The Brief – The Keynesian times are over on 29/03/24
Faced with the far-reaching implications of the COVID-19 pandemic in 2020 and a global energy crisis from 2021 onwards, European governments have embraced a Keynesian approach, spending billions to keep companies afloat and help consumers. But those times are over. Have low wages permanently ‘scarred’ Europe’s economy? on 29/03/24
European central bankers, we learned earlier this week, view wages much the same way that Goldilocks likes her chairs: they shouldn’t be too high, or too low, but just right. Macron open to new EU-Mercosur deal on 29/03/24
On a three-day official visit in Brazil, Emmanuel Macron proposed building a "new agreement" between the EU and Mercosur, which his Foreign Minister imagines to be broader than just trade. Critics and supporters of the original deal are now awaiting further details. Europe’s industry declines as China ‘de-risks’ from the West on 29/03/24
China's drive to reduce reliance on the West is worsening Europe's industrial decline. Foreign firms’ losses from exiting Russia top $107 billion on 28/03/24
The corporate exodus from Russia since its 2022 invasion of Ukraine has cost foreign companies more than $107 billion in writedowns and lost revenue, a Reuters analysis of company filings and statements showed. EU says plan to ensure critical raw materials supply is not aimed at China on 28/03/24
A senior European Union official denied that the bloc’s recently agreed-upon plan to diversify its supply of strategically critical raw materials targets China, a move interpreted as aimed at easing increasingly fraught relations between Beijing and Brussels ECB’s ‘hawkish bias’ could trigger ‘secular stagnation’, leading think tank chief warns on 27/03/24
The European Central Bank’s hesitation to cut rates before further signs of slowing wage growth reflects a “hawkish bias” that could lead to weak growth becoming entrenched across the eurozone economy, the head of Bruegel think tank warned on Wednesday (27 March). French government refuses to put CETA to parliamentary vote before European elections on 27/03/24
The ratification of CETA, the trade agreement between the EU and Canada, rejected last week by the Senate, will not be submitted to the National Assembly before the European elections, the government has confirmed, so as not to "instrumentalise the debate". German economy to nearly flatline this year, Kiel, ifo Institutes say on 27/03/24
Frankfurt, Germany, March 27, 2024 (AFP) - The German economy is expected to barely grow this year, leading economic institutes said Wednesday, as weak demand at home and abroad slows the path to recovery. Europe's largest economy will expand by just 0.1 percent in 2024, five think-tanks said in a joint statement, a sharp downgrade from their earlier forecast of 1.3 percent growth. "Cyclical and structural factors are overlapping in the sluggish overall economic development," said Stefan Kooths from the Kiel Institute for the World Economy (IfW Kiel). "Although a recovery is likely to set in from the spring, the overall momentum will not be too strong," he added. The German economy shrank by 0.3 percent last year, battered by inflation, high interest rates and cooling exports, and is struggling to emerge from the doldrums. Even though inflation has steadily dropped in recent months, consumer spending was picking up "later and less dynamically" than previously forecast as wages lag behind, the institutes (DIW, Ifo, IfW Kiel, IWH and RWI) said. And Germany's export sector, usually a key driver of economic growth, was suffering from cooling foreign trade against a fragile global economic backdrop. Energy-intensive businesses in particular have been hit hard by soaring energy prices following Russia's war in Ukraine, contributing to a manufacturing slump in Europe's industrial powerhouse. Corporate investments meanwhile have been dampened not just by the European Central Bank's interest rate rises, which have made borrowing more expensive, but also by "uncertainty about economic policy", the institutes said. - Debt brake debate - The criticism of Berlin comes after a shock legal ruling late last year threw Chancellor Olaf Scholz's budget into disarray, forcing the government to rethink its spending plans. The government recently also drastically downgraded its own economic forecasts, expecting output to expand by just 0.2 percent this year. Economy Minister Robert Habeck last month acknowledged the economy was "in rough waters" and in need of a "reform booster". But Scholz's three-way coalition government -- made up of the Social Democrats, the Greens and the liberal FDP -- is divided over how to turn the tide. Calls have grown for the government to relax its constitutionally enshrined "debt brake", a self-imposed cap on annual borrowing, in order to turbocharge much-needed spending on infrastructure modernisation and the green transition. Habeck is in favour of relaxing the debt rules, but Finance Minister Christian Lindner from the FDP is deeply opposed. The think-tanks said they recommended "a mild reform" of the debt brake to allow "for more debt-financed investments than before". Looking ahead, the institutes expect the recovery to quicken next year as inflation eases further and demand picks up. They now expect the economy to grow by 1.4 percent in 2025, only slightly below their previous forecast of 1.5 percent. Macron may ignore the French Parliament if CETA is rejected on 26/03/24
With the Senate having just rejected the trade agreement with Canada (CETA) and a new rejection looming in the National Assembly just before the European elections, France could ignore this decision. The opposition is denouncing this as an anti-democratic move.
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