EU Court of Justice rejects UK challenge

BY Richard Summerfield

The European Court of Justice has rejected the UK’s legal challenge to the introduction of a financial transactions tax (FTT). The Court’s decision on 30 April dealt a blow to London's efforts to stop a levy that may adversely affect its status as Europe’s financial centre.

Extra-territorial

As the proposal has not yet been agreed by the 11 European countries, including France and Germany, which intend to implement the tax, the UK’s case was restricted to simply challenging the right of the countries to proceed with the bill. The Court found against the UK, claiming “the contested decision does no more than authorise the establishment of enhanced cooperation, but does not contain any substantive element on the FTT itself.”

Although the UK will not sign up to the FTT, which has been dubbed the ‘Robin Hood’ tax by some, the ruling is still likely to affect the UK, as the FTT is intended to have extra-territorial effects.

Fragmented

The UK’s objection to the FTT is predicated on ensuring the EU's single market does not become fragmented between the countries inside and outside the eurozone. However, a spokesman for the UK Treasury added that the court’s decision “confirms the UK will be able to challenge the final proposal for a FTT if it is not in our national interest”.

In its ruling the Court did not comment on the merits of the UK’s challenge. Accordingly it seems likely that the UK will further challenge the finalised FTT.

Premature

However, critics of the UK’s objection, as well as the Court itself, noted the challenge seemed premature given that the nature of the tax has yet to be confirmed. The levy is intended to raise public funds and discourage speculative trading by taxing the transactions of shares, currencies and bonds.

Furthermore, some analysts have stated that the UK’s objection to the FTT is merely another attempt to defend the city’s ‘rich square mile’, a reference to London's financial quarter. France and Germany in particular have championed the tax – policy-makers in both countries believe that the implementation of the FTT will go some way toward forcing the financial sector bear some of the costs and responsibility for the economic crisis. It will also serve to dampen speculation on the European bonds and derivatives markets.

Press release: Court of Justice of the European Union

Reshaped firms ready for growth, says EY

BY Matt Atkins

Confidence in the global economy has risen considerably in the last year, says an EY report released in April. Just 9 percent of respondents to the firm’s Capital Confidence Barometer expect the economy to decline – the lowest number in the report’s history.

Real optimism

According to the report, executives are optimistic of a real and sustained economic recovery, and recent global megatrends have reshaped their strategies.

Today’s companies continue to grapple with geopolitical instability, a fragile global economic recovery and an emerging activist shareholder class. But while many would expect the pressures and shocks of the past few years to stunt the ambitions of business leaders, rather they have started to factor such trials into their long-term plans.

Credit available

The report reveals that, although credit has been available for some time, executives are now increasingly willing to put it to work in deals. The availability of credit is at its highest level for some time, and credit conditions are stabilising, overall. With a greater appetite for debt, the use of leverage in deal making is expected to rise, and with a hike in interest rates predicted, companies are rushing to secure financing at the current rates.

Quality not quantity

But while the pressure remains on companies to grow, the lessons learned from the financial crisis have led to a laser focus on cost structures and operational efficiency. As a result, a model of growth has emerged which sees firms actively seeking organic growth opportunities within strict parameters of cost management and operational efficiency. EY notes that firms are considering higher risk approaches to such growth, with firms adding to their existing product offerings. In addition, growing optimism that innovation can generate growth has seen R&D efforts almost triple in the last three months.

While M&A deal volumes – presently at record lows – are not expected to grow significantly, large transformational deals will make real headlines. In the past six months, the number of firms planning $5bn-plus acquisitions has doubled – evidence that M&A activity in the near future will concentrate on larger and more strategic deals. Quality, rather than quantity is likely to be the key concern of acquisitive firms in the months to come.

Full report: EY Capital Confidence Barometer April 2014 - October 2014