Dina Bajramspahic via Macropolis | In 2020, none of the six countries of the Western Balkans has made progress in the process of European integration. It is true that they could have done more, but this still begs the question of whether the process itself “is working” if no one is making progress, and many countries have not been making progress for years, decades even. Bad moves on both sides have led to mutual mistrust, which is reflected in reforms.
The Bundesbank, Germany’s central bank, will not distribute any profit to the Federal Government for the first time since 1979, following the noticeable impact that the emergency monetary policy measures implemented in response to the pandemic had on the bank’s balance sheet, which substantially strengthened its risk provisions. The German central bank’s net interest income in 2020 fell by 38.2% to €2.87 Bn, while it posted losses of €1.557 Bn for financial operations and risk write-downs against the profits of €2.281 Bn in 2019.
Steve Schifferes via The Conversation | What a difference a year makes. In March 2020, the chancellor of the exchequer, Rishi Sunak, announced an emergency budget pledging £12 billion to tackle coronavirus. One year later, the government has already spent £280 billion, and spending by spring 2022 will exceed £400 billion. The 2021 budget – perhaps the most widely leaked in history – contains a cornucopia of short-term measures, such as the extensions to the furlough scheme and to the VAT cuts for hospitality.
News about vaccines against coronavirus and the progress of vaccination campaigns globally are coming thick and fast. The production of vaccines is rising significantly as companies are working in shifts of 24 hours a day, seven days a week, said the pharmaceutical industry association Ifpma. On the other hand, the EU leaders have passed the creation of a digital vaccination certificate in order to exempt travelers from restrictions such as quarantines or PCR tests, an essential aspect in order to boost tourism.
Piergiacomo Braganti (Wisdom Tree) | Entrusting Mario Draghi, former governor of the European Central Bank, to form an institutional Government had the immediate and visible effect of pushing the 10 Years BTP/German Bunds spread below 100 bps, at the lowest level since 2015. It revamped investors’ interest in Italian banks.
Morgan Stanley | The size of the Recovery Fund is very relevant, equivalent to 5% of the European Union’s GDP (10-15% in Greece, Spain and Italy). In contrast to the US, where the fiscal stimulus has been earmarked for more immediate/current spending, in Europe most of it is devoted to future investment with a long-lasting effect over the next 3-5 years. This long term duration is the key concept and the fundamental reason for our preference.
Paul Griffin (Schroders) | Late last year, the EU agreed a €1.8 Tr stimulus package to help Europe’s economies recover from Covid-19. The funding comes from the long-term budget and the Next Generation EU initiative, whose aim is to create a greener, more digital and more resilient Europe. These goals will not be achieved without innovation. Contrary to what some investors believe, Europe is home to plenty of pioneering companies whose science and engineering capabilities can help address the many challenges facing the world today.
Banca March | Total’s CEO, Patrick Pouyanné, has given an interview to the Financial Times in which he warns of the danger of a possible “bubble” in the renewable energy sector. According to Pouyanné, and without mentioning specific examples, the scarcity of important assets in this type of energy has led to a number of acquisitions with “crazy” valuations, in some cases reaching multiples of up to 25 times profits.
Bruno Cavalier (Oddo-Bh) | In January, inflation in the Eurozone jumped by 1.2 points to 0.9% yoy, largely due to the increase in VAT rates in Germany. Later this year, the ECB’s target inflation rate of 2% is likely to be exceeded. After the compression of some prices in 2020, the base effects are expected to be very strong. The ECB has no reason to react to a bump in inflation, but since Christine Lagarde has accustomed us to a convoluted message to please the “hawks”, we cannot exclude the possibility of the ECB getting muddled up in its communication.
European Views | With EU-Russia relations at rock bottom following the arrest of dissident politician Alexei Navalny, a vicious crackdown on protesters, and the expulsion of several EU diplomats from Russia, imposing sanctions on the country should be a no-brainer for Brussels. Indeed, the Kremlin’s chronic flouting of international rules and norms, particularly as regards human rights, presents a fitting opportunity to put the EU’s newly minted Magnitsky-style sanctions regime to good use for the first time.