Germany in favour, Spain against
Chancellor Friedrich Merz has given firm assurances that Germany will significantly enhance its military capacity and meet the proposed commitment to raise defense spending to 5% of GDP
- He stressed that increased defense investment is essential given Russia’s aggressive posture and the risk of the war extending beyond Ukraine
- Conversely, Spanish Prime Minister Sánchez is standing firm against increasing spending, a stance that could disrupt the upcoming NATO summit and raise doubts about the alliance’s long-term cohesion
- Sánchez insisted that its planned 2.1% allocation will be enough to meet NATO’s capability standards
- NATO Secretary General Mark Rutte has supported Spain’s position, emphasizing that the summit will allow the country the “flexibility” needed in reaching the necessary defense capabilities
Little growth in Europe’s private sector
The euro area’s private sector barely grew in June – US trade policies and geopolitical conflicts continue to add uncertainty
- Euro area composite PMI for June held at 50.2 – below economists’ expectations of 50.5
- Services PMI made it back to vital 50 level whilst manufacturing came out at 49.4, failing to grow for the 36th month in row
- Data suggest that economic output in the second quarter will be constrained – matching economists’ views that GDP will stagnate in the three months through June
- National PMI numbers were mixed – Germany returned to growth whilst France remained in contraction area
Exit charges for Wealthy Europeans
Several European countries with high tax burdens are stepping up efforts to discourage wealthy individuals from relocating abroad by introducing or tightening so-called “exit taxes“. These levies require affluent residents to pay taxes on the value of their assets before leaving
- Nations such as Germany, Norway, and Belgium are enforcing these taxes—sometimes as high as 45% —as a means to boost public revenues and ensure the rich continue to contribute financially
- In the UK, the Labour government under Keir Starmer has come under pressure to adopt a similar tax to slow the outflow of affluent citizens
- Meanwhile, this trend is proving advantageous for low-tax jurisdictions like Switzerland, Italy, Monaco, and the UAE, which are drawing growing numbers of wealthy migrants in search of lower taxation and a more appealing lifestyle
BBVA and Sabadell - More hurdles arise
Spain’s government cleared BBVA’s planned takeover of Banco Sabadell but imposed additional conditions creating new setbacks to the 14 billion Euro deal
- The two banks will have to keep separate operations for three years – period that could be extended to five years
- Deal has faced violent opposition both Sabadell’s management and a number of politicians, especially in Catalonia where the loss of Sabadell would be considered a cultural loss
- BBVA still needs approval of the securities regulator CNMV before it can take the offer to Sabadell shareholders
- A combination of the two banks would create a giant in European banking and help reduce BBVA dependence on income from emerging markets
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