Europe’s inflation and economic ills to dominate second day of summit
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Good morning and welcome to Europe Express.
EU leaders meet again this morning to focus on what has become the dominant topic for their governments at home: the deteriorating economic outlook. We’ll update you on what to expect from today’s top session.
We will also hear about the misguided words of French President Emmanuel Macron as he expands his idea of a European political community and I will tell you what the Balkan leaders had to say after roller coaster talks with (and about) them at yesterday’s special summit. .
Grim months ahead
Discussions at today’s euro summit in Brussels are expected to be unusually detailed and almost entirely grim by recent standards, writes Sam Fleming in Brussels†
The format of the euro summit has regularly brought together euro-zone leaders since the debt crisis, and it can be a rather perfunctory affair if economic news is good.
The outlook as leaders meet today is anything but. A survey of corporate purchasing managers published yesterday for June showed the first contraction in manufacturing output in two years, alongside a marked slowdown in services growth.
Underlying the blurring outlook is concern about the rising cost of living across Europe – and the realization that the energy crisis will get worse. Germany’s decision yesterday to initiate the second phase of its national gas emergency plan, bringing it one step closer to rationing, underlined the threat. It followed a warning this week from the International Energy Agency that Europe should prepare for a complete shutdown of Russian gas shipments this winter.
Christine Lagarde, the president of the European Central Bank, will be questioned about this unappealing economic landscape when she sits down with the leaders at the table. The ECB has already outlined what a ‘downside’ scenario, driven by worsening energy supply disruptions, gas rationing and rising commodity prices, could look like.
Instead of continued economic expansion this year and next, the ECB recently said an adverse scenario should see growth this year, followed by a sharp contraction in 2023, in addition to a prolonged period of punishingly high inflation.
This is not the central scenario set out at this stage, but the deteriorating story in the European energy markets means that this is certainly not out of the question. The bleak message to leaders is that there are no easy answers when it comes to tackling the outlook, given the need for the ECB to manage inflation while avoiding painful differentials in government bond yields.
The specter of a further three-quarters point hike by the US Federal Reserve underlines how damaging the situation becomes if a central bank falls behind.
Italy is expected to once again push the idea of introducing price caps for gas supplies as a way to cope with rising costs, but diplomats see no progress on the idea.
Eurogroup president Paschal Donohoe emphasizes that the eurozone is institutionally much better equipped to respond to all of this than it was during the euro crisis a decade ago, but leaders have few policy levers available to pull off easily. The message is therefore: hope for the best, but prepare for the worst.
Chart of the day: Eurozone slowdown
Business activity in the Eurozone experienced a sharp slowdown in Juneaccording to S&P Global’s Purchasing Managers Index, which fell to a 16-month low as companies complained about high inflation, weak demand and political uncertainty.
Macron strikes again
The metaphorical ink had only just run dry on EU leaders’ ‘historic’ decision to grant Ukraine candidate status when French President Emmanuel Macron went in front of the press desk to outline what he’d been dreaming of as a potentially more suitable club for the future members of the EU , writes Henry Foy in Brussels.
“It will take a while. And we’re seeing something of a magnifying fatigue phenomenon,” Macron said. “It’s a long way to travel. And that is why I have in the meantime proposed a European Political Community.”
“We need to think much faster about how to stabilize our neighborhood. And let’s face it, maybe we won’t always live together in the same house, but we’ll live on the same street,” he said, delivering a healthy slice of bone-chilling realism to everyone in Kiev celebrating the feat of an important geopolitical milestone.
Perhaps Macron’s concept might be the solution to the EU’s overcrowded waiting room, but it did not go unnoticed that he suggested that an organization so far only existed in his head could provide a faster solution for candidate countries to form of bloc status than the official EU accession route.
Shortly after Macron’s pressroom press conference for his inside-but-outside-the-EU proposal, he rejoined his fellow leaders at the top table to discuss the initiative in more detail.
According to the conclusions of the 27, the aim is to “provide a platform for political coordination . † † to promote political dialogue and cooperation.”
“Such a framework”, the conclusions say, “will not replace existing EU policies and instruments, in particular enlargement.”
As one person in the audience commented afterwards: “In private conversations with the other EU leaders, Macron is eloquent and engaged. † † it’s just in public that he always seems to put his foot in his mouth.”
The summit of six leaders from the Western Balkans ran for nearly two hours and disappointment became apparent when the meeting ended. Later in the evening, it also temporarily blocked an agreement that should have been a formality about granting candidate status to Ukraine and Moldova.
Several countries, including Austria, Hungary, Slovenia and Croatia, have demanded that Bosnia and Herzegovina be given a similar perspective to Georgia, which can become an EU candidate once it meets a series of conditions, diplomats told Europe Express.
“We discussed intensively for 3.5 hours because we wanted to cover all aspects, for example the fate of Bosnia and Herzegovina,” said Austrian Chancellor Karl Nehammer. He said Austria insisted that Bosnia also gain candidate status if it makes progress this year, and leaders urged the commission to help Bosnia along this path.
A video conference with Ukrainian President Volodymyr Zelenskyy was also delayed during the Bosnian talks.
For the rest of the Balkan states there was little gain, as EU Foreign Affairs head Josep Borrell admitted: “We are not where we should be with the Western Balkans. Today we should start negotiations with Albania and North Macedonia and I certainly cannot hide my disappointment.”
The two countries are still in limbo due to the Bulgarian parliament voting against the government after the prime minister said he intended to lift his country’s veto against North Macedonia and Albania and take the next step the EU path.
As he left the meeting, Bulgarian Prime Minister Kiril Petkov said he hoped the parliament at home would come back to the matter and reach a decision quickly. Prime Minister Mark Rutte even gave a 50-60 percent chance of a breakthrough next week.
But all these comforting messages were not enough to reassure Albanian Prime Minister Edi Rama, who likened EU leaders to a “congregation of priests discussing the sex of angels as the walls of Constantinople fell apart.”
“It is very worrying that even a pandemic and a very looming war that could turn into a tragic world war have not been able to unite them,” Rama said.
His counterpart from North Macedonia, Dimitar Kovačevski, echoed the sentiment: “What has happened now is a serious blow to the credibility of the European Union.”
what to watch
EU leaders meet today to discuss economic and eurozone issues
G7 leaders gather in Germany on Sunday for summit
Double standards: Bruegel’s think tank is criticized the “questionable discretionary decision” Croatia to join the eurozone, but not Bulgaria, a country that also fulfills the criteria for membership.
Metaverse, not European: Efforts to realize the metaverse will take decades and will be led by established US and Chinese major tech companies rather than European challengers, writes. Ifri in this policy document†