Leaders of the European Union’s 27 member states are meeting for the second day of a summit on Friday to address the bloc’s inflation-hit economy.

The first day of the summit ended on a high note. The leaders agreed in Brussels on granting Ukraine and Moldova official status as candidates for EU membership — a move hailed by European Commission President Ursula von der Leyen as “historic.”

But the display of support for Kyiv comes amid wider economic consequences of Russia’s war on Ukraine.

Russia blamed for economic woes
A spike in inflation and lagging economic growth across the world has been blamed on Russia’s invasion of Ukraine. The West also accuses Moscow of “weaponizing” grain supplies and natural gas deliveries.

On Thursday, the European Commission said gas supply cuts from Russia affected a dozen EU countries. Germany, which is heavily reliant on Russian gas, triggered the second phase of an emergency gas plan.

The squeeze of Russian oil is pressuring the EU to find alternatives to prevent an energy crisis.

Germany running into gas supply issues is likely to have EU-wide repercussions, Belgium’s Prime Minister Alexander De Croo warned ahead of Friday’s meeting.

“If Germany gets into trouble, it will also have an enormous impact on all other European countries, including our own,” he said.

Christine Lagarde, president of the European Central Bank (ECB), is joining the EU leaders on Friday to address growing inflation and soaring prices.

According to the EU stats agency Eurostat, inflation in the 19-country eurozone is at a record high of 8.1%.

The ECB has pledged to raise interest rates in July — for the first time in more than a decade — in a bid to curb inflation.

The European Commission also cut its economic growth forecast for this year from 4% that had been expected before the war in Ukraine to 2.7%.

fb/kb (dpa, Reuters)

Source: https://www.dw.com/en/eu-leaders-talk-economy-as-russia-slashes-gas-supplies/a-62243088

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The U.S. and European Union pledged Wednesday to deepen its alliance for the sake of advancing common priorities like artificial intelligence, trade challenges and the “underpin” to global economies: semiconductors.

“Semiconductors are the material basis for integrated circuits that are essential to modern-day life and underpin our economies,” U.S.-EU Trade and Technology Council said in a joint statement. “As such, semiconductors power virtually every sector of the economy, including energy, healthcare, agriculture, consumer electronics, manufacturing, defense, and transportation.”

The council said the coronavirus pandemic highlighted the need to increase stable and reliable supply chains for the production of semiconductors.

CHINESE SWITCH TO FLASHLIGHTS, GENERATORS AMID POWER CUTS 

Chip shortages began under the Trump administration, when supply chains were affected by the trade war with China. But chip shortages were further exacerbated by an increased demand for electronics on everything from laptops to at-home health care during the pandemic.

“We recognize that the semiconductor supply chain, from raw materials, design and manufacturing to assembly, testing and incorporation into end products, is extremely complex and geographically dispersed,” the council said. “The United States and European Union have some important respective strengths as well as ongoing, significant mutual dependencies, and common external dependencies.”

Secretary of State Antony Blinken and Secretary of Commerce Gina Raimondo traveled to Pittsburgh to meet with European Commission Executive Vice Presidents Valdis Dombrovskis and Margrethe Vestager to bolster ties, as relations between the U.S. and Europe have become strained.

EU Internal Market Commissioner Thierry Breton warned last week that there is a growing sense that the U.S.-trans Atlantic relationship is “broken” and suggested it was time to “pause and reset” the partnership.

Breton’s comments came after France was sidelined in a U.S.-U.K. deal with Australia that effectively voided an existing submarine contract with the EU nation.

The commissioner was not present for Wednesday’s council meeting in Pittsburgh, but his social media suggested Breton was working to extend the EU’s reach into the global chip market.

On Wednesday Breton announced on Twitter he was in Japan facilitating an EU-Japan “cooperation” and preparing the “ground for our upcoming EU Chip Act.”

The U.S. similarly has looked to strengthen this alliance with Japan and bolster semiconductor production.

The joint U.S.-EU interest in Japan could signal an increased push to distance themselves from China.

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The council pledged to “stand together” against “unfair behavior of state-owned enterprises,” though the statement did not directly identify China.

“We intend to focus on reducing existing strategic dependencies throughout the supply chain, especially through a diversification of the supply chain and increased investment,” the council said, adding they will “work jointly so that any investment made on our territories is done in full respect of our respective security of supply.”

Source: https://www.foxbusiness.com/politics/us-eu-alliance-global-economies-semiconductors

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From tomorrow, Swiss medical-technology companies will no longer be allowed to export duty-free to the European Union as Bern and Brussels failed to agree to a long-anticipated political treaty that would cover trade between the two countries.

The goods-trading relationship at risk is worth $278bn, with medical-technology companies being the latest casualty of a deteriorating relationship between Brussels and Switzerland as the latter faces increasing barriers to the single market. The showdown has been compared with Brexit.

“With Brexit, the EU has had to think harder about what it means to be in the single market and what rights and privileges come with that,” Nicolas Veron, a fellow at the Brussels-based think tank Bruegel, told Bloomberg earlier today.

Read more: Brexit exclusive: UK-Norway trade deal close to collapsing

The former chief negotiator with the EU, Jacques de Watteville, said there was a “a hardening of tone in the air” while speaking at a panel discussion hosted by the Jean Monnet Foundation for Europe earlier this month.

Individual deals

For years the two sides managed their trade through a range of loose individual deals but they have, so far, been unable to come to a new umbrella political treaty, as was the initial aim of the ongoing talks.

Switzerland will be downgraded to “third country” status, meaning they will need to have a representative within the bloc, meet the EU’s product-labeling specifications and deal with other red tape.

Read more: Hedge fund legend Ray ‘cash is trash’ Dalio ditches bonds for Bitcoin as losses hit $12bn

Switzerland exports more to the EU than to China and the U.S. combined, according to figures from the Swiss Federal Customs Administration. The showdown could also hurt its electricity market, industrial companies or its banking sector.

The med-tech sector employs over 60,000 people, accounting for around 3 percent of Switzerland’s GDP.

Despite moves by the government to guarantee continued EU supplies to Switzerland, industry groups like Swiss Medtech estimates product-development costs could rise by 30 percent from hurdles to trade, it is reported.

Read more: UK-EU trade tumbles a quarter in first three months since end of Brexit transition period

Source: https://www.cityam.com/switzerland-heads-for-brexit-like-eu-clash-with-278bn-at-stake/

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The eurozone’s gross domestic product (GDP) contracted by 0.6 percent in the first three months of the year, compared with the previous quarter.

The figure was dragged lower by its biggest economy, Germany, falling by 1.7 percent over the same period. Spain and Italy also posted negative figures, but France’s economy beat expectations by growing 0.4 percent over the first quarter – France’s current lockdown measures only began in April.

Germany’s lockdown restrictions have hurt the economy more than expected. /Reuters/Fabian Bimmer

A recession is generally defined as two quarters of negative economic growth. This now applies to the eurozone because its economy also shrank by 0.7 percent in the last quarter of 2020.

The wider European Union, which includes countries that do not use the bloc’s single currency, also contracted but performed slightly better.

For months, economists have warned the gloomy figures were “totally certain” due to problems with the European Union’s vaccination campaign and the measures needed to be taken to tackle the third wave of coronavirus infections sweeping across Europe.

Last year, the pandemic plunged the eurozone into its worst recession since its records began in 1995.

The eurozone’s GDP recovered some ground last summer as lockdown restrictions were eased, but the respite proved to be temporary. The eurozone has now returned to recession for a second time, known as a “double-dip.”

That said, the worst could be over.

Some economists think the eurozone is now on the path to recovery, especially as the European Union begins to distribute its recovery fund worth more than $800 billion.

Italy’s Prime Minister Mario Draghi has unveiled how he plans to spend EU recovery funds. /Reuters/Alberto Pizzoli

Other countries appear to be further along in their economic recovery from the pandemic. This week, the U.S. reported economic growth of 1.6 percent compared with the previous quarter.

China grew by 0.6 percent over the same period, but it posted a record jump of 18.3 percent when compared with the same period one year earlier.

Source(s): Reuters

Source: https://newseu.cgtn.com/news/2021-04-30/Eurozone-enters-double-dip-recession-ZT1rwvbr44/index.html

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Public deficit and debt soared in the EU as governments massively supported their economies to mitigate the impacts of the pandemic, Eurostat said in a new publication on Thursday.

Among other striking figures, government debt in the euro area reached 98% of GDP, the European statistics agency noted.

“In the euro area, the government debt to GDP ratio increased from 83.9% at the end of 2019 to 98.0% at the end of 2020, and in the EU from 77.5% to 90.7%.”

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The post-Brexit fallout came faster than many had expected. On January 4, the first trading day of 2021, almost €6 billion of EU share trading left London for other European capitals.

Then earlier this month came the news that Amsterdam had overtaken London as Europe’s biggest share trading centre, as daily volumes fell sharply in the City and surged in the Dutch capital.

In 2019, when the United Kingdom was still inside the European Union and its single market, 43% of trading in EU stocks took place in the UK. The first few weeks of this year have seen the proportion plunge to just 4%, according to analysis by the think tank New Financial.

The City’s commanding position on the global financial stage is not in doubt — but recent events in Europe raise questions as to how far the balance of power may shift from London to other capitals.

“You can lose liquidity very quickly, and finance is very adaptive,” says Nicolas Véron, Senior Fellow with the Brussels-based Bruegel think tank and the Peterson Institute for International Economics in Washington. “So the fact that London has so much liquidity and has had so much liquidity in recent times doesn’t mean that liquidity will stay there.”

“Basically the established position of a financial centre is not to be taken for granted going forward, if the conditions that created that position are no longer there,” he told Euronews.

Amsterdam’s post-Brexit boost

The sudden flight in trading activity is the most striking example of financial sector movement from the UK to the EU since the end of the post-Brexit transition period at New Year.

But Amsterdam is picking up business from London in other areas too. Analysis by data provider IHS Markit shows a shift in euro-denominated derivatives trading to the Dutch capital, with the figures showing the UK losing market access to the EU in nearly all categories.

The Netherlands has reported a general drop in inward foreign investment in 2020 due to the pandemic. But so-called “Brexit companies” — UK firms seeking to offset disruption and extra red tape by setting up operations in the EU — are an exception.

Annual results published on February 18 by Invest in Holland and the Netherlands Foreign Investment Agency reported an increase in the number of such companies focusing on the Netherlands.

Nearly 80 made a partial move last year and the NFIA says it is talking to 550 about relocation or expansion — including in the Dutch financial sector.

“Before we start becoming euphoric about this, Brexit is not good for the Netherlands… In the end, the Netherlands has lost their second trading partner,” says NFIA spokesman Michiel Bakhuizen. Nevertheless, he told Euronews, the country is attractive for financial companies as it helps offer solutions to Brexit-related problems.

“So for instance, when we talk about traders or FinTech companies, we have a multilingual, highly skilled workforce, we have the right infrastructure, both in terms of travelling in and out of the country to direct destinations in and outside of Europe, close digital connections with a fast network in and around specifically Amsterdam, and a very good working and living environment.”

Sunlight is reflected off a building onto a bicyclist in Amsterdam’s Zuidas, or southern axis, business district, October 30, 2013.AP Photo/Peter Dejong, FILE

The EU’s specialist cities

Research by New Financial suggests that more than 400 UK-based financial services firms “have moved something somewhere to the EU in response to Brexit”. Of these, 128 have chosen Dublin, while Paris has attracted 88, Luxembourg 84, Frankfurt 56, Amsterdam 47, and Brussels 10.

The think tank’s founder and Managing Director William Wright says the relocations reveal a clear tendency for cities to specialize across different financial sectors.

“The vast majority of the relocations to Dublin are in asset management and to a lesser extent, alternative investments. The vast majority of firms moving to Frankfurt are banks, or investment banks; the vast majority of firms moving to Amsterdam, exchanges, trading platforms, brokers,” he told a Peterson Institute panel discussion.

“Paris is the only one that doesn’t have that deep-sector profile. It’s already the largest centre in terms of insurance and asset management in the EU, and it would like to build on both of those, but the distribution of firms that are choosing Paris is much broader.”

Such trends suggest no particular race among European cities to dominate the scene or become the continent’s number one financial hub post-Brexit.

“The reason why not all will gather in one place is very simple: there isn’t really an incentive for that,” adds Véron. “There is a lot of activity to absorb and it’s more economical for firms to scatter it across different centres than all go to the same place and have a kind of overheating effect.”

A picture taken on February 17, 2021 in Suresnes, shows the buildings in the business district of La Defense near Paris. STEPHANE DE SAKUTIN / AFP

The UK’s battle for ‘equivalence’

UK firms had long known that as a result of Brexit they stood to lose full “passporting rights”, stripping away the blanket access to operate in Europe they had before.

However, so far the EU is also refusing to grant the UK a much lesser form of access known as “equivalence” — given when Brussels considers a third country’s regulation to be as robust as its own. Being deprived of this further hinders the City’s ability to trade unhindered in Europe. Instead, UK firms have to comply with individual states’ requirements.

Financial services were never scheduled to be part of the post-Brexit trade agreement, and duly took a back seat while negotiations focused on the likes of fishing rights.

In the deal itself, both sides merely agreed to agree at a later stage. This did not prevent Boris Johnson from putting a typically shiny gloss on its provisions.

“There’s some good language about equivalence for financial services, perhaps not as much as we would have liked, but it is nonetheless going to enable our dynamic City of London to get on and prosper as never before,” the British prime minister said on Christmas Eve, the day the agreement was struck.

The “good language” he referred to, set out in an annex to the main deal, amounts to no more than a commitment to cooperate on regulation and preserve financial stability. By March 2021 both sides aim to agree a “Memorandum of Understanding” to establish a framework, but expectations as to the content are low.

Brussels has control

The UK has granted the EU equivalence, meaning that EU banks can operate in UK markets. But whether the EU does likewise will be entirely up to Brussels.

The European Commission’s assessment of the Brexit deal bluntly says the EU “will consider equivalence (decisions) when they are in the EU’s interest”. So far it has granted the UK just two temporary agreements from a possible 39.

The EU’s chief Brexit negotiator Michel Barnier has said since that more clarification is needed on British plans. National authorities will be on the lookout for UK firms seeking to get around new restrictions, he added.

“I think there is a widespread narrative in the UK that there will be somehow a negotiation about financial services, but I don’t see that happening,” says Bruegel’s Véron. “Equivalence, as the Joint Declaration (attached to the Brexit trade deal) made extremely clear, is not a negotiation, equivalence is a unilateral decision.”

And, he adds, he does not expect that to come any time soon. “The one thing that has a deadline in terms of the equivalence process is equivalence on clearing houses which only runs till May 2022, so the Commission must decide to extend or not, that’s a very significant market segment. Otherwise there’s nothing in the pipeline,” he told Euronews.

In a speech this month, Bank of England Governor Andrew Bailey said it would be unfair of the EU to impose tougher rules on the UK than it has on other non-EU countries, insisting that Britain could not accept becoming a “rule-taker”.

There have also been warnings that if the EU is too hard on the UK, the main winners may not be on the continent but in other global financial centres such as New York.

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German Finance Minister Olaf Scholz said Sunday (23 August) that the European Union’s recovery package financed by joint borrowing was a long-term measure rather than a short-term coronavirus crisis fix, contradicting Chancellor Angela Merkel.

“The Recovery Fund is a real step forward for Germany and for Europe, one we won’t go back on,” Scholz, who is also the centre-left Social Democratic Party (SPD) candidate to succeed Merkel in 2021 elections, told the Funke newspaper group.

Steps taken under the plan, including EU nations agreeing to jointly issue debt “represent fundamental changes, perhaps the biggest changes since the introduction of the euro” single currency around the turn of the millennium, Scholz said.

“These steps forward will inevitably lead to a debate about joint resources for the EU, something that’s a condition for an improved European Union that works better,” he added.

Long and intense debates were needed before the 27 EU countries reached agreement in July on their historic €750 billion recovery scheme, more than half of which will be paid out as direct grants.

For the first time, leaders gave their green light to joint debt – an idea Germany had long rejected until the COVID-19 pandemic hobbled many European economies that had already spent a decade struggling to recover from the last financial crisis.

Scholz added that the way voting works at EU level should be reformed to make reaching decisions easier.

“The EU must be able to act collectively,” he said. “For that we need to have qualified majority voting in foreign and budgetary policy, rather than enforced unanimity.”

In European Council votes, a “qualified majority” is reached with 55% of countries, which must include member states representing 65% of the bloc’s 450-million-strong population.

EURACTIV’s editorial content is independent from the views of our sponsors.

Source: https://www.euractiv.com/section/economy-jobs/news/germanys-scholz-sees-no-way-back-from-eu-joint-debt/

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This is a whole new world for all advanced countries except one: Japan. It is not the “nice” world of the 1990s, characterized by stable inflation, steady output, fiscal prudence, and a narrow central-bank focus on manipulating short-term interest rates to meet inflation targets. But nor does our turbulent world resemble that of the 1970s, marked by high inflation, volatile output, fiscal profligacy, and excessively accommodative monetary policy.

In today’s world, inflation is very low and is expected to remain so, and monetary authorities enjoy significant credibility, much more than in the past. Advanced countries are headed for a situation in which the distinction between monetary and fiscal policy is merely academic, and debt consolidation is unrealistic.

This has long been the case in Japan, with its very low inflation, negative interest rates, and a public debt-to-GDP ratio of 200 percent, 70 percent of which is held by the central bank. But most countries are not used to facing these problems. Addressing them, and avoiding a deflationary spiral, will require a creative and coordinated approach to monetary and fiscal policy.

The challenge will be particularly profound in the eurozone, which has a common monetary policy but lacks a shared budgetary policy, notwithstanding the new recovery fund. Overcoming it will require an institutional setup that is very different from the one established in the Maastricht Treaty. Europe’s leaders must urgently begin discussing what that setup must be, and how to get there.

The European Central Bank’s (ECB) current strategy review provides an opportunity to address some of the issues at stake. For example, the ECB could update the definition of price stability, so that it has the flexibility to overshoot the inflation target in the short term, thereby compensating for years of undershooting. This would help to prevent long-term inflation expectations from stabilizing at too low a level, resulting in real interest rates that are incompatible with full employment.

One solution could be to adopt nominal GDP targeting. That way, in responding to supply shocks that drive up prices and depress output, the ECB would weigh the two target variables equally. This would discourage policymakers from taking an excessively hawkish stance at a time when a range of factors, from climate change to pandemics to financial crises, threaten to produce many more supply shocks.

But such a change would go only so far. The vital issue, which will most likely demand some new piece of legislation and a departure from the Maastricht Treaty, is the relationship between monetary and fiscal policy. In a unitary state like the United States or the United Kingdom, monetary- and fiscal policy coordination is possible in service of an agreed target, for example, in terms of nominal GDP.

For example, in circumstances when fiscal policy is more effective than monetary policy, such as when interest rates reach their effective lower bound, debt-financed tax cuts could be pursued, with the central bank acting as a buyer of government debt. The shared target, meanwhile, would ensure the credibility of the monetary authority, protecting it from so-called “fiscal dominance”.

In a monetary union, the dynamic is more complicated, making a formal structure for coordination all the more important. Monetary and fiscal policymakers should be working in concert to achieve the right combination of inflation, output, interest rates, and sovereign risk. But such coordination would affect, among other things, the ECB’s bond-buying programme, including how much risk it assumes and the geographical mix of the bonds it purchases.

Should the ECB now be purchasing relatively safe recovery bonds, or leaving those to the market, while directing its purchasing programme toward riskier assets? This is a monetary-policy decision with fiscal consequences. It should not be left to the central bank alone.

What institutional changes could resolve this problem? To begin, the EU must consider the desirability of an independent fiscal authority with which the ECB could coordinate policy. The two bodies would meet regularly to set relevant targets, relating to deficits, interest rates, and prices, and to evaluate whether national policies are aligned with those targets.

The pandemic has upended many existing rules and institutional guidelines. For example, the EU has suspended its limits on fiscal deficits, which most economists think should not be reintroduced any time soon, especially not in their current form. If EU leaders take this as an opportunity to pursue radical, forward-looking change, the COVID-19 upheaval could move the bloc to a better place. Otherwise, conditions could become much worse. Just ask the Japanese.

Lucrezia Reichlin, a former director of research at the European Central Bank, is professor of economics at the London Business School. Copyright: Project Syndicate, 2020.

Source: http://jordantimes.com/opinion/lucrezia-reichlin/avoiding-japanification-europe

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The European economy has fallen into its worst recession on record as strict quarantine measures earlier in the year to stop the spread of the coronavirus brought economic activity to an abrupt halt.

According to figures released on Friday by Eurostat, the European Union’s statistics agency, gross domestic product dropped by 11.9 percent in the second quarter for the 27 member countries of the European Union, and by 12.1 percent in the 19 countries that use the euro as currency.

Earlier this month, EU experts predicted the bloc’s economy would shrink by a total of 8.3 percent this year, followed by 5.8 percent growth in 2021.

Compared to the same time last year, EU economies shrank by 14.4 percent, and 15 percent among those who use the euro. That’s the steepest contraction since the bloc started keeping statistics in 1995.

The economic blow particularly affected the countries hardest-hit by the virus, including Italy, Spain, and France, whose economies shrunk by 17.3, 22.1, and 19 percent, respectively, compared to the same time last year.

The new statistics come a week after the EU reached a $2 trillion deal on a coronavirus recovery package.

Europe has seen a dip in coronavirus cases in recent months as they inch toward reopening businesses and industries, such as tourism.

Source: https://thehill.com/policy/international/509943-european-economy-falls-into-worst-recession-on-record

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