In Europe

The EU Unblocks Recovery Fund In Return For Delaying Rule Of Law Regulation For Hungary And Poland

The European Council has reached an agreement on the Rule of Law Mechanism’s application that convinces Hungary and Poland and the rest of the 25. Thus, the European Commission commits itself not to develop the specific regulation on this Mechanism and not to publish the guidelines that will structure its working until the EU’s Court of Justice has ruled on whether the mechanism is fully in accordance with European law or not. This may take between six months and a couple of years. Aids from the EU recovery fund could begin to flow from June 2021. 

Eurozone-2020 Not Ending Fast Enough

Apolline Menut (AXA IM) | For Eurozone economies, 2020 cannot end soon enough. After a 15.1% decline in the first half of the year and a strong, but partial, rebound in the Q3, the euro area economy is set to contract again in Q4 (-4.1%qoq). The autumn lockdowns triggered by the pandemic’s second wave are less restrictive than in the spring (schools, the public sector and industry remain open this time), and so is our assumption of activity hit (-10% in November on average for the euro area versus around -25% in April). But the euro area will finish the year 8.3 percentage points (ppt) below end-2019 levels and with large dispersion across countries. Virus developments, stringency of restrictions, exposures to the most affected sectors (Exhibit 1) and fiscal supports vary across countries. For that reason, we see German growth shrinking by “only” 6%yoy in 2020, half of the contraction we expect in Spain, and much better than the 7.7% decline we project for the euro area as a whole.

ECB preview: Could come across with hawkish tone

Busy Thursday

This Thursday could be a key moment for Europe, with the ECB meeting and the beginning of the European council. We could get a positive surprise on the time extension of PEPP, but the constraints on the “top-up” are significant. There is some tentative progress on the “rule of law” spat but hurdles abound. The Council meeting could bring about the denouement of the Brexit saga.

European Union

‘Sovereign Europe, hostile world: Five agendas to protect Europe’s capacity to act’

This detailed study is authored by experts Mark Leonard and Jeremy Shapiro, and examines how the EU and its member states can develop European and national-level policies to strengthen Europe’s resilience in the face of increasing geo-political competition. The report identifies five areas – healthcare, security and defence, technology, international economic policy, and action on climate change – where there is room for development.

ifo Institute: Coronavirus Crisis Threatens Survival of 15 Percent of German Companies

The coronavirus crisis threatens the survival of 15 percent of German companies, according to their responses to the ifo Business Survey for November. “That’s an improvement over June, when the figure was 21 percent,” says Klaus Wohlrabe, Head of Surveys at ifo. “Nevertheless, 86 percent of travel agencies and tour operators currently feel threatened, as do 76 percent of hotels and 62 percent of restaurants.”

Consensus Among Major Dutch Political Parties

Nick Ottens (Atlantic Sentinel) | Earlier this month, I took an in-depth look at the draft election manifesto of the Netherlands’ ruling liberal party (VVD), which is likely to win the next election. (Disclosure: I’m a party member.). Now that most other parties have released their manifestos as well, it’s possible to make a comparison.

Manufacturing PMIs: Second Wave Slows The Recovery Momentum

Activity slowed in November in many European countries, but remained at a relatively fast speed of expansion in most economies, except for Spain and France, where manufacturing activity contracted. Two surprises are worth mentioning: Sweden and Switzerland saw a stronger acceleration of manufacturing activity in October. 

EU Must Hold Firm in Rule-of-Law Dispute with Hungary, Poland

EU leaders — including Orbán and his Polish counterpart, Mateusz Morawiecki — agreed in September to tie the disbursement of EU funds to compliance with the rule of law. The conditionality is not automatic. To withhold funds, a qualified majority of fifteen out of 27 member states, representing 65 percent of the EU’s population, would need to agree (…) But if the proposal were meaningless, Orbán and Morawiecki wouldn’t be fighting it. They understand it could be used to rein them in — which is exactly why the rest of the EU must hold firm.

The Blunder Of Negative Interest Rates

Miguel Navascués | The depression and the drop in inflation -or even deflation- have led the central banks to try a disastrous experiment: negative interest rates. Even Christine Lagarde speaks of putting the reference interest rate at -2%. This has been a mistake for several reasons. It discourages the holding of liquid deposits (which logically yield zero or negative), but it does not make people anticipate consumption, if prices stagnate or fall.