EU wants tax to fight ‘astronomic’ electricity bills

This is an audio transcript of the FT News Briefing podcast episode: EU wants tax to fight ‘astronomic’ electricity bills

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, September 7th, and this is your FT News Briefing.

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Marc Filippino
The European Union is considering taxing energy companies for their huge profits this year. The International Monetary Fund recently bailed out Zambia, and it seems like it’s going to be a test case for other countries in major debt. 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 Filippino
European energy suppliers have been making big, unexpected profits this year, and now the EU wants its member countries to tax those windfalls. People familiar with the plan tell the FT that the extra cash has come from artificially inflated electricity prices. They’ve skyrocketed because they’re set by the price of gas, whether or not the electricity is produced with gas. Gas prices have soared because of Russia’s invasion of Ukraine. The FT’s Alice Hancock says the details on the proposed taxes are expected to be hammered 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 the member states to act, and it’s really come to a head this week. The companies that will be affected stretch actually to all energy producers. It will be renewable producers because they have been enjoying super-high profits because the price is set by the gas price, which is super high. But it will also stretch to oil and gas companies who have also been having great profits but wouldn’t necessarily be covered in some windfall taxes because of the way they’re structured. So they want to make sure they’re not seen to be punishing renewable companies, that they are seen to be making fossil fuel companies pay their share. So there are different structures for how this might be done, but it would stretch across all energy companies.

Marc Filippino
So Alice, what does the EU hope to accomplish with these taxes?

Alice Hancock
What they would like to see, I think, is that national capitals implement taxes on energy companies and then recycle the proceeds they get from those taxes to vulnerable consumers and industries in particular that are really at threat of shutting down. I mean, we’ve seen aluminium, zinc, fertiliser companies all shutting down because they simply cannot afford the price of energy and they’re extremely energy-intensive. So Europe’s whole supply chain is under threat in this crisis. And that is why the EU is really pushing EU capitals to use such a mechanism to subsidise their businesses.

Marc Filippino
Alice Hancock is the FT’s EU correspondent.

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Marc Filippino
Zambia recently secured a bailout package from the International Monetary Fund worth more than a billion dollars. The country defaulted on its foreign debt in 2020 after borrowing heavily from China. The bailout is significant because it may be a test case for the IMF. It will likely have to respond to a wave of countries that took money from China but now can’t pay back their debts. The FT’s Joseph Cotterill has more.

Joseph Cotterill
So Zambia over the last 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 second-largest producer of copper on the continent. So its debts quadrupled over a very short period of time, 2014 to 2019. Then when the pandemic came around in 2020, it simply could no longer repay those debts.

Marc Filippino
Now, how does China play into this whole thing? Probably a pretty big role, right?

Joseph Cotterill
Yes. China is Zambia’s biggest single creditor, having extended just over $6bn of loans from various Chinese creditors, the Chinese development banks. So they are the ones backstopping all those airports, roads and other development projects. So this is going to be a very big test for how Beijing decides to take losses at the end of the day on loans it has extended to developing countries. Historically, it has been reluctant to take outright breakdowns on debt. But Zambia will be a big test of how far it’s willing to do other things to lengthen maturities or basically to extend the time that countries have to pay back their debts.

Marc Filippino
Now, Joseph, what do you make of this loan by the IMF in the grand scheme of other countries that need aid right now? Because there are a lot.

Joseph Cotterill
Well, it’s interesting that not many finance ministers of countries would describe an IMF bailout being approved for the, for their nation as a moment of joy. But Zambia’s debt, Zambia is experiencing a bit of a rebound because it is looking like it will emerge from this debt crisis. However, Zambia is also, I guess, a warning, uh, a prophecy for other countries in this position, such as Sri Lanka, perhaps Pakistan and others. It’s taken about a year to negotiate this IMF bailout to get the even just the in-principle agreement of creditors on debt relief. So Zambia shows this takes time. Even if you have a complete smash and a disorderly default, it takes time to talk to your creditors, including China.

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

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Marc Filippino
US financial regulators are cracking down on Wall Street banks for how their employees are using messaging apps like WhatsApp while on the job. The Securities and Exchange Commission says the messages aren’t being stored and that makes it harder for the SEC to access them. The FT’s Joshua Franklin says this could be a problem for regulators when conducting investigations.

Joshua Franklin
So they are constantly requesting information from banks about various issues that they’re investigating or supervising. And if banks aren’t storing the messages to create a full picture of certain situations, that actually slows down or impedes investigations that regulators are looking into. But, in some ways, it also does raise the question about the extent to which kind of financial regulations these days are really compatible with the modern way of doing business.

Marc Filippino
Josh has reported that banks, including JPMorgan Chase, Merrill Lynch and Morgan Stanley are preparing to pay about a billion dollars in fines over this. Bankers have responded by hiring their own lawyers. They want to stop their employers from accessing their private phones to check work messages. Meanwhile, the banks themselves are trying to adjust to regulators’ demands.

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

Marc Filippino
And it sounds like this crackdown is already having an impact.

Joshua Franklin
Pretty much on every single work phone at a big bank on Wall Street now, employees will have some form of messaging app that stores their messages and tracks their calls. There’s Movius, there’s TeleMessage. Bankers are getting regular reminders from their employers about what they need to do. We’ve seen some quite high-profile bankers lose their jobs over this if they’ve been found to have repeated lapses in using personal phones. So I think this really has sent a very clear message that will change behaviour. Not all change. You’re always going to have some outliers, but I think certainly on a big scale this will have a big impact.

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

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Marc Filippino
You can read more on all of these stories at ft.com This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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