The ECB cut its key deposit rate a quarter point to two percent, as widely expected, its seventh consecutive reduction and eighth since June last year when it began lowering borrowing costs.

It also lowered its inflation forecast for 2025, with consumer price increases now expected to hit the central bank’s two-percent target this year.

Continue reading HERE

Source: https://fortune.com/europe/2025/06/05/european-central-bank-cuts-rate-2-amid-struggling-eurozone-growth-stable-inflation/

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The quarter-point rate boost, to 3.5%, is the eighth straight increase since July 2022 for the 20 countries that use the euro currency. That is an unprecedentedly swift campaign to tighten the flow of credit to the economy as the bank seeks to return inflation to its target of 2% from 6.1%.

ECB President Christine Lagarde said more hikes, including at the bank’s next meeting on July 27, are in the cards. ECB projections acknowledge that controlling inflation will take months longer, even after the rate has fallen from a double-digit peak late last year.

“Are we done? Have we finished the journey? No, we’re not at destination,” she said at a news conference. “Do we still have ground to cover? Yes, we have ground to cover.”

Lagarde said the bank “will continue to hike at our next meeting. So we are not thinking about pausing, as you can tell.”

Continue reading HERE

Source: https://www.msn.com/en-us/money/markets/the-fed-has-paused-how-long-will-europes-central-bank-keep-raising-rates-in-a-shaky-economy/ar-AA1czTlk

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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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NEW YORK (IDN) – Samuel Beckett’s “Waiting for Godot” is a play featuring two characters waiting for a character, Godot, who never arrives. As such, it is a useful metaphor for the goings-on of the European Union (EU). Observers of the EU’s evolution in the capital of Brussels have witnessed a Godot-like experience of the promised arrival of the long-awaited resolution of the group’s dysfunction and economic malaise that never happens.

The pattern is virtually always the same: the countries meet, they squabble, and then they emerge with a “landmark” or “historic” compromise that deals the lowest common denominator in terms of economic impact.

True to form, the EU Joint Declaration characterized the newly created €750 billion recovery fund as an “ambitious and comprehensive package combining the classical [budget] with an extraordinary recovery effort destined to tackle the effects of an unprecedented crisis in the best interest of the EU.”

That is typical Brussels-driven hyperbole. There are some important new policy developments that give a small glimmer of hope to those hoping to nudge the EU toward full-on debt mutualization: that is to say, to jointly issue a common debt instrument of a pan-European institution (as opposed to national sovereign bonds) to fight the outbreak and its effects.

The pooling of liabilities of the European Union nations and linking them to the EU’s currency issuer, the European Central Bank, are an important series of precedents, and there’s also the positive benefit of providing more fiscal support to the severely indebted countries of southern Europe (although, as usual, not enough).

On the other hand, that is precisely why the wealthier northern countries resist it: they fear that such mutualization would derogate from their own pristine credit ratings, while simultaneously allowing the so-called profligate “Club Med” countries to free-ride and avoid making reforms to their own systems.

Caught in the middle of this conflict is France, a nation that, along with Germany, is the fulcrum on which the entire European project turns. It is a country with a history of global aspiration, but its economy contains many of the weaknesses of the southern periphery countries. The government of Emmanuel Macron was one of the leading actors behind the latest initiative. But at the end of a marathon negotiating session, there was virtually nothing on the table for France itself in terms of direct aid or broad concessions toward enhanced debt mutualization. This is highly problematic, as France too has extremely high debt levels and is one of the biggest economic casualties of COVID-19.

France’s current political strategy is reminiscent of its thinking during the negotiations that led to the common currency. At that time, French President François Mitterrand calculated that the creation of the euro would provide the means whereby France could mitigate the economic power of Germany. That proved to be a fatal miscalculation.

Similarly, President Macron is seeking to use today’s recovery fund as a means of nudging the EU closer to the goal of debt mutualization. The history of the European Union suggests that such Gallic aspirations are likely to be frustrated again. France may indeed be one of Europe’s “founding fathers,” but it is a hungry parent that has fallen on hard times.

National pride (and perhaps fears that the markets will eventually cotton on to its vulnerabilities if the government draws too much attention to them) has precluded it from acknowledging its needs, but if those weaknesses remain unaddressed, anti-euro populism could well surge in France (as it has in Italy). At that point, the European Union will truly have an existential crisis on its hands.

In theory, debt mutualization is the glue that could bind together a bunch of federated states, as Alexander Hamilton did for the United States. But in practice, such proposals in the past have been the source of ongoing tension and dysfunction, especially within the eurozone. The attempts to bridge the gap have provoked yet more division and possible future splits among the various EU member states, exacerbated by the backdrop of a catastrophic pandemic, which means that incrementalism won’t deliver the goods.

On to the details: the fund will disperse €390 billion in grants (with the remainder in the form of loans), spread among the member countries, with a net fiscal impact of roughly 0.6 percent of GNI. This is paltry in the context of a continent in which double-digit contractions of GDP are forecast by the IMF in some of Europe’s largest economies (e.g., in Italy, France, Spain, and the United Kingdom). Even countries thought to have handled the coronavirus well, such as Germany, are forecast to contract by almost 8 percent this year.

The funds will be borrowed directly by the European Commission (EC), who (per the Financial Times) will “establish a yield curve of debt issuance, with all liabilities to be repaid by the end of 2058.” As the bonds remain a liability of the EC, they consequently won’t be added to the national balance sheets of the distressed countries that will be the main recipients. These borrowings from the capital markets will be supplemented by existing national contributions to the overall EU budget.

The latter provision created another stress point that was relieved by the usual expedient of providing additional budget rebates—basically cashback on their annual EU contributions—to the so-called “frugal five” (Finland, Austria, the Netherlands, Denmark, and Sweden) in order to enable those countries’ leaders to sell the package to the respective national parliaments (where it still must be ratified). Effectively, the wealthiest countries are being bribed with offsets to secure agreement.

In terms of the mechanics of how the money from the recovery fund is spent, the proposed usage is subject to objection by any national state for three months. This is more akin to a time-limited pause, as opposed to an outright veto. The objections can ultimately be overridden by the European Commission, the EU’s executive arm that is responsible for drawing up proposals for new European legislation and implementing the decisions of the European Parliament.

That override feature has led to some of the rhetorical excesses used to characterize the agreement. In reality, however, the power to override opens the door to debt mutualization by a sliver, if at all. Furthermore, the history of the EU shows that objections can turn into larger gridlock and opposition, especially as the EC largely shares the austerian and neoliberal biases of the northern European bloc. And the “reforms” that the EC will likely demand as a quid pro quo for receiving the emergency funding likely means more cutbacks in government social spending that will be highly deflationary (the EC has already demanded such changes from Italy in the past).

Hence, the program is not a bellwether for the end of austerity economics, as some have suggested. In addition to these usual north versus south splits, another level of conflict between western and eastern Europe could be added to this volatile mix, if the Dutch or the Nordic countries make aid to Hungary and Poland conditional on ongoing respect to the rule of law (as has been reported here).

Ambrose Evans-Pritchard, the Daily Telegraph’s international business editor, describes the recovery fund “as a one-off episode that does not lead to fiscal union or change the EU’s constitutional structure. Everything reverts to the status quo ante, which is why it is tolerated by hardliners in the German Council of Economic Experts.” Despite more emollient noises by Chancellor Angela Merkel (who will be leaving office next year), the German government on the whole remains implacably opposed to EU debt mutualization. Other countries that share Berlin’s opposition also include the Netherlands, Finland, Austria, Denmark and Sweden.

Evans-Pritchard’s characterization of the agreement may be a bit extreme: The French in particular hope that the EC’s ability to override national vetoes will ultimately provide a pathway to full debt mutualization. After all, it was the Macron government that originally pushed the idea of a common European fund, even though Paris accepted time limitations on the proposed instruments, in order to head off anticipated German and Dutch opposition to the overall concept. But in a subsequent analysis of the agreement, Evans-Pritchard also highlighted the summit communique’s characterization of the recovery fund as “a temporary facility to cope with a one-off event and should not be taken as a precedent.”

So tension remains, even as debt mutualization looks marginally more possible today than it was before the agreement was secured. So while Evans-Pritchard may be right to call the package “political nitroglycerine on a long fuse,” the fact is that this program establishes a new set of behaviours and precedents for EU allocation of funds. It’s messy and potentially explosive, as all such European compromises tend to be, but such messy ambiguity almost certainly means we will witness similar conflicts in the future.

The problem is that time is running out as the continent faces economic problems of a magnitude not experienced since the end of World War II. While the exigency of the pandemic is slowly pushing the EU member states toward going further than they have gone before, the very unpredictability created by the coronavirus makes it difficult to determine what kinds of spending will provide optimal outcomes.

There will likely be a good amount of failure that will provide a bounty of evidence for the frugal five austerians, who remain profoundly suspicious of anything that remotely approximates activist fiscal policy. Likewise for the euro-skeptics if the marginal amounts allocated under this program fail to alleviate economic stress.

Extraordinary circumstances demand extraordinary measures and, short of war, it is hard to envisage a more damaging backdrop than a pandemic, which has single-handedly forced the shutdown of the global economy and continues to act as a brake on recovery, as each new outbreak creates the possibility of renewed shutdowns.

That kind of an environment not only makes consumers more hesitant to spend money (given renewed uncertainty about collective employment, to say nothing of the risk of jobs being lost forever—and perhaps with good reason, considering the likely fall-off in air travel, restaurants, and other forms of leisure activities). Likewise, businesses are increasingly reluctant to invest in that kind of an environment.

All of which also complicates the task of government fiscal policy. The latter is supposed to fill in the spending gaps left open by the withdrawal of the private sector. But how can this be achieved effectively if the promotion of economic demand conflicts with the resolution of a public health emergency (that entails scaled-down activity to eradicate the presence of the coronavirus)? The task of focusing on reconstruction also becomes more problematic, as nobody can adduce fully the shape of the future post-pandemic economy, thereby complicating the task of determining how to allocate structural funding to assist in the economic transition.

Most commentary pertaining to the damage inflicted by the coronavirus has focused on Italy and Spain. And, indeed, both countries now feature governing coalitions whose attachment to the euro is lukewarm at best. Italy, in particular, has always been viewed as the greatest existential threat to the single currency union.

But while Italy’s government managed to secure a reasonable chunk of the recovery fund’s grant money (around 23 percent of the total), there is not a lot left over for France. It is, however, worth noting that France’s debt to GDP is rapidly approaching Italianate levels, and the French economy is forecast by the IMF to shrink by 12.5 percent this year.

Despite these ominous developments, the Macron administration’s longer-term goals still point to an embrace of neoliberal orthodoxy in a manner that could further contract demand and therefore elevate the country’s public debt to GDP ratio. Although the French government has deferred its planned “flagship pension reforms” for a year in order to deal with the pandemic, it insists that it still plans to follow through with them (pushing back the retirement age for many workers, as well as “reduc[ing] insurance payouts for high earners and requir[ing] people to work for longer before claiming benefits,” according to the Financial Times). The last time the government attempted changes like these, the “yellow vests” protests brought the country to a standstill.

I have long felt that France, as much as Italy, could ultimately prove the weak link that would potentially blow up the European Monetary Union, given the structural divergences in their respective economies vis-à-vis Germany. Had economics alone determined the creation of a new supranational currency, a more viable currency zone would likely have been restricted to a quasi-Deutsche Mark bloc comprising Germany, the Benelux countries, and a few of the Nordic nations. These countries shared a high degree of pre-existing economic/social/cultural convergence even before the creation of the euro.

But the creation of the euro was clearly not done on economic considerations alone. Years ago, I posited the idea that German industrialists backed the idea of a “big and broad” euro in the early 1990s so as to lock in Germany’s ongoing industrial dominance, despite the objections of the Bundesbank. They were supported by then-Chancellor Helmut Kohl, who was a Europeanist to the core.

France wanted to join because it (naively) assumed that it could control Germany politically by taking a key role in the common currency, a miscalculation as grave as relying on the Maginot Line for national defence. Italy wanted to join because it was a founding member, and the neoliberals who dominated economic policy-making in Rome calculated that this would represent a good way to re-circuit the fundamentals of its economic behaviours and thereby override its long-standing political dysfunction.

These problematic calculations on all sides contributed to what remains a largely dysfunctional monetary union. For a time, it provided the illusion of prosperity and “ever closer” political union. COVID-19 has blown apart that illusion as easily as the wind knocking over a house of cards. The French have been pushing hard for debt mutualization precisely because the country now faces risks comparable to those of Italy, even though the markets have until now given Paris the benefit of the doubt (which is why French bond yield spreads relative to German bonds remain comparatively low).

In the context of the pandemic, incrementalism might work for Germany and its northern European counterparts, but it is unlikely to work for France. The violent protests in 2018 of the “yellow vests” (which mirror decades of earlier incidents of civil unrest) and the corresponding rise of populist parties in France point to the unlikelihood that the French government could sustain the kind of economic punishment that has been inflicted on countries like Italy, Greece, and Spain, even though many of France’s problems mirror those of the other “Club Med” nations.

The Paris-Berlin axis has long been the motor behind the entire European project. Much as France’s Henry IV once (apocryphally) declared that “Paris is worth a mass,” when the Huguenot king converted to Catholicism in order to ensure maximum political legitimacy for his rule, Germany and the frugal five, therefore, have to determine whether or not debt mutualization (or some other form of European integration) is a price worth paying in order to prevent total fragmentation.

Simply waiting for a mythical Godot, as Beckett highlighted, will get us nowhere. [IDN-InDepthNews – 02 August 2020].

Collage sources: EU Website

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European Union leaders have agreed on who should next fill the bloc’s top positions following a marathon summit.

European Council President Donald Tusk announced the news Tuesday after hours of talks that exposed deepening divisions among member states.

“The European Council has agreed on the future leadership of the EU institutions,” he said on Twitter.

France’s Christine Lagarde has been proposed for the presidency of the European Central Bank, Germany’s Ursula von der Leyen for European Commission president, Belgium’s Charles Michel for European Council president and Spain’s Josep Borrell for EU foreign policy chief.

German defense minister Ms von der Leyen, an ally of Chancellor Angela Merkel, would become the first female Commission president under the deal reached in Brussels, but must still be endorsed by the European Parliament.

Ms. Lagarde, currently head of the International Monetary Fund, would also be the first woman in her role, and she would serve for up to eight years if her nomination is endorsed.

Mr. Michel, Belgium’s liberal caretaker prime minister, would replace Mr. Tusk as the next chairman of EU leaders’ summits and be tasked with building compromises between the often fractious 28 member states.

He is the only one who can take up his post in November without other formalities.

Spain’s acting foreign minister, the socialist Josep Borrell, would be the EU’s new top diplomat in Brussels.

The four would help lead the EU’s policies in the next five years on everything from climate to migration to trade.

The nominations came after one of the longest summits in recent years, outstripping even all-night negotiations during the Greek debt crisis.

The fifth prominent EU role up for grabs is the president of the European Parliament, who will be announced in Strasbourg on Wednesday.

Source: https://www.standard.co.uk/news/world/christine-lagarde-among-those-to-take-top-eu-jobs-after-marathon-summit-a4180811.html

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The European Union’s leaders have thrown their weight behind German Defence Minister Ursula von der Leyen to become the new president of the European Commission, a development that came after a marathon of contentious talks that saw Europe’s political heavyweights abandon the Spitzenkanindaten system that brought incumbent Commission head, Jean-Claude Juncker, to power in 2014.

German Chancellor Angela Merkel abstained from voting in order to avoid a political crisis. Her decision was influenced by the fact that the Social Democratic Party (SPD) of Germany is split over Merkel’s decision remain on the sidelines during the voting process.

The European Council elected outgoing Belgian Prime Minister Charles Michel to take over for Donald Tusk.

Europe’s leaders also agreed to nominate International Monetary Fund Managing Director Christine Lagarde to become the next president of the European Central Bank and Josep Borrell Fontelles to be in charge of the bloc’s foreign policy.

Source: https://www.neweurope.eu/article/eu-leaders-back-germanys-von-der-leyen-to-be-new-commission-president/

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Politically, 2019 will be an extraordinarily important year for the European Union. The United Kingdom is currently on track to leave the EU on March 29, 2019. And, following elections to the European Parliament in May, nearly all of the most important leadership positions across EU institutions will turn over. Thus, depending on how parliamentary seats are distributed, Europe could witness a major realignment of power among member states, within EU institutions, and between member states and the Parliament.

The new distribution of power within EU institutions will be reflected largely through personnel. New presidents of the European Commission, the European Council, and the European Central Bank will be appointed, and a new High Representative of the Union for Foreign Affairs and Security Policy will be chosen. If nationalist Euroskeptic parties become the largest group in the European Parliament, these appointments could represent an abrupt break from the past.

EU member states are more divided now than ever, even on the most fundamental issues concerning the European project. The broad pro-European consensus of the past has been replaced by a resurgent nationalism. Moreover, east is increasingly pitted against west, and north against south. And there is good reason to fear that these widening rifts will be reflected in the new composition of the Parliament, making majority governance difficult if not impossible.

Today’s de facto grand coalition between the conservative European People’s Party (EPP) and the Progressive Alliance of Socialists and Democrats (S&D) most likely will not survive beyond the elections. The S&D, in particular, is in deep — indeed, existential — crisis across Europe. And there are new players on the field, including French President Emmanuel Macron’s centrist La République En Marche! and a smattering of radical Euroskeptic and nationalist parties.

The end of the West

Given the unprecedented prominence of nationalist parties in this election cycle, the usual pro forma European campaign issues will inevitably take a back seat. This will be a contest about Europe and the future of European democracy. Recent developments in a number of member states have challenged foundational EU principles such as the rule of law and the separation of powers. These democratic institutions, as well as questions of European solidarity and sovereignty, will all effectively be on the ballot.

Needless to say, the parliamentary elections will have far-reaching implications for Europe’s future in a rapidly changing world. The current president of the United States has such disdain for the EU that many now talk of “the end of the West.” An increasingly revanchist Russia is waging wars along the European periphery and in Syria. Turkish President Recep Tayyip Erdoğan is taking his country down the path of authoritarianism. And China is demanding recognition as a global power.

Worse still, US President Donald Trump’s recent decision to withdraw the US from the 1987 Intermediate-Range Nuclear Forces Treaty with Russia raises the threat of a renewed arms race. And this is coinciding with an escalating climate crisis and a global contest for predominance in artificial intelligence, the risks of which are still largely unaccounted for.

Don’t count on help from abroad

Against this dismal backdrop, the question is what will become of Europe: Will Europeans manage to hold on to their sovereignty, or will their self-inflicted disunity render them ever more dependent on other powers?

Pro-EU parties must make Europe’s place in the world a central issue of the parliamentary election campaign; otherwise, they will suffer a shattering defeat at the hands of the new nationalists. The nationalists want to return to the past; it is up to the pro-Europeans to offer answers for the future.

Make no mistake: A nationalist victory next year would rock the EU to its core and throw it into another deep crisis. It would represent a defeat for the fundamental values of the European project. Given the scale of the threat, pro-Europeans cannot count on business as usual. Recent upheavals in many member states’ party systems have altered the electoral calculus, and the pro-Europeans must adapt accordingly.

For my part, I foresee next year’s elections auguring dramatic change in Europe. For better or worse, the question of Europe itself has been politicized, and now it must be decided. There will either be a rebirth of nationalism or a victory for EU-level democracy and unity. Sadly, pro-Europeans cannot hope for any help from abroad. In fact, the opposite is true: Europe must be vigilant in policing foreign interference in its affairs — including its elections.

In recent years, there has been much talk of the EU suffering from a “democratic deficit.” But the fight for a majority in the European Parliament actually represents a major opportunity for democracy. Pro-Europeans need only wake up in time to seize it — or Europe’s enemies will.

Source: https://global.handelsblatt.com/opinion/2019-europe-year-reckoning-eu-parliament-elections-977025

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