Workers install a monument inside Beirut port as a remembrance for the victims of the August blast. EPA
Workers install a monument inside Beirut port as a remembrance for the victims of the August blast. EPA
Workers install a monument inside Beirut port as a remembrance for the victims of the August blast. EPA
Workers install a monument inside Beirut port as a remembrance for the victims of the August blast. EPA

EU presses on with Lebanon sanctions despite Mikati PM nomination


Gareth Browne
  • English
  • Arabic

The EU is pushing ahead to finalise a package of sanctions on Lebanon despite Monday’s nomination of Najib Mikati as prime minister-designate, European diplomats have told The National.

Several officials told The National that, although they noted this week’s movement on forming a new Lebanese government, they were sceptical that Mr Mikati – a two-time former prime minister – can finalise an administration.

Lebanon needs a new government that could introduce the reforms required to stave off a wave of sanctions on the country's political class and unlock international financial support.

“Nothing has changed until we see concrete reforms. Mikati’s nomination is a still long way from that,” one European diplomat in Beirut said.

“It’s not a case of buying them time because the sanctions were never just about government formation – they were about blocking the reforms Lebanon desperately needs.

“Until the reform happens, sanctions stay on the table.”

Brussels has been working on a package of sanctions to punish those blocking government formation and vital structural reforms in Lebanon for months.

Germany and France have been leading the efforts.

“I can say that the objective is to complete this by the end of the month," EU foreign policy chief Josep Borrell said earlier this month. "I am not talking about the implementation of the regime, just the building of the regime according to sound legal basis.”

The EU sanctions would include asset freezes and travel bans.

One European diplomat said that Mr Mikati would need to make sure his government formation efforts do not drag on.

“Mikati said himself he wants to be fast. He said he is not going to do the same as Saad Hariri. If in a few weeks nothing is done, then we will take that into account,” they said.

France is also working on its own unilateral measures. Last month, it introduced travel bans on several Lebanese political figures, although without publicising who had been targeted. Paris is also coordinating closely with the UK and US, which are both weighing up measures of their own.

The US placed sanctions on former foreign minister Gebran Bassil for corruption in November. This was widely interpreted as a warning to President Michel Aoun and other members of Lebanon's political class blocking government formation.

Lebanon has been in the hands of a caretaker government since August, when the cabinet of Prime Minister Hassan Diab resigned after the Beirut port explosion.

Former prime minister Saad Hariri was nominated to replace him, but was unable to agree a cabinet line-up with Mr Aoun despite nine months of negotiations. This left the country in a political morass amid an economic crisis described by the World Bank as Lebanon's worst in 150 years.

Last week, Mr Hariri admitted defeat and withdrew his name from consideration, prompting Lebanese MPs to vote in Mr Mikati as a replacement on Monday.

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Will the pound fall to parity with the dollar?

The idea of pound parity now seems less far-fetched as the risk grows that Britain may split away from the European Union without a deal.

Rupert Harrison, a fund manager at BlackRock, sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 (Dh3.67) on such an outcome. That isn’t the majority view yet – a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.

New Prime Minister Boris Johnson has repeatedly said that Britain will leave the EU on the October 31 deadline with or without an agreement, fuelling concern the nation is headed for a disorderly departure and fanning pessimism toward the pound. Sterling has fallen more than 7 per cent in the past three months, the worst performance among major developed-market currencies.

“The pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Mr Harrison, who manages more than $10 billion in assets at BlackRock. “We will see this game of chicken continue through August and that’s likely negative for sterling,” he said about the deadlocked Brexit talks.

The pound fell 0.8 per cent to $1.2033 on Friday, its weakest closing level since the 1980s, after a report on the second quarter showed the UK economy shrank for the first time in six years. The data means it is likely the Bank of England will cut interest rates, according to Mizuho Bank.

The BOE said in November that the currency could fall even below $1 in an analysis on possible worst-case Brexit scenarios. Options-based calculations showed around a 6.4 per cent chance of pound-dollar parity in the next one year, markedly higher than 0.2 per cent in early March when prospects of a no-deal outcome were seemingly off the table.

Bloomberg

Updated: July 27, 2021, 7:42 PM