LONDON (Reuters) - European Union leaders will use a pre-scheduled summit starting this evening in Sofia today to discuss what they can do to keep the 2015 nuclear deal with Iran alive after the withdrawal of the US.
Measures could include retaliatory sanctions, allowing the European Investment Bank to invest in Iran and coordinating euro-denominated credit lines from European governments.
Yet given the reach of the U.S. financial system, the dominance of the dollar and the presence of European companies’ operations in the United States, there is broad recognition behind the scenes that, despite its clout as the world’s largest trading bloc, Europe will struggle to face down the US.
“Let’s not fool ourselves that there are dozens of things we can do,” said a senior European diplomat. “We don’t have much to threaten the Americans.”
It may be frustration with the way coalition talks are going with 5-Star, but Italy’s far-right League has upped its rhetoric against Europe, saying it was ready, Trump-style, to put Italians first and to wage war on EU budget rules.
That came as a draft emerged of the programme the two parties are working on, and which includes a demand that the ECB forgive around 250 billion euros worth of Italian debt - effectively slashing around 10 percentage points off Italy's debt/GDP ratio of 130 percent.
The two parties insist the draft is an old one which has since been modified, but the fact that such deliberations exist at all is likely to cause concern in Brussels and at the ECB.
This White Paper is likely to outline proposals for future customs arrangement and for specific sectors including financial services, agriculture and cars. Some media reports suggest, however, it will not go into detail on how it will guarantee there is no physical border between Ireland and Northern Ireland - a potential deal-breaker.
The opposition Labour Party will today try to force PM Theresa May to publish the precise details of the two options currently being discussed by her divided cabinet for future EU customs arrangements.
After its rampage on Tuesday, when its index hit its highest level since last December, the greenback is flat today.
But it has trampled everything in its wake after retail sales data confirmed expectations the Fed would stay the course with its rate rises, and oil prices almost touched $80.
The victims are emerging markets, equities and bond markets.
The inflation fears sent US yields surging to the highest in almost seven years. All three US stock market indexes fell more than 0.5 percent. Two Fed presidents, from San Francisco and Dallas, reinforced the message that the Fed would go in June for sure and interest rate futures imply a 50 percent chance of three more rate rises this year.
This morning things are quieter, with US yields, oil and the dollar a touch off yesterday’s highs.
Trade war fears have again awoken after the US ambassador to China said the two sides were not close to resolving their frictions.
And continuing the run of lacklustre economic data everywhere but the United States, Japan’s economy contracted 0.6 percent in Q1 after eight straight quarters of expansion.
There is also a fresh threat in Italy where the two anti-establishment parties may ask the ECB to forgive 250 billion euros of Italian debt it holds, according to a draft coalition programme. Italian yields have jumped 6 basis points to 2 percent, a level last touched two months ago.
A look at the day ahead from European Economics and Politics Editor Mark John and EMEA deputy markets editor Sujata Rao. The views expressed are their own.