- The measures will be funded through joint bonds, which is a landmark move of the European Union.
- Dutch Prime Minister Mark Rutte called the rule of law provisions "historic," while the response in Budapest and Warsaw was mixed.
- The Bank of England stated it will relax the substantial ban on bank dividends.
At a meeting in Brussels, European Union leaders resolved the deadlock with Hungary and Poland that had previously threatened to postpone the historic $2.2 trillion budget and stimulus plan. European Union countries reached an agreement with the two eastern member states on Thursday.
The two countries previously protested the mechanism that links funding to the maintenance of democratic norms. The agreement not only paved the way for the EU’s seven-year budget to take effect but also cleared the obstacles of the €750 billion (approximately $909 billion) pandemic relief plan.
The above-mentioned measures will be funded through joint bonds, which is a landmark move of the European Union. Although the compromise reached by the German line provides some assurance on how the new conditions will apply, the rule of law clauses will remain.
The above-mentioned dispute is the culmination of many years of divergence between Brussels and Poland on issues ranging from judicial intervention to LGBTQ rights. Hungarian Prime Minister Viktor Orban and Polish Prime Minister Mateusz Morawiecki have repeatedly criticized the European Union’s linking funding to democratic standards, which has put themselves in trouble.
This mechanism is an agreement reached between the European Parliament and Germany, which holds the rotating presidency of the European Union, in the summer. Other EU countries also support this mechanism. Dutch Prime Minister Mark Rutte called the rule of law provisions “historic.” The response in Budapest and Warsaw was mixed.
Bank of England: Banks are Well-Capitalized to Start Paying Dividends Again
The Bank of England stated that after determining that the largest banks in the UK are capable of dealing with losses during the epidemic, it will relax the substantial ban on bank dividends.
This is good news for large British banks, such as HSBC Holdings and Standard Chartered. In March, regulators stated that banks need to retain capital to withstand the losses caused by the epidemic, so they have since given up dividends.
The Bank of England’s Prudential Regulation Authority (PRA) issued a statement on Thursday, stating that banks “are still adequately capitalized and are expected to continue to support the real economy during this turbulent period.”
“The Prudential Regulation Authority [PRA] judges that an extension of the exceptional and precautionary action taken in March is not necessary and that there is scope for banks to recommence some distributions should their boards choose to do so,” the regulator said in a statement.
This year, banks have suspended multi-billion-dollar dividend plans, exacerbating the decline in stock prices, and dissatisfying some shareholders. Executives have previously publicly expressed their desire to redistribute dividends.
“The PRA will expect to be satisfied that any distributions would not create excess vulnerabilities to stress for a given bank or impede its ability or willingness to support households and businesses,” it warned.
“The PRA should be more prudent,” said Sir John Vickers, an Oxford University academic. “In the midst of such Covid and Brexit uncertainties, and with bank share prices way down on the start of the year despite huge government support to the economy, this is no time to say that banks can resume payouts.”