Why the ECB is more focused on risks than recovery

Good morning. Information to start out: Brussels is drawing up plans to impose customs duties on cheap goods ordered from Chinese retailers including Temu and Shein, in an effort to stem a surge in substandard gadgets flooding Europe’s mailboxes.

At this time, our man on the ECB’s away days in Portugal takes the temperature of the EU’s economic system. And I clarify why Ursula von der Leyen is skipping subsequent week’s Nato summit to bolster assist for her re-election.

Frank Sintra

At this week’s annual convention of the European Central Financial institution in Sintra, president Christine Lagarde performed golf with US Federal Reserve chair Jay Powell and the governors of the German and Canadian central banks. Canada’s Tiff Macklem received due to his lengthy drive however Powell gave him a very good run; Lagarde was surprisingly sharp across the greens.

And the chatter on the luxurious resort within the south of Portugal was not simply concerning the hazards on the golf course — ECB officers had been clear concerning the many dangers that lurk on the horizon, writes Martin Arnold.

Context: Eurozone inflation fell from 2.6 per cent in Could to 2.5 per cent, knowledge from Eurostat confirmed yesterday, supporting the ECB decision to cut interest rates final month based mostly on forecasts that value progress will fall to its 2 per cent goal subsequent yr.

The Eurozone economic system expanded 0.3 per cent within the first quarter — ending virtually a yr of stagnation — and unemployment remained at an all-time low of 6.4 per cent in Could.

One of many greatest dangers looming is that the world economic system is heading for a interval of protectionism, particularly if Donald Trump wins November’s US presidential election.

Goldman Sachs chief economist Jan Hatzius gave a presentation spelling out how Trump’s promise to extend tariffs on imports from the EU by 10 per cent would hit the Eurozone economic system disproportionately onerous — predicting it will knock 1 per cent off GDP within the bloc, whereas shaving solely 0.1 per cent off US GDP.

One other fear for Eurozone rate-setters is fiscal coverage, notably the danger that the French election produces a far-right authorities which embarks on a spending spree that places it on a collision course with investors, destroys credibility within the EU’s just lately revamped fiscal guidelines and pushes up inflation.

“Fiscal issues enormously,” ECB president Christine Lagarde informed delegates yesterday, including that rate-setters had been “very involved” concerning the want for governments to deliver their deficits according to the EU’s 3 per cent restrict.

The ultimate fear is that inflation is but to be fully tamed as a result of wages are nonetheless rising at about 5 per cent a yr, pushing up prices for labour intensive providers corporations which might be passing this on to customers by way of larger costs.

“We’ve got to look what’s behind it, which is quite a lot of labour prices,” Lagarde stated.

Chart du jour: Endgame

Nearly two and a half years since Russia’s full-scale invasion of Ukraine, Europeans have broadly diverging views on how the battle will — or ought to — finish, in keeping with a survey by the European Council on Overseas Relations published today.

Whip it actual good

Ursula von der Leyen will skip subsequent week’s Nato summit to as an alternative persuade a most variety of lawmakers to vote for her within the European parliament, amid nerves inside her camp about her coalition’s solidity.

Context: Von der Leyen desires a second time period as European Fee president. She won support of EU leaders final week. Now she wants 361 votes within the parliament, with a vote scheduled for July 18.

Von der Leyen’s European Folks’s occasion (EPP) and her coalition companions, the Socialists and Democrats (S&D) and liberal Renew, boast 399 MEPs. However defections are traditionally excessive within the secret poll.

Get together officers are assured they’ve struck a take care of French EPP members who had beforehand threatened to withhold their votes. On Monday, von der Leyen additionally met with the Inexperienced occasion (54 seats) to debate potential external support.

However skipping the Nato gathering is seen as essential to broaden the checklist of trusty backers. European Fee spokesman Eric Mamer stated von der Leyen would as an alternative be focusing “on her work to construct a majority for a robust Europe within the European parliament”.

“The thirteenth ground is tied up 24/7 hitting the telephones,” stated one fee official, referring to the highest ground of the Berlaymont constructing the place von der Leyen’s workplace is predicated.

“Some individuals would possibly say to your face that they’ll vote for you, however you possibly can’t make sure,” stated one particular person briefed on the negotiations. “You need to guarantee that there’s a buffer. No person desires to lose by three votes.”

Von der Leyen attended the final two Nato summits in Vilnius and Madrid, as a visitor of the alliance. EU Council president Charles Michel and chief diplomat Josep Borrell will characterize the bloc subsequent week.

What to observe immediately

1. Finland’s President Alexander Stubb meets Italian Prime Minister Giorgia Meloni in Rome.

2. Closing remarks by ECB president Christine Lagarde on the Sintra forum.

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