russia’s Feb. 24 invasion. A draft EU document, drafted by the Czech presidency and seen by Reuters on Sunday, said the ministers will consider options including a price cap on imported gas, a price cap on gas used to produce electricity, or temporarily removing gas power plants from the current EU system of setting electricity prices.It also proposed to provide liquidity for energy market participants. An earlier document on the European Commission’s upcoming proposals said they should include a price gap for power generators that do not run on gas. They would also include an EU-wide reduction of consumption, and using revenue above the price caps to help consumers pay their bills.The reason for soaring electricity prices is that the market price is set by the most expensive power plants running to meet demand, which at the moment are plants using expensive gas.Sikela said separating gas prices from those of electricity could lead to higher gas consumption, which was not a problem of the second plan. Sikela said there was an agreement on providing credit to traders to raise market liquidity. He said the presidency planned to release a summary of member states’ positions on Wednesday.He said the Czech government was working on a national solution alongside the European one. More