Is the recession coming? + Future of the • Table.Briefings

Dear reader,

Progressing inflation, slowed growth – at yesterday’s Eurogroup meeting in Brussels, the main question was: Is the eurozone heading towards recession? The EU Commission will present its updated economic forecast on Thursday. Turbulent times still lie ahead, is how Eric Bonse sums up the meeting.

What’s next for the Visegrád Group, consisting of Poland, Hungary, the Czech Republic and Slovakia? The latter took over the Presidency for a year at the beginning of July and assume a difficult legacy – especially since, in times of war, the countries represent vastly different interests. Is the bloc of four disintegrating, asks Hans-Peter Siebenhaar.

The first trilogue under the Czech Council Presidency started yesterday. Negotiations were held on emissions trading and the Carbon Border Adjustment Mechanism. Find out more in the News section.

You could almost say that Thomas Nowak has a bit of an obsession with heat pumps. He has five at home, and his work as Secretary General of the European Heat Pump Association (EHPA) also revolves around the technical alternative to oil heating and the like.

Your
Lisa-Martina Klein

Eurogroup shifts away from expansionary fiscal policy

By

Eric Bonse

Is the eurozone sliding into recession? This question hung over the Eurogroup meeting in Brussels on Monday like a dark shadow. New warnings from the International Monetary Fund and fresh data from the EU Commission do not bode well.

The Brussels authority will present its updated economic forecast on Thursday. It is likely to be even worse than in May, when the EU Commission already had to significantly downgrade its figures.

Executive Vice President Valdis Dombrovskis said that because of the “many uncertainties and risks,” he expected consumer prices to rise faster and growth to slow. “We continue to navigate in stormy waters,” warned Commissioner for Economy, Paolo Gentiloni.

Only very limited growth

In its May forecast, the Commission had still assumed annual inflation of 6.1 percent. In June, however, inflation in the eurozone already reached a new high of 8.6 percent. So far, there are no signs of a reversal in the trend.

Things are not looking good for growth either. In May, the Commission had still predicted an economic plus of 2.7 percent for the 19 euro countries. Now there is only talk of “very limited, reduced and slowed-down growth,” as Gentiloni said.

Inflation is a major concern and is there to stay at high levels also next year, Dutch Finance Minister Sigrid Kaag said. “The priority is to contain inflation,” Spain’s Economic Minister Nadia Calvino said.

But the dark clouds on the economic horizon are not even the Eurogroup’s biggest concern. The ministers of finance are struggling with two problems that hardly have any influence on – and which could throw all forecasts out of kilter.

Gas crisis could fuel recession

The first, most pressing pr o blem is the gas crisis. It has intensified with the cutback of Russian gas supplies. If Gazprom permanently shuts off the gas tap after maintenance work on the Nord Stream 1 Baltic Sea pipeline, a recession is almost impossible to avert.

Should the gas fail to flow, it would not immediately result in a state of emergency, but it would be difficult to continue filling gas storage facilities for the winter, and gas would then have to be rationed by 2023 at the latest. “This would once again lead to lockdowns in the economy,” says Chief Economist Thomas Gitzel of VP Bank. “The German and European economies would slide into a deep recession.”

ECB wants interest rate turnaround

The second problem is inflation – and the interest rate turnaround announced by the European Central Bank to fight rising prices. Higher interest rates mean higher debt service and wider spreads. The risk of excessive debt increases, and countries like Italy or Greece could get into trouble.

Against this backdrop, the EU Commission recommends ending the current expansive fiscal policy pursued and embarking on a course of consolidation. The money should no longer be distributed with a watering can, as in the Covid pandemic, but instead targeted aid should be provided, said Dombrovskis.

However, the euro countries should not perform an emergency stop either – because that would only increase the risk of recession. “If our national and EU policy responses remain fully coordinated, if we remain agile and ready to adjust as needed,” Gentiloni said.

Vestager wants to facilitate targeted crisis aid

In th eir s tatement, the euro ministers of finance endorse the Commission’s recommendations. Further support for demand through fiscal policy is no longer advisable for 2023, the Eurogroup statement says. Instead, “all countries should aim at preserving debt sustainability”. Financial aid should be limited to “the most vulnerable”.

The Eurogroup is thus moving away from the expansionary fiscal policy initiated during the Covid pandemic. At the same time, however, the ministers of finance are keeping the option open to react with targeted aid should the gas crisis intensify.

First proposals came yesterday from Executive Vice-President Margrethe Vestager. Member states would be consulted on an adjustment of the temporary crisis framework for aid in the wake of the Russian war of aggression, Vestager announced. Among other things, the promotion of energy-saving measures is to be made easier, and the upper limit for government aid per company is also to be raised – from €400,000 to €500,000, according to information from Reuters.

According to Reuters, the meeting also discussed a potential new head for the European bailout fund ESM. Former Luxembourg Minister of Finance Pierre Gramegna and his Portuguese ex-colleague Joao Leao are candidates, but a compromise has not yet been found. According to an insider, the decision will now be made at a meeting in September.

Quartet with signs of decay

By

Hans-Peter Siebenhaar

The Ukraine war has changed everything for the Visegrád Group. Poland, Hungary, the Czech Republic and Slovakia have very different interests due to their geographical position, their history and their relationship with the aggressor Russia. The Hungarian presidency of the Visegrád Group recently clearly expressed their divergences.

This is because right-wing populist Hungarian Prime Minister Viktor Orbán is trying to avoid alienating his strategic partner Russia and has refused to supply weapons to Ukraine. Solidarity in the debilitating dispute with the former gas supplier Russia is not to be expected from him. Slovakia has therefore taken on a difficult legacy by assuming the Presidency of the Visegrád Group for a year.

European political significance wanes

The Quartet passed the zenith of its European political significance with the start of Russia’s war of aggression against Ukraine on February 24. Just two years ago, it looked as if even Austria – the self-proclaimed bridge builder to Eastern Europe – would join the Visegrád Group as its fifth member.

In January 2020, then-Chancellor Sebastian Kurz (ÖVP) traveled to Prague to discuss refugee policy and the EU budget with his populist counterparts at the time, including Czech Prime Minister Andrej Babiš. Blocking a mandatory distribution of war refugees was the quartet’s unifying factor at the time – along with Austria. Tempi passati.

Since the Ukraine war, Visegrád heavyweight Poland has become a generous and helpful host country for refugees from its Eastern European neighbor. The right-wing conservative government in Warsaw grants around one and a half million Ukrainians a residence permit, even if they want to stay longer in the EU country.

Energy, mobility and digital on the agenda

Apart from Poland, the other two Visegrád states Hungary and Slovakia also border Ukraine. When it took over the V4 presidency on July 1, the EU-friendly government in Bratislava primarily set itself pragmatic goals, such as deepening cooperation on mobility, energy, sustainability and digital issues. The fact that major foreign policy visions are missing from the program unintentionally documents the V4’s loss of importance on the EU stage.

A strong common role in the EU is not envisaged. Slovak Foreign Minister Ivan Korcok has already made this clear. Nor is it possible with a latently Russia-friendly Hungary. Slovakia supports tough action against the aggressor.

Hungary with pro-Russia stance isolated

If every EU member had adopted Hungary’s stance, Slovakia would long since have a neighbor on its eastern border other than Ukraine, Korcok remarked caustically. Rarely before have the conflicts of interest in foreign and security policy in the V4 group been expressed more strongly than in these times.

Hungary stands isolated within the Quartet with its position on the Ukraine war. Poland, the Czech Republic and Slovakia, meanwhile, are pulling in the same direction with their clear support for Ukraine. The Czech Republic, which maintains close historical and economic ties with Slovakia, has a different focus in the second half of the year anyway. After all, Prague is holding the EU Council presidency for only the second time.

At the same time, the new government under Prime Minister Petr Fiala and his Minister for European Affairs Mikuláš Bek wants to make a bella figura on the European stage. Given the enormous workload, interest in and time for Visegrád matters are very limited in Prague. Bek openly spoke of a pause for the V4.

When the Czech Republic ultimately hands over the EU Council presidency to Sweden at the end of the year, the deep conflicts of interest will probably remain. When it comes to the rule of law, Prague and Bratislava have a fundamentally different, EU-compliant understanding than their partners in Budapest and Warsaw.

The collapse of the bloc of four – already a unique feature in the EU with 27 member states – is advancing. From a European perspective, this does not have to be a bad development in these very difficult times.

ETS trilogue: Liese wants requirements for free allowances

Kick-off for the first trilogue under the Czech Council Presidency: Negotiations on the Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM) officially began on Monday. The Parliament was represented by Pascal Canfin (Renew), Peter Liese (EPP) and Mohammed Chahim (S&D), the Commission by Frans Timmermans and European Commissioner for Economy Paolo Gentiloni.

“Negotiators have set an ambitious goal of reaching a compromise till COP27,” reports a parliamentary spokesperson. The next UN climate negotiation will take place in Egypt from November 7 to 18.

“While it is important that we agree in principle, intensive negotiations are still needed on many important points,” Peter Liese writes in a statement. “For example, the Council proposes to include maritime transport only in 2027 with 100 percent auctioning of its emissions, while the Parliament wants to start with the full scope already in 2024,” he specifies.

Parliament wants ETS II to include process heat

“While the Council wants to grant free allowances to all industries at risk of carbon leakage, the Parliament wants to be more targeted and calls for additional requirements, for example, carbon neutrality plans and the application of an energy management/audit system, in order to receive free allowances,” Liese added.

“The biggest difference is in the new ETS II for heat and road transport,” he continues. And explains: Unlike the Commission, the Parliament wants to include all commercial emissions, including process heat, for example in plastics processing companies and foundries. Parliament also wants to introduce a price cap and require oil and gas producers to cover some of the costs.

The Council and the Commission, on the other hand, essentially agree on the scope of the Commission proposal. This does not include commercial activities other than the heating of buildings and road transport, thus excluding small businesses, but covers private consumers from the very beginning. Claire Stam

Gas crisis: Prague and Berlin seek solidarity agreement

Until winter, the Czech Republic and Germany want to finalize the still outstanding solidarity agreement on mutual gas supply. This was announced yesterday by the governments of both countries following a meeting between German Minister for Economic Affairs Robert Habeck (Greens) and his counterpart Jozef Síkela in Prague. The two countries have been negotiating the agreement for months; it is intended to clarify technical and financial issues for mutual gas supplies in case of a shortage.

“It is clear that the cooperation with Germany, through which almost all gas flows to us, will be essential for us in this direction,” Síkela informed. While the procurement of gas must be coordinated within the Union, the two ministers described the procurement platform initiated by the Commission as a voluntary instrument in the joint declaration.

Coal to displace gas-fired power plants

In order to save gas and fill storage facilities, the German government is also pushing ahead with the replacement of gas-fired power plants with coal-fired power plants. After a bill to this effect was passed by parliament last week, the government ministries yesterday agreed on the still-necessary regulation, according to government sources. This will enable the so-called grid reserve to be accessed. This will initially affect plants that originally were to be shut down this and next year.

A list from the Federal Network Agency shows that these are mainly hard coal-fired power plants in southern Germany, such as those operated by EnBW or Uniper. Starting in October, lignite-burning coal-fired power stations that are particularly harmful to the climate could also be switched on again if necessary under further regulation.

With the current forward prices on the electricity market, high utilization of gas-fired power plants can be expected so far, even in winter, Marco Wünsch of Prognos wrote yesterday. “In addition to activating other power plants, electricity-saving should be addressed even more actively.” rtr/ber

Finland against further aid for Uniper by Fortum

Unlike the German government, the Finnish government does not raise hopes that Uniper’s majority shareholder Fortum will further participate in the bail-out measures for the ailing German energy group. As Fortum’s majority shareholder, the Finnish government does not consider it possible for the group to invest more in Uniper, Europe Minister Tytti Tuppurainen, who also oversees Finnish state holdings, told Finnish news agency STT. Fortum has already shown its commitment, she said.

The Finnish government holds over 50 percent of Fortum’s shares. The Finnish group in turn owns around 78 percent of Uniper. Fortum has already provided its German subsidiary with around €4 billion in cash and the same amount in guarantees. German Minister for Economic Affairs Robert Habeck, on the other hand, wants the owner to pitch in: “It belongs to someone, someone who is solvent and can provide support,” the Green politician told Deutschlandfunk radio on the weekend.

Uniper submitted an application to the German government for stabilization measures on Friday. The Düsseldorf-based group has to buy gas on the market due to reduced Russian gas supplies. However, the group has so far been unable to pass on the costs to its customers, leading to liquidity problems at Uniper. dpa

Proposals for social standards of the taxonomy presented

Yesterday, the EU Platform on Sustainable Finance presented a draft recommendation on ‘minimum safeguards’ for the green taxonomy. According to the Taxon omy Re gulation, which has been in force since June 2020 and provides a framework for sustainable investment, economic activities are only environmentally sustainable if they are carried out in accordance with international human and labor rights. Article 18 of the regulation stipulates that minimum standards be established. The Platform on Sustainable Finance, an advisory body to the EU Commission, has now produced an expert opinion with proposals on this.

In addition to human rights, the proposals include taxes, corruption and competition. The platform defines several exclusion criteria for each area. According to the proposal, if a company meets one of the criteria, it should be deemed to be non-compliant with the taxonomy. For example, companies must develop “adequate internal controls, ethics and compliance programmes or measures for the purpose of preventing and detecting foreign bribery” and must not have been convicted of tax evasion.

Mechanisms for a change in awareness

The standards are based on the OECD’s Due Diligence Guidance for Responsible Business. The platform is also guided by the International Bill of Human Rights and the United Nations Guiding Principles on Business and Human Rights and the International Labor Organization’s (ILO) Occupational Health and Safety Standards.

Currently, a whole range of regulations are emerging with ESG standards in mind, said Antje Schneeweiß, head of the Platform for Sustainable Finance. “That’s why we don’t want to make it more complicated, but want to make the standards fit well into the regulatory environment.” In addition to the recently renegotiated Corporate Sustainability Reporting Directive and corporate due diligence requirements, for which a Commission proposal is on the table, the Commission also wants to draft a social taxonomy. The social standards of the green taxonomy are to be in line with all these requirements.

“The challenge is that we create mechanisms for a change in awareness,” said Signe Andreasen Lysgaard, a consultant at the Danish Institute for Human Rights and a member of the platform. “It’s no longer just the risks to the company that are assessed, but the risks to people.”

Until August 22, it is possible to submit feedback on the draft on the platform’s website. leo

Lithuania tightens controls on goods in transit to Kaliningrad

The situation over the Russian exclave of Kaliningrad deteriorated further on Monday. The EU country Lithuania extended trade restrictions with the Russian Baltic Sea exclave after the European Union’s sanctions against Moscow over its invasion of Ukraine came into force.

Additional goods banned from transit between Russia and Kaliningrad since Monday morning include concrete, timber, alcohol and alcohol-based industrial chemicals, a Lithuanian customs spokesman said. Russia warned Lithuania and the European Union on Friday that it could adopt “harsh measures” against them if the transit of some goods to and from Kaliningrad did not resume “within the coming days”.

On Monday, the Kaliningrad regional governor proposed a ban on movement of goods between Russia and the three EU Baltic member states Lithuania, Latvia and Estonia, apart from transit to Kaliningrad. That could divert Russian freight from their ports.

Russian President Vladimir Putin and his Belarus counterpart Alexander Lukashenko, a close ally, discussed a possible response to Lithuania’s actions during a phone call, their Telegram accounts said. The Kremlin spoke of “certain possible joint steps…in connection with the illegal restrictions imposed by Lithuania on the transit of goods to the Kaliningrad region.”

The EU Commission has been trying to reach a compromise to resolve the impasse since the end of June. However, the government of the former Soviet republic of Lithuania is worried about doing something that could be seen as a concession to the Kremlin, according to reports. A Foreign Ministry spokesman on Monday referred to statements by Chancellor Olaf Scholz and Foreign Minister Annalena Baerbock, both of whom stressed that transit links were not covered by EU sanctions. They expressed hope that an agreement would be reached. EU diplomats said it was unfortunate that Lithuania’s position had hardened.

Kaliningrad borders NATO and EU member states Lithuania and Poland and relies on transit rail and road traffic through Lithuania for most of its goods. Since June 17, however, Lithuania’s customs have stopped the delivery of goods on the EU sanctions list against Russia. Goods such as foodstuffs are exempt from the sanctions. Passenger transit is not banned, and Kaliningrad can still be reached by air or sea. rtr

Chip manufacturers invest billions in France

US chipmaker GlobalFoundries and European supplier STMicroelectronics announced plans for a joint semiconductor factory in France. On Monday, the Élysée Palace put the total investment for the new site near the border with Italy and Switzerland at €5.7 billion. The government in Paris will itself make a “significant” contribution, but did not initially name a sum.

“This is the biggest industrial investment in recent decades outside of the nuclear sector and a big step for our industrial sovereignty,” French Finance Minister Bruno Le Maire. President Emmanuel Macron will personally visit STM’s existing plant in Crolles near Grenoble today, where the new factory will also be located.

The plant is to reach full capacity by 2026 and create around 1,000 new jobs. Chips down to a structure size of 18 nanometers are to be produced there. The new FD-SOI technology (Fully Depleted Silicon On Insulator), which enables high performance with reduced power consumption, will also be used.

“We will have more capacity to support our European and global customers in the transition to digitalization and decarbonization,” said STMicro CEO Jean-Marc Chery. He added that the new plant will help STMicro grow revenue to more than $20 billion as planned. “The partnership investment with the French government, along with our long-term customer agreements, creates the right economic model for GF’s investment,” said GF CEO Dr. Thomas Caulfield

The EU Commission and member states want to reduce the dependence of domestic industry on chip production in Asia and are courting major manufacturers. Previously, the US corporation Intel already announced plans to invest €17 billion at the Magdeburg site. The European Chips Act is intended to make it easier for governments to attract companies with subsidies and thus more than double the EU’s share of global value creation to 20 percent by 2030.

Experts point out, however, that the planned factory in France fits only partially into Commissioner for the Internal Market Thierry Breton’s strategy of making Europe the location for cutting-edge semiconductor technology. Much of the planned production by STM and Global Foundries uses more mature technology, says Jan-Peter Kleinhans of the New Responsibility Foundation. It is still hard to say, he says, whether this meets the definition of “first of a kind” in the Chips Act, which is supposed to allow generous subsidies from governments. But he says Europe must also support such projects “if it is serious about its goal of increasing the share to 20 percent.” rtr/tho

EU authorities recommend second COVID booster for over 60-year-olds

European Union health authorities are recommending that all people over 60 receive a second COVID booster vaccination. “It is crucial that everyone above 60 and all vulnerable persons come forth for a second booster dose as quickly as possible,” EU Health Commissioner Stella Kyriakides said on Monday.

At present, according to the European health authority ECDC, there is not only an increasing number of COVID cases, but also an increasing trend in hospital and intensive care unit admissions, mainly due to the Omicron sub-variant BA.5. A second booster vaccination in those over 60 years of age and vulnerable individuals is said to be able to prevent a significant number of hospitalizations and deaths.

Previously, the ECDC and the European Medicines Agency (EMA) only recommended a second booster for people over the age of 80. The second booster vaccination should be administered at least four months after the last vaccination, according to the authorities, with a focus on people who received their first booster more than six months ago.

While existing vaccines continue to provide good protection against hospitalization and death, their effectiveness has declined as the virus has evolved and new variants have emerged. Manufacturers have therefore developed vaccines adapted to the highly contagious Omikron variant and are already getting ready to roll them out.

“We are working towards possible approvals of adapted vaccines in September,” said EMA’s Executive Director, Emer Cooke. “In the meantime, it is important to consider using currently authorised vaccines as second boosters in people who are most vulnerable.” rtr

Thomas Nowak – the heat pump prophet

Thomas Nowak is Secretary General of the European Heat Pump Association EHPA.

When Thomas Nowak is supposed to speak at the climate conference in Glasgow, he won’t take a direct flight from Germany. Instead, the Secretary-General of the European Heat Pump Association (EHPA) travels across the UK by car, visiting pilot projects with heat pumps along the way. “Did you know that even Bath Cathedral is heated with a heat pump?” asks Nowak.

Nowak was born in Germany’s Sauerland region in 1970. While studying economics in Paderborn and at Illinois State University, he became interested in renewable energies. As a student, he voluntarily drives from Paderborn to Münster every Wednesday because the local university offers lectures on environmental management and environmental economics.

When he looked further into geothermal heat pumps, he became excited about the technology. Nowak’s report, he says, was hardly read by anyone at the time, but by chance it landed on the desk of EHPA’s then Secretary-General.

Heat pumps suddenly in vogue

While Nowak has been an enthusiastic advocate for the topic for years, heat pumps have become a trending topic at the latest due to high gas prices. “We’ve never had such a big increase in demand. We’re seeing a 34 percent increase. Except for smartphones or e-bikes, hardly any industry can keep up with that,” he says. It could still take up to 18 months before they can keep up with demand, he adds. This is also due to how the technology is treated politically.

“Heat pumps should be declared critical infrastructure and given priority,” Nowak urges. “We don’t need more strategies, we need to take action and implement the energy transition.”

With the Defence Production Act, the United States is showing how policymakers can meet rising demand. The legislation gives manufacturers of heat pumps preferential access to certain components. Thomas Nowak calls for the same for Europe: “Actually, Robert Habeck should get up on stage, roll up his sleeves and say: now we’re going to get it done. With such a mentality in politics, we could achieve a lot.”

Request from Poland’s coal industry

Thomas Nowak is convinced that heat pumps are the future. His goal: a carbon-neutral society. “With photovoltaics on the roofs, thermal and electrical storage in the basement, and heat pumps that heat or cool as needed, keeping energy in a cycle. I believe it can be done.”

Meanwhile, the competition is backing him up in this mission. Just recently, EHPA received an inquiry from Opole in Poland, the coal region par excellence. “They wanted to meet with us and find out how they can transform their production and where their workers can find employment in an industry of the future,” Nowak reports.

“My work gives me the good feeling of working toward a goal that I can probably live to see.” He is already making his personal contribution: His house contains a whopping five heat pumps – in addition to heating, they are also used in the refrigerator and the clothes dryer. “My family already sometimes says, I should stop it with the heat pumps – but they already know what is up.” Svenja Schlicht

EUROPE.TABLE EDITORS

Till
Hoppe

Charlotte
Wirth

Falk
Steiner

Timo
Landenberger

Corinna
Visser

Lukas
Knigge

Eric
Bonse

Sarah
Schaefer

Manuel
Berkel

Lisa-Martina
Klein

Markus
Grabitz

Stephan
Israel

Claire
Stam

Dear reader,

Progressing inflation, slowed growth – at yesterday’s Eurogroup meeting in Brussels, the main question was: Is the eurozone heading towards recession? The EU Commission will present its updated economic forecast on Thursday. Turbulent times still lie ahead, is how Eric Bonse sums up the meeting.

What’s next for the Visegrád Group, consisting of Poland, Hungary, the Czech Republic and Slovakia? The latter took over the Presidency for a year at the beginning of July and assume a difficult legacy – especially since, in times of war, the countries represent vastly different interests. Is the bloc of four disintegrating, asks Hans-Peter Siebenhaar.

The first trilogue under the Czech Council Presidency started yesterday. Negotiations were held on emissions trading and the Carbon Border Adjustment Mechanism. Find out more in the News section.

You could almost say that Thomas Nowak has a bit of an obsession with heat pumps. He has five at home, and his work as Secretary General of the European Heat Pump Association (EHPA) also revolves around the technical alternative to oil heating and the like.

Your
Lisa-Martina Klein

Eurogroup shifts away from expansionary fiscal policy

By

Eric Bonse

Is the eurozone sliding into recession? This question hung over the Eurogroup meeting in Brussels on Monday like a dark shadow. New warnings from the International Monetary Fund and fresh data from the EU Commission do not bode well.

The Brussels authority will present its updated economic forecast on Thursday. It is likely to be even worse than in May, when the EU Commission already had to significantly downgrade its figures.

Executive Vice President Valdis Dombrovskis said that because of the “many uncertainties and risks,” he expected consumer prices to rise faster and growth to slow. “We continue to navigate in stormy waters,” warned Commissioner for Economy, Paolo Gentiloni.

Only very limited growth

In its May forecast, the Commission had still assumed annual inflation of 6.1 percent. In June, however, inflation in the eurozone already reached a new high of 8.6 percent. So far, there are no signs of a reversal in the trend.

Things are not looking good for growth either. In May, the Commission had still predicted an economic plus of 2.7 percent for the 19 euro countries. Now there is only talk of “very limited, reduced and slowed-down growth,” as Gentiloni said.

Inflation is a major concern and is there to stay at high levels also next year, Dutch Finance Minister Sigrid Kaag said. “The priority is to contain inflation,” Spain’s Economic Minister Nadia Calvino said.

But the dark clouds on the economic horizon are not even the Eurogroup’s biggest concern. The ministers of finance are struggling with two problems that hardly have any influence on – and which could throw all forecasts out of kilter.

Gas crisis could fuel recession

The first, most pressing pr o blem is the gas crisis. It has intensified with the cutback of Russian gas supplies. If Gazprom permanently shuts off the gas tap after maintenance work on the Nord Stream 1 Baltic Sea pipeline, a recession is almost impossible to avert.

Should the gas fail to flow, it would not immediately result in a state of emergency, but it would be difficult to continue filling gas storage facilities for the winter, and gas would then have to be rationed by 2023 at the latest. “This would once again lead to lockdowns in the economy,” says Chief Economist Thomas Gitzel of VP Bank. “The German and European economies would slide into a deep recession.”

ECB wants interest rate turnaround

The second problem is inflation – and the interest rate turnaround announced by the European Central Bank to fight rising prices. Higher interest rates mean higher debt service and wider spreads. The risk of excessive debt increases, and countries like Italy or Greece could get into trouble.

Against this backdrop, the EU Commission recommends ending the current expansive fiscal policy pursued and embarking on a course of consolidation. The money should no longer be distributed with a watering can, as in the Covid pandemic, but instead targeted aid should be provided, said Dombrovskis.

However, the euro countries should not perform an emergency stop either – because that would only increase the risk of recession. “If our national and EU policy responses remain fully coordinated, if we remain agile and ready to adjust as needed,” Gentiloni said.

Vestager wants to facilitate targeted crisis aid

In th eir s tatement, the euro ministers of finance endorse the Commission’s recommendations. Further support for demand through fiscal policy is no longer advisable for 2023, the Eurogroup statement says. Instead, “all countries should aim at preserving debt sustainability”. Financial aid should be limited to “the most vulnerable”.

The Eurogroup is thus moving away from the expansionary fiscal policy initiated during the Covid pandemic. At the same time, however, the ministers of finance are keeping the option open to react with targeted aid should the gas crisis intensify.

First proposals came yesterday from Executive Vice-President Margrethe Vestager. Member states would be consulted on an adjustment of the temporary crisis framework for aid in the wake of the Russian war of aggression, Vestager announced. Among other things, the promotion of energy-saving measures is to be made easier, and the upper limit for government aid per company is also to be raised – from €400,000 to €500,000, according to information from Reuters.

According to Reuters, the meeting also discussed a potential new head for the European bailout fund ESM. Former Luxembourg Minister of Finance Pierre Gramegna and his Portuguese ex-colleague Joao Leao are candidates, but a compromise has not yet been found. According to an insider, the decision will now be made at a meeting in September.

Quartet with signs of decay

By

Hans-Peter Siebenhaar

The Ukraine war has changed everything for the Visegrád Group. Poland, Hungary, the Czech Republic and Slovakia have very different interests due to their geographical position, their history and their relationship with the aggressor Russia. The Hungarian presidency of the Visegrád Group recently clearly expressed their divergences.

This is because right-wing populist Hungarian Prime Minister Viktor Orbán is trying to avoid alienating his strategic partner Russia and has refused to supply weapons to Ukraine. Solidarity in the debilitating dispute with the former gas supplier Russia is not to be expected from him. Slovakia has therefore taken on a difficult legacy by assuming the Presidency of the Visegrád Group for a year.

European political significance wanes

The Quartet passed the zenith of its European political significance with the start of Russia’s war of aggression against Ukraine on February 24. Just two years ago, it looked as if even Austria – the self-proclaimed bridge builder to Eastern Europe – would join the Visegrád Group as its fifth member.

In January 2020, then-Chancellor Sebastian Kurz (ÖVP) traveled to Prague to discuss refugee policy and the EU budget with his populist counterparts at the time, including Czech Prime Minister Andrej Babiš. Blocking a mandatory distribution of war refugees was the quartet’s unifying factor at the time – along with Austria. Tempi passati.

Since the Ukraine war, Visegrád heavyweight Poland has become a generous and helpful host country for refugees from its Eastern European neighbor. The right-wing conservative government in Warsaw grants around one and a half million Ukrainians a residence permit, even if they want to stay longer in the EU country.

Energy, mobility and digital on the agenda

Apart from Poland, the other two Visegrád states Hungary and Slovakia also border Ukraine. When it took over the V4 presidency on July 1, the EU-friendly government in Bratislava primarily set itself pragmatic goals, such as deepening cooperation on mobility, energy, sustainability and digital issues. The fact that major foreign policy visions are missing from the program unintentionally documents the V4’s loss of importance on the EU stage.

A strong common role in the EU is not envisaged. Slovak Foreign Minister Ivan Korcok has already made this clear. Nor is it possible with a latently Russia-friendly Hungary. Slovakia supports tough action against the aggressor.

Hungary with pro-Russia stance isolated

If every EU member had adopted Hungary’s stance, Slovakia would long since have a neighbor on its eastern border other than Ukraine, Korcok remarked caustically. Rarely before have the conflicts of interest in foreign and security policy in the V4 group been expressed more strongly than in these times.

Hungary stands isolated within the Quartet with its position on the Ukraine war. Poland, the Czech Republic and Slovakia, meanwhile, are pulling in the same direction with their clear support for Ukraine. The Czech Republic, which maintains close historical and economic ties with Slovakia, has a different focus in the second half of the year anyway. After all, Prague is holding the EU Council presidency for only the second time.

At the same time, the new government under Prime Minister Petr Fiala and his Minister for European Affairs Mikuláš Bek wants to make a bella figura on the European stage. Given the enormous workload, interest in and time for Visegrád matters are very limited in Prague. Bek openly spoke of a pause for the V4.

When the Czech Republic ultimately hands over the EU Council presidency to Sweden at the end of the year, the deep conflicts of interest will probably remain. When it comes to the rule of law, Prague and Bratislava have a fundamentally different, EU-compliant understanding than their partners in Budapest and Warsaw.

The collapse of the bloc of four – already a unique feature in the EU with 27 member states – is advancing. From a European perspective, this does not have to be a bad development in these very difficult times.

ETS trilogue: Liese wants requirements for free allowances

Kick-off for the first trilogue under the Czech Council Presidency: Negotiations on the Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM) officially began on Monday. The Parliament was represented by Pascal Canfin (Renew), Peter Liese (EPP) and Mohammed Chahim (S&D), the Commission by Frans Timmermans and European Commissioner for Economy Paolo Gentiloni.

“Negotiators have set an ambitious goal of reaching a compromise till COP27,” reports a parliamentary spokesperson. The next UN climate negotiation will take place in Egypt from November 7 to 18.

“While it is important that we agree in principle, intensive negotiations are still needed on many important points,” Peter Liese writes in a statement. “For example, the Council proposes to include maritime transport only in 2027 with 100 percent auctioning of its emissions, while the Parliament wants to start with the full scope already in 2024,” he specifies.

Parliament wants ETS II to include process heat

“While the Council wants to grant free allowances to all industries at risk of carbon leakage, the Parliament wants to be more targeted and calls for additional requirements, for example, carbon neutrality plans and the application of an energy management/audit system, in order to receive free allowances,” Liese added.

“The biggest difference is in the new ETS II for heat and road transport,” he continues. And explains: Unlike the Commission, the Parliament wants to include all commercial emissions, including process heat, for example in plastics processing companies and foundries. Parliament also wants to introduce a price cap and require oil and gas producers to cover some of the costs.

The Council and the Commission, on the other hand, essentially agree on the scope of the Commission proposal. This does not include commercial activities other than the heating of buildings and road transport, thus excluding small businesses, but covers private consumers from the very beginning. Claire Stam

Gas crisis: Prague and Berlin seek solidarity agreement

Until winter, the Czech Republic and Germany want to finalize the still outstanding solidarity agreement on mutual gas supply. This was announced yesterday by the governments of both countries following a meeting between German Minister for Economic Affairs Robert Habeck (Greens) and his counterpart Jozef Síkela in Prague. The two countries have been negotiating the agreement for months; it is intended to clarify technical and financial issues for mutual gas supplies in case of a shortage.

“It is clear that the cooperation with Germany, through which almost all gas flows to us, will be essential for us in this direction,” Síkela informed. While the procurement of gas must be coordinated within the Union, the two ministers described the procurement platform initiated by the Commission as a voluntary instrument in the joint declaration.

Coal to displace gas-fired power plants

In order to save gas and fill storage facilities, the German government is also pushing ahead with the replacement of gas-fired power plants with coal-fired power plants. After a bill to this effect was passed by parliament last week, the government ministries yesterday agreed on the still-necessary regulation, according to government sources. This will enable the so-called grid reserve to be accessed. This will initially affect plants that originally were to be shut down this and next year.

A list from the Federal Network Agency shows that these are mainly hard coal-fired power plants in southern Germany, such as those operated by EnBW or Uniper. Starting in October, lignite-burning coal-fired power stations that are particularly harmful to the climate could also be switched on again if necessary under further regulation.

With the current forward prices on the electricity market, high utilization of gas-fired power plants can be expected so far, even in winter, Marco Wünsch of Prognos wrote yesterday. “In addition to activating other power plants, electricity-saving should be addressed even more actively.” rtr/ber

Finland against further aid for Uniper by Fortum

Unlike the German government, the Finnish government does not raise hopes that Uniper’s majority shareholder Fortum will further participate in the bail-out measures for the ailing German energy group. As Fortum’s majority shareholder, the Finnish government does not consider it possible for the group to invest more in Uniper, Europe Minister Tytti Tuppurainen, who also oversees Finnish state holdings, told Finnish news agency STT. Fortum has already shown its commitment, she said.

The Finnish government holds over 50 percent of Fortum’s shares. The Finnish group in turn owns around 78 percent of Uniper. Fortum has already provided its German subsidiary with around €4 billion in cash and the same amount in guarantees. German Minister for Economic Affairs Robert Habeck, on the other hand, wants the owner to pitch in: “It belongs to someone, someone who is solvent and can provide support,” the Green politician told Deutschlandfunk radio on the weekend.

Uniper submitted an application to the German government for stabilization measures on Friday. The Düsseldorf-based group has to buy gas on the market due to reduced Russian gas supplies. However, the group has so far been unable to pass on the costs to its customers, leading to liquidity problems at Uniper. dpa

Proposals for social standards of the taxonomy presented

Yesterday, the EU Platform on Sustainable Finance presented a draft recommendation on ‘minimum safeguards’ for the green taxonomy. According to the Taxon omy Re gulation, which has been in force since June 2020 and provides a framework for sustainable investment, economic activities are only environmentally sustainable if they are carried out in accordance with international human and labor rights. Article 18 of the regulation stipulates that minimum standards be established. The Platform on Sustainable Finance, an advisory body to the EU Commission, has now produced an expert opinion with proposals on this.

In addition to human rights, the proposals include taxes, corruption and competition. The platform defines several exclusion criteria for each area. According to the proposal, if a company meets one of the criteria, it should be deemed to be non-compliant with the taxonomy. For example, companies must develop “adequate internal controls, ethics and compliance programmes or measures for the purpose of preventing and detecting foreign bribery” and must not have been convicted of tax evasion.

Mechanisms for a change in awareness

The standards are based on the OECD’s Due Diligence Guidance for Responsible Business. The platform is also guided by the International Bill of Human Rights and the United Nations Guiding Principles on Business and Human Rights and the International Labor Organization’s (ILO) Occupational Health and Safety Standards.

Currently, a whole range of regulations are emerging with ESG standards in mind, said Antje Schneeweiß, head of the Platform for Sustainable Finance. “That’s why we don’t want to make it more complicated, but want to make the standards fit well into the regulatory environment.” In addition to the recently renegotiated Corporate Sustainability Reporting Directive and corporate due diligence requirements, for which a Commission proposal is on the table, the Commission also wants to draft a social taxonomy. The social standards of the green taxonomy are to be in line with all these requirements.

“The challenge is that we create mechanisms for a change in awareness,” said Signe Andreasen Lysgaard, a consultant at the Danish Institute for Human Rights and a member of the platform. “It’s no longer just the risks to the company that are assessed, but the risks to people.”

Until August 22, it is possible to submit feedback on the draft on the platform’s website. leo

Lithuania tightens controls on goods in transit to Kaliningrad

The situation over the Russian exclave of Kaliningrad deteriorated further on Monday. The EU country Lithuania extended trade restrictions with the Russian Baltic Sea exclave after the European Union’s sanctions against Moscow over its invasion of Ukraine came into force.

Additional goods banned from transit between Russia and Kaliningrad since Monday morning include concrete, timber, alcohol and alcohol-based industrial chemicals, a Lithuanian customs spokesman said. Russia warned Lithuania and the European Union on Friday that it could adopt “harsh measures” against them if the transit of some goods to and from Kaliningrad did not resume “within the coming days”.

On Monday, the Kaliningrad regional governor proposed a ban on movement of goods between Russia and the three EU Baltic member states Lithuania, Latvia and Estonia, apart from transit to Kaliningrad. That could divert Russian freight from their ports.

Russian President Vladimir Putin and his Belarus counterpart Alexander Lukashenko, a close ally, discussed a possible response to Lithuania’s actions during a phone call, their Telegram accounts said. The Kremlin spoke of “certain possible joint steps…in connection with the illegal restrictions imposed by Lithuania on the transit of goods to the Kaliningrad region.”

The EU Commission has been trying to reach a compromise to resolve the impasse since the end of June. However, the government of the former Soviet republic of Lithuania is worried about doing something that could be seen as a concession to the Kremlin, according to reports. A Foreign Ministry spokesman on Monday referred to statements by Chancellor Olaf Scholz and Foreign Minister Annalena Baerbock, both of whom stressed that transit links were not covered by EU sanctions. They expressed hope that an agreement would be reached. EU diplomats said it was unfortunate that Lithuania’s position had hardened.

Kaliningrad borders NATO and EU member states Lithuania and Poland and relies on transit rail and road traffic through Lithuania for most of its goods. Since June 17, however, Lithuania’s customs have stopped the delivery of goods on the EU sanctions list against Russia. Goods such as foodstuffs are exempt from the sanctions. Passenger transit is not banned, and Kaliningrad can still be reached by air or sea. rtr

Chip manufacturers invest billions in France

US chipmaker GlobalFoundries and European supplier STMicroelectronics announced plans for a joint semiconductor factory in France. On Monday, the Élysée Palace put the total investment for the new site near the border with Italy and Switzerland at €5.7 billion. The government in Paris will itself make a “significant” contribution, but did not initially name a sum.

“This is the biggest industrial investment in recent decades outside of the nuclear sector and a big step for our industrial sovereignty,” French Finance Minister Bruno Le Maire. President Emmanuel Macron will personally visit STM’s existing plant in Crolles near Grenoble today, where the new factory will also be located.

The plant is to reach full capacity by 2026 and create around 1,000 new jobs. Chips down to a structure size of 18 nanometers are to be produced there. The new FD-SOI technology (Fully Depleted Silicon On Insulator), which enables high performance with reduced power consumption, will also be used.

“We will have more capacity to support our European and global customers in the transition to digitalization and decarbonization,” said STMicro CEO Jean-Marc Chery. He added that the new plant will help STMicro grow revenue to more than $20 billion as planned. “The partnership investment with the French government, along with our long-term customer agreements, creates the right economic model for GF’s investment,” said GF CEO Dr. Thomas Caulfield

The EU Commission and member states want to reduce the dependence of domestic industry on chip production in Asia and are courting major manufacturers. Previously, the US corporation Intel already announced plans to invest €17 billion at the Magdeburg site. The European Chips Act is intended to make it easier for governments to attract companies with subsidies and thus more than double the EU’s share of global value creation to 20 percent by 2030.

Experts point out, however, that the planned factory in France fits only partially into Commissioner for the Internal Market Thierry Breton’s strategy of making Europe the location for cutting-edge semiconductor technology. Much of the planned production by STM and Global Foundries uses more mature technology, says Jan-Peter Kleinhans of the New Responsibility Foundation. It is still hard to say, he says, whether this meets the definition of “first of a kind” in the Chips Act, which is supposed to allow generous subsidies from governments. But he says Europe must also support such projects “if it is serious about its goal of increasing the share to 20 percent.” rtr/tho

EU authorities recommend second COVID booster for over 60-year-olds

European Union health authorities are recommending that all people over 60 receive a second COVID booster vaccination. “It is crucial that everyone above 60 and all vulnerable persons come forth for a second booster dose as quickly as possible,” EU Health Commissioner Stella Kyriakides said on Monday.

At present, according to the European health authority ECDC, there is not only an increasing number of COVID cases, but also an increasing trend in hospital and intensive care unit admissions, mainly due to the Omicron sub-variant BA.5. A second booster vaccination in those over 60 years of age and vulnerable individuals is said to be able to prevent a significant number of hospitalizations and deaths.

Previously, the ECDC and the European Medicines Agency (EMA) only recommended a second booster for people over the age of 80. The second booster vaccination should be administered at least four months after the last vaccination, according to the authorities, with a focus on people who received their first booster more than six months ago.

While existing vaccines continue to provide good protection against hospitalization and death, their effectiveness has declined as the virus has evolved and new variants have emerged. Manufacturers have therefore developed vaccines adapted to the highly contagious Omikron variant and are already getting ready to roll them out.

“We are working towards possible approvals of adapted vaccines in September,” said EMA’s Executive Director, Emer Cooke. “In the meantime, it is important to consider using currently authorised vaccines as second boosters in people who are most vulnerable.” rtr

Thomas Nowak – the heat pump prophet

When Thomas Nowak is supposed to speak at the climate conference in Glasgow, he won’t take a direct flight from Germany. Instead, the Secretary-General of the European Heat Pump Association (EHPA) travels across the UK by car, visiting pilot projects with heat pumps along the way. “Did you know that even Bath Cathedral is heated with a heat pump?” asks Nowak.

Nowak was born in Germany’s Sauerland region in 1970. While studying economics in Paderborn and at Illinois State University, he became interested in renewable energies. As a student, he voluntarily drives from Paderborn to Münster every Wednesday because the local university offers lectures on environmental management and environmental economics.

When he looked further into geothermal heat pumps, he became excited about the technology. Nowak’s report, he says, was hardly read by anyone at the time, but by chance it landed on the desk of EHPA’s then Secretary-General.

Heat pumps suddenly in vogue

While Nowak has been an enthusiastic advocate for the topic for years, heat pumps have become a trending topic at the latest due to high gas prices. “We’ve never had such a big increase in demand. We’re seeing a 34 percent increase. Except for smartphones or e-bikes, hardly any industry can keep up with that,” he says. It could still take up to 18 months before they can keep up with demand, he adds. This is also due to how the technology is treated politically.

“Heat pumps should be declared critical infrastructure and given priority,” Nowak urges. “We don’t need more strategies, we need to take action and implement the energy transition.”

With the Defence Production Act, the United States is showing how policymakers can meet rising demand. The legislation gives manufacturers of heat pumps preferential access to certain components. Thomas Nowak calls for the same for Europe: “Actually, Robert Habeck should get up on stage, roll up his sleeves and say: now we’re going to get it done. With such a mentality in politics, we could achieve a lot.”

Request from Poland’s coal industry

Thomas Nowak is convinced that heat pumps are the future. His goal: a carbon-neutral society. “With photovoltaics on the roofs, thermal and electrical storage in the basement, and heat pumps that heat or cool as needed, keeping energy in a cycle. I believe it can be done.”

Meanwhile, the competition is backing him up in this mission. Just recently, EHPA received an inquiry from Opole in Poland, the coal region par excellence. “They wanted to meet with us and find out how they can transform their production and where their workers can find employment in an industry of the future,” Nowak reports.

“My work gives me the good feeling of working toward a goal that I can probably live to see.” He is already making his personal contribution: His house contains a whopping five heat pumps – in addition to heating, they are also used in the refrigerator and the clothes dryer. “My family already sometimes says, I should stop it with the heat pumps – but they already know what is up.” Svenja Schlicht