Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

All foreign policy is in part economic. Most economic policy is also of geostrategic import. These basic facts are well appreciated in Washington and Beijing. Not so in the capitals of Europe.

That is why, of the numerous thoughtful proposals in Mario Draghi’s report on European productivity, none is as intriguing or potentially far reaching as his call for a European “foreign economic policy”. The very realisation that none exists is a step forward.

What would it mean for the EU to have one? Most obviously, that even domestic economic policy would be made in light of geostrategic goals. Draghi explains such policy as “statecraft . . . to co-ordinate preferential trade agreements and direct investment with resource-rich nations, build up stockpiles in selected critical areas, and create industrial partnerships to secure the supply chain of key technologies”.

The need for such statecraft goes much further than Draghi’s focus on securing critical resources, to green industrial policies broadly and beyond.

For example, the EU’s new carbon tariffs have incentivised other jurisdictions to adopt carbon-pricing schemes of their own. Yet this effect, very much in the EU’s interest, is an afterthought rather than the policy’s principal purpose. (That was to prevent green European industry from being undercut by carbon-intensive imports.) It was more happy coincidence than statecraft.

New EU rulemaking on supply-chain sustainability (over deforestation, for example) has caused diplomatic frictions, with trade partners seeing it as protectionist. This caught Europeans unawares — something a foreign policy perspective could have avoided.

The point is not that such a perspective would or should have tempered the pursuit of domestic goals. On the contrary, placing geostrategic considerations at the centre of domestic economic decision-making would more often than not raise the level of ambition.

Take the European Central Bank’s work on a digital euro. It has largely focused on effects on the Eurozone’s domestic monetary system — which has led to a consensus on tight limits on the digital euro amounts anyone could hold to protect legacy banks’ business models. A foreign policy perspective would lift the euro’s international role and the strategic advantages it could bring. It would thus emphasise that letting foreign users hold ample digital euros easily would encourage euro invoicing in international trade, and tie other economies more strongly to the EU’s.

Similarly, a foreign policy perspective would inject much-needed urgency into the projects to unify EU banking and financial markets. National divisions sap Europe’s collective economic strength and increase its dependencies on other countries.

The issue of decarbonising Europe’s car fleet is where an EU foreign economic policy approach is most starkly needed. It should be obvious that EU countries need both a larger inflow of Chinese electric vehicles in the cheaper segment and also a sufficiently large domestic market for EU carmakers to confidently make the investments necessary to ramp up their own EV production capacity.

This requires a combination of policies: a managed openness to Chinese imports, a much stronger tilt of consumer subsidy and procurement policies towards EU-produced EVs, and an overall quantitative judgment of how much of each is optimal. Crucially, that judgment must be explicitly calibrated against what Beijing is willing to do in return. The obvious asks are for China to use more of its soaring EV production capacity itself and reduce its complicity in Russia’s egregious violation of Ukraine’s sovereignty.

Such joined-up policymaking is only possible if foreign policy and domestic economic and industrial policy are made as one. Simply put, that means Kaja Kallas — the EU’s incoming top foreign policy official — must be involved in decisions about taxation of corporate vehicles, and decision-making on EU’s capital markets and banking union must keep foreign ministers in the loop.

The structure of the EU discourages that. Commission president Ursula von der Leyen has tried to overcome this through an extreme centralisation of decision-making, but that is politically unsustainable outside the most acute crises. The make-up of her new commission suggests a welcome attempt to institutionalise joined-up thinking.

But that leaves national leaders who ultimately hold the most power in the EU. Realising an EU foreign economic policy requires enough national leaders to jointly make economic policy with collective strategic goals in mind. Europe will become strong in national capitals or not at all.

martin.sandbu@ft.com

US banks made a $1tn windfall from the Federal Reserve’s two-and-a-half-year era of high interest rates, an analysis of official data by the Financial Times has found.

Lenders got higher yields for their deposits at the Fed but kept rates lower for many savers, the review of Federal Deposit Insurance Corporation data showed. The boost to the US’s more than 4,000 banks has helped pad out profit margins.

While rates on some savings accounts were raised in line with the Fed’s target of more than 5 per cent, the vast majority of depositors, especially those at the largest banks, such as JPMorgan Chase and Bank of America, got far less.

At the end of the second quarter, the average US bank was paying its depositors interest at the annual rate of just 2.2 per cent, according to regulatory data that includes accounts that do not pay interest at all. This is higher than the 0.2 per cent they paid two years ago but far lower than the Fed’s 5.5 per cent overnight rate that the banks themselves can get.

At JPMorgan and Bank of America, annual deposit costs were 1.5 per cent and 1.7 per cent, respectively, according to this data.

Those lower payments to depositors generated $1.1tn in excess interest revenue for the banks, or about half of the total dollars banks brought in during that time, according to the FT’s calculations.

This is in sharp contrast to Europe, where some governments imposed windfall taxes on banks which benefited from higher interest rates.

The Fed tightened its main policy rate this week, cutting by half a percentage point. Some US banks sought to pass the cuts on to depositors as quickly as possible, a move that would shore up their margins.

Hours before the Fed rate cut on Wednesday, Citi told its employees at its private bank, whose wealthy clients typically receive preferential rates, that if the US central bank were to cut rates by half a percentage point the bank would do the same to its rate on accounts paying 5 per cent or more, according to a person familiar with the matter.

At JPMorgan, bankers have been told that clients with $10mn in cash or above would see their savings rates cut by 50bp and future cuts would move in lockstep with the Fed’s actions, people familiar with the matter said.

Because of the Fed’s rate cut, banks will “certainly” have “the ability to reduce deposit costs”, said Chris McGratty, head of US bank research at KBW. “The degree of aggressiveness will, I think, vary bank to bank.”

JPMorgan said the bank aimed to ensure a fair and competitive rate. Citi declined to comment. Bank of America declined to comment.

A report earlier this year from the Risk Management Association compared banks to petrol stations, which are typically quick to raise prices and slow to cut them. Banks, by contrast, are slow to raise the rates they offer on deposits and savings accounts but quick to cut them.

When the Fed began to tighten monetary policy in March 2022 many analysts predicted that competition from new financial technology companies and the growing ease with which consumers can move cash would force banks to dole out a greater share of the higher rates to their depositors.

But the FT’s calculations show that they were able to hold on to much of the benefit — although slightly less than in previous Fed tightening cycles.

The failure of Silicon Valley Bank and others in early 2023 forced many mid-sized and smaller banks to raise their rates in order to keep depositors from fleeing. Larger banks saw an influx of cash during the flight for safety, allowing them to delay the need to match higher rates elsewhere.

Overall US banks captured about two-thirds of the benefit of the Fed’s higher interest rates from March 2022 until the middle of this year, according to the FT’s calculations based on the latest data available. They paid depositors nearly $600bn in interest.

The last time the Fed raised interest rates, from early 2016 to until early 2019, US banks captured 77 per cent of the benefit.

Although the Fed has now begun to loosen monetary policy, bank stocks reacted positively on Thursday as investors bet that lower rates and a relatively healthy economy would create more demand for borrowing and boost investment banking dealmaking activity.

Nonetheless, the highest interest rates in more than a generation have pushed more money than ever, nearly $3tn, into certificates of deposit, which typically pay the highest rate of any bank deposits and also cannot be changed overnight.

As that money becomes unlocked, banks will be able to adjust their rates down, but not before, analysts said.

“It will be a slow grind down,” said Scott Hildenbrand, chief balance sheet strategist at Piper Sandler.

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Spain has been heavily criticised for allegedly facilitating the exile of Venezuela’s main opposition presidential candidate, who under Spanish diplomatic protection was pressured into signing a document recognising President Nicolás Maduro’s victory.

Edmundo González, a former Venezuelan diplomat who the opposition says won the July election, left Caracas on September 7 to seek political asylum in Spain after spending weeks in hiding to dodge arrest. His departure dealt a major blow to the opposition, which had vowed to install González as president when Maduro’s current term ends in January.

Maduro has launched a sweeping crackdown since the election, in which he claimed to have won a third term in a result recognised by Russia, China, Iran and North Korea but not the west. The opposition has produced copies of about 80 per cent of the official tally sheets to prove that González trounced Maduro and the US has backed the claim.

González, who is 75 and has health problems, said this week that he was forced to sign under duress a letter recognising Maduro’s victory as a condition for being allowed to leave Venezuela.

Maduro’s government later published what it said were photographs of González signing the document inside Spain’s embassy residence in Caracas during a meeting with Maduro’s top political fixer Jorge Rodríguez and his sister Delcy, who is vice-president. The Spanish ambassador to Venezuela, Ramón Santos, was also present.

Spain’s conservative opposition leader Alberto Nuñez Feijóo has called for the resignation of Spanish foreign minister José Manuel Albares and the ambassador over the affair, saying Spanish diplomacy “cannot be at the service of a dictatorial regime”.

A senior Brazilian government official told the Financial Times that the Rodríguez siblings visited the residence to put pressure on González, which was something that “never should have been allowed”.

“Maduro pushed [González] out of the country through intimidation and . . . the Spanish state was the main facilitator,” the official said. “They have to explain what they did and be held accountable.”

The Spanish government rejects allegations that it had a role in forcing González out of the country and insists it had sought to ensure the opposition leader’s security and had been responding to his asylum request.

González had sheltered safely for almost five weeks in the Dutch embassy residence after the election but was only visited by the Rodríguez duo after moving to the Spanish residence.

González became depressed when he realised, about three weeks after the election, that the Maduro government was not going to collapse, and that he would either have to remain indefinitely under diplomatic protection in Venezuela or seek asylum abroad, according to a person close to the opposition.

Around this time he spoke to José Luis Rodríguez Zapatero, a socialist former Spanish premier close to Maduro’s government, who was a key figure in brokering the agreement that led to González’s departure, the person told the FT.

The Brazilian official said he understood that Zapatero had discussed the plan to exile González to Spain with the Rodríguez pair “and helped implement it”. Zapatero could not be reached for comment.

González was transferred to the Spanish embassy residence on September 5 believing that he would receive asylum in Spain, with the final details to be worked out with the ambassador. In the event, two days of negotiations ensued, during which the Rodríguez pair appeared in person with a document for González to sign.

Albares told reporters in Brussels on Thursday that his government had not invited anyone to visit González at the ambassador’s residence and “did not take part in any negotiation of any document”. The ambassador was present during the talks and appeared in the photographs because the residence only had one reception room, he added.

Christopher Sabatini, a Latin America expert at Chatham House, said the signature under such circumstances “violates the very notion of diplomatic asylum, making the Spanish government complicit in the Maduro government’s electoral theft and repression”.

In a statement on Thursday that was intended to calm the storm, González thanked Spain for its support and said: “I was not coerced either by the Spanish government or by the Spanish ambassador to Venezuela, Ramón Santos.” A Venezuelan opposition source in contact with González said he made the statement after an urgent request by Albares.

Venezuela’s government has attempted to exploit González’s departure as a propaganda coup, painting him as weak and cowardly. Jorge Rodríguez brandished a copy of the González document at a news conference on Thursday, describing it as “nothing other than a capitulation”.

Mocking González’s claim that he signed under duress, Rodríguez played excerpts of an audio recording that he said showed a convivial atmosphere with discussions lubricated by whisky. González said the meeting had been photographed and recorded without his permission.

“They showed up with a document that I would have to sign to allow my departure from the country,” González said. “In other words, either I signed or I would face consequences. There were some very tense hours of coercion, blackmail and pressure.”

Ryan Berg, director of the Americas programme at Washington think-tank CSIS, said: “The available evidence appears to suggest Spain played a role in enabling Edmundo González’s forced exile by the regime — a huge blow to Venezuelans who have hoped for change and voted for him.”