EU wants tax to tackle ‘astronomical’ electricity bills

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This is an audio transcription of the FT press briefing podcast episode: EU wants tax to tackle ‘astronomical’ electricity bills

Marc Filipino
Hello from the Financial Times. Today is Wednesday, September 7, and it’s your FT News Briefing.

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Marc Filipino
The European Union plans to tax energy companies for their huge profits this year. The International Monetary Fund recently bailed out Zambia, and it looks like it will be a test for other heavily indebted countries. And US regulators are cracking down on how bankers use messaging services like WhatsApp. I’m Marc Filippino, and here’s the news you need to start your day.

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Marc Filipino
European energy suppliers have made big windfall profits this year, and now the EU wants its member countries to tax those windfall gains. People familiar with the plan tell the FT the extra money comes from artificially inflated electricity prices. They have skyrocketed because they are set by the price of gas, whether or not the electricity is produced with gas. Gas prices have skyrocketed due to Russia’s invasion of Ukraine. The FT’s Alice Hancock says details of the proposed taxes are expected to be worked out this week.

Alice Hancock
We don’t have any numbers yet. The proposals are all very embryonic. The European Commission is under some pressure from member states to act, and it really came to a head this week. The companies that will be affected in fact extend to all energy producers. They will be renewable energy producers because they have made super high profits because the price is set by the price of gas, which is super high. But this will also extend to oil and gas companies that have also made significant profits but would not necessarily be covered by certain windfall taxes due to the way they are structured. So they want to make sure that they’re not seen as punishing renewable energy companies, that they’re seen as making fossil fuel companies pay their fair share. So there are different structures on how this could be done, but it would extend to all energy companies.

Marc Filipino
So Alice, what does the EU hope to achieve with these taxes?

Alice Hancock
What they would like to see, I think, is for national capitals to put in place taxes on energy companies and then recycle the proceeds of those taxes back to vulnerable consumers and industries in particular that are really threatened with closure. I mean, we’ve seen aluminum, zinc, fertilizer companies shut down because they just can’t afford the price of energy and they’re extremely energy-intensive. Europe’s entire supply chain is therefore threatened by this crisis. And that’s why the EU is really pushing EU capitals to use such a mechanism to subsidize their businesses.

Marc Filipino
Alice Hancock is the FT’s European correspondent.

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Marc Filipino
Zambia recently secured a bailout package from the International Monetary Fund worth over $1 billion. The country defaulted on its external debt in 2020 after borrowing heavily from China. The bailout is important because it can be a test for the IMF. He will likely have to respond to a wave of countries that have taken money from China but can no longer repay their debts. Joseph Cotterill of the FT has more.

Joseph Cotterill
Thus, Zambia over the past decade borrowed very heavily to pay for infrastructure, such as airports, roads and other projects in what was one of Africa’s fastest growing economies and the continent’s second largest copper producer. So her debts quadrupled in a very short period of time, from 2014 to 2019. Then, when the pandemic hit in 2020, she simply couldn’t repay those debts.

Marc Filipino
Now, how does China play into all of this? Probably a pretty big role, right?

Joseph Cotterill
Yes. China is Zambia’s largest creditor, having provided just over $6 billion in loans to various Chinese creditors, the Chinese development banks. So they are the ones supporting all these airports, roads and other development projects. So this is going to be a very big test for how Beijing decides to take losses ultimately on the loans it has given to developing countries. Historically, it has been reluctant to do outright debt breakdowns. But Zambia will be a big test of how willing it is to do other things to lengthen maturities or basically extend the time countries have to pay off their debts.

Marc Filipino
Now, Joseph, what do you think of this IMF loan in the grand scheme of other countries that need help right now? Because there are many.

Joseph Cotterill
Well, it’s interesting that few country finance ministers would describe an IMF bailout approved for the, for their nation as a moment of joy. But Zambia Debt, Zambia is seeing a slight rebound as it seems to be coming out of this debt crisis. However, Zambia is also, I guess, a warning, uh, a prophecy for other countries in that position, like Sri Lanka, maybe Pakistan and others. It took about a year to negotiate this bailout from the IMF in order to get creditors even in principle to agree to debt relief. Zambia therefore shows that it takes time. Even if you have a total meltdown and a messy default, it takes time to talk to your creditors, including China.

Marc Filipino
Joseph Cotterill is the FT’s correspondent in southern Africa.

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Marc Filipino
US financial regulators are cracking down on Wall Street banks for the way their employees use messaging apps like WhatsApp at work. The Securities and Exchange Commission says the messages are not stored and are harder for the SEC to access. Joshua Franklin of the FT says this could be a problem for regulators when conducting investigations.

Joshua Franklin
So they are constantly asking banks for information on various issues that they are investigating or monitoring. And if banks don’t store messages to create a complete picture of certain situations, it slows down or hampers the investigations regulators are looking into. But, in some ways, it also raises the question of how compatible current financial regulations are with the modern way of doing business.

Marc Filipino
Josh reported that banks including JPMorgan Chase, Merrill Lynch and Morgan Stanley are preparing to pay around $1 billion in fines for this. The bankers reacted by hiring their own lawyers. They want to prevent their employers from accessing their private phones to check work messages. Meanwhile, the banks themselves are trying to adapt to the demands of regulators.

Joshua Franklin
So just to take a little example now after this crackdown and really the warning that’s been sent out to the banks that they need to take this issue more seriously, if you’re a banker in a place like Goldman Sachs and you receive a message from a work-related client on your home phone, bank policy is to require bankers to take a picture of this message on their work phone and send that picture to compliance so they can save correctly. So it’s just adding extra layers of work to the banks. And the feeling from the regulators is really that you have to take this seriously and you have to follow the rules as they are today. We’re not going to give you too much slack.

Marc Filipino
And it seems that this crackdown is already having an impact.

Joshua Franklin
On just about every business phone at a major Wall Street bank, employees will now have some form of messaging app that stores their messages and tracks their calls. There is Movius, there is TeleMessage. Bankers receive regular reminders from their employers about what they need to do. We have seen high-profile bankers lose their jobs because of this if they were found to have repeated lapses in the use of personal phones. So I think that really sent a very clear message that is going to change behaviors. Not everything changes. There will always be outliers, but I think on a large scale it will definitely have a big impact.

Marc Filipino
Josh Franklin is the FT’s US banking editor.

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Marc Filipino
You can read more about all these stories on ft.com This has been your daily FT News briefing. Be sure to check back tomorrow for the latest trade news.

This transcript was generated automatically. If by any chance there is an error, please send the details for a correction to: [email protected]. We will do our best to make the change as soon as possible

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