Good morning and welcome to Europe Express.
Nothing says October like autumn foliage, pumpkin spice latte and — to EU aficionados — decamping in Luxembourg for the ministerial councils this month. With the energy price crisis having contributed to worsening inflation data, we’ll explore how the issue is likely to dominate the eurogroup today — and several other ministers’ meetings taking place at the Kirchberg Conference Centre.
Also on the eurogroup agenda, though a mere side note, is the single currency’s mushrooming supervisory architecture. We’re unpacking what the thousands of newly employed financial sleuths are supposed to be doing and when the yet-to-be-established structures are expected to come online.
And with local elections in Italy ending tonight, we look at Matteo Salvini’s dwindling fortunes — with the caveat that the political survival skills of “Il Capitano” should not be underestimated.
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EU disputes, reignited
Europe’s escalating energy price crisis will be the focus of attention today when eurozone finance ministers discuss how surging electricity and gas prices could strain government coffers and scupper the EU’s nascent economic recovery, writes Mehreen Khan in Brussels.
This afternoon’s meeting of the eurogroup in Luxembourg will be dominated by record prices for natural gas, the causes and consequences of which are dividing member states.
The EU’s southern and eastern countries have called on Brussels to help alleviate the pressure on their struggling households, demanding the European Commission come up new emergency funds and provide explicit support for national spending measures to protect consumers.
In an interview with the Financial Times, Spain’s deputy prime minister Nadia Calviño urges the commission to provide a common response after Madrid has been forced into drastic action to curb price rises for consumers. France and Italy have launched similar emergency measures this month.
Brussels has said it will make clear the tools member states have at their disposal — in line with EU energy and competition rules. But the commission is unlikely to offer radical measures such as diverting the profits from the bloc’s Emissions Trading Scheme to cushion the blow for households. A commission’s “flexibilities” paper is likely to be published next week.
Brussels’ initial response may prove to be modest, but officials and diplomats are acutely aware of how the energy debate could poison talks on crucial policy areas that will need to be resolved in the upcoming months.
The energy crisis has touched on some of the EU’s most sensitive internal debates, from the bloc’s approach to carbon taxes, dependence on Russian gas, upcoming rules for sustainable finance, and the pending revision of EU spending rules.
European leaders are due to grapple with the potential fallout at a summit in Brussels later this month. Northern member states are balking at the idea that higher fuel costs should lead the EU to slow down the road to decarbonisation. The fact that poorer, more fossil fuel reliant countries are in line to suffer the brunt of the impact also risks deepening divides on the transition to net zero and a looming revamp of EU fiscal rules.
“This has the potential to sow distrust between countries as we enter a gruelling winter,” said one EU official.
Chart du jour: Booster effect
In an interview with the FT, BioNTech chief executive Ugur Sahin said Covid-19 vaccines might need significant changes next year to deal with new variants, along with booster shots and doses for the unvaccinated. Around the globe, Israel has been an outlier in its booster campaign for anyone over 12 — with encouraging results. In the EU, France was the first country to start administering booster jabs to over 65 years old last month. In the UK, booster shots are being offered to those over 50. (More here)
Europe’s growing supervisory thicket
Earlier this year some could be heard arguing that the advent of a new German coalition government after federal elections had the potential to break some of the most stubborn stalemates in the EU agenda, among them over the long-stalled Banking Union project, writes Sam Fleming in Brussels.
Such claims are more likely to elicit cynical looks at the eurogroup today, as policymakers grimly contemplate continued political deadlock on files including European deposit insurance and bank crisis management.
Yet as a forthcoming note from the Centre for European Policy Studies argues, beneath the stagnant surface there is surprisingly rapid movement in other parts of the EU’s regulatory scene.
Karel Lannoo, the note’s author, describes a “blossoming European supervisory architecture” as the EU continues to amass new financial supervisory tasks, structures and employees. Some 2,500 people are now employed in EU financial supervision, the note finds — an enormous expansion compared with the pre-crisis era of thinly staffed supervisory committees with dozens of employees.
Half of those individuals are working in the Frankfurt-based banking supervisor housed at the European Central Bank. Others are in bodies including Paris-based Esma, whose proposed new chair Verena Ross won support from the European parliament’s econ committee last week.
The arrival of the proposed new Anti-Money Laundering Authority in the first half of this decade will add at least another 250 to the EU’s army of scrutineers — teeing up a battle among capitals to win the coveted job of hosting the agency.
The problem with all this is, inevitably, the system’s burgeoning complexity and the problem of duplication and overlap with national bodies. New proposals for the regulation of crypto assets and the handling of technology risks in the financial sector (known by the affable-sounding acronyms Mica and Dora) have for example been bogged down in political turf wars.
Meanwhile, the Brussels-based Single Resolution Board has only once been used in a fully fledged bank resolution, as governments seek to circumvent the EU-level rules and protect their failing banks using taxpayer money.
Esma is seen as one of the success stories, and it counts the credit rating agencies and trade repositories among the institutions directly under its watch. But it is far from being the powerful capital markets regulator and supervisor that some believe is necessary to achieve a level playing field for market players and further the goal of Capital Markets Union (CMU).
Indeed, that long-cherished EU ambition — which has been around for more than a decade and a half — remains as elusive as ever, as member states seek to guard the privileges of their own domestic watchdogs and build up the fortunes of their financial centres. The scant prospects for progress on CMU are unlikely to be enhanced when finance ministers meet today and tomorrow.
As CEPS argues, Europe’s financial supervisory tasks and structures are growing at a rapid pace, but “a clear vision is missing”.
Salvini in troubled waters
Mayoral elections in Italy’s largest cities that started yesterday and are ending this evening are expected to do little to alleviate the troubles engulfing Matteo Salvini, the embattled leader of the populist League party, writes Davide Ghiglione in Rome.
About 12m voters are going to the polls across the country, in more than 1,000 cities and smaller towns, for the first time since former European Central Bank president Mario Draghi was appointed prime minister last February.
The centre-left is expected to win the most important cities, including Milan, Rome and Naples, while the outcome in Turin looks uncertain — with the centre-right possibly scoring a win there.
The projected setbacks of the centre-right only solidify Salvini’s downward trend, aggravated last week when his social media manager, Luca Morisi was placed under police investigation for the alleged possession and sale of drugs. As the news leaked, Morisi resigned from the party, saying that he needed to “unplug” for family reasons. Morisi has denied the allegations, but said “the personal matter that concerns me represents a serious fall as a man”.
His resignation, however, wasn’t enough to shelter Salvini, who himself is to stand trial for refusing migrant ships to dock in Italian ports when he was minister of interior.
Morisi’s departure complicates Salvini’s attempt to bring about yet another transformation of his party, as he seeks to attract a more moderate and pro-European voter base.
The social media guru had been one of Salvini’s closest advisers and had a crucial role in the success of the populist leader’s public profile on social media, which rebranded the League from a one-time northern separatist group into a pan-Italian nationalist party with a strong anti-immigrant discourse.
Morisi’s method was simple: keep a steady flow of posts, tweets and Instagram stories showing Salvini engaging in relatable, day-to-day activities — from eating Nutella to praying on his knees before the Virgin Mary — all lined with xenophobic messaging.
Since Salvini decided to support the government led by Draghi, who as head of the ECB was credited with saving the euro, the League’s national poll ratings are eroding, slipping to second place.
Just as the League’s appeal is waning, the far-right Brothers of Italy — the only opposition party — enjoy more public support nationwide than any other Italian party (23 per cent in recent polls) after having scooped up a significant chunk of Salvini’s voters. Brothers of Italy leader Giorgia Meloni is now a serious contender to Salvini’s claim to become the candidate of a potential centre-right coalition to replace Draghi when his term ends.
Within the League itself, tectonic shifts are under way: Some members are silently reorganising around Giancarlo Giorgetti, a business-friendly political veteran who represents the mainstream wing of the party. As minister of economic development, Giorgetti has been carving out an increasingly crucial role for himself within the Draghi government, leaving Salvini only the crumbs.
Some observers warn against writing Salvini off too soon, after all, he did succeed in convincing voters multiple times, shifting from an anti-euro, to an anti-immigration and now to a pro-European stance.
“Figures with the political capital of Salvini don’t end in an instant,” said Gianluca Passarelli, professor of political science at Sapienza university in Rome. “He has still a dense network of loyal supporters throughout the country who will continue to fight alongside him.”
What to watch today
Eurozone finance ministers meet in Luxembourg
European parliament starts its week-long Strasbourg session
. . . and later this week
EU leaders meet in Slovenia tomorrow for an informal dinner ahead of a summit with western Balkan leaders Wednesday
EU environment ministers meet in Luxembourg Wednesday
Czech parliamentary elections take place on Friday and Saturday
Coalition talks: Germany’s leading political parties have started exploratory talks yesterday, with the pro-business Free Democrats meeting (separately) with potential Social-Democratic chancellor Olaf Scholz and his rival from the centre-right, Armin Laschet. The Greens are expected to hold talks with the conservatives tomorrow.
Trickle of visas: British PM Boris Johnson signalled he would resist business pressure for more temporary visas for foreign workers to ease supply chain disruption.
Credit Suisse, raided: Swiss police have raided the lender’s offices and seized documents relating to the collapse of its $10bn fund range linked to Greensill Capital. The public prosecutor in Zurich has opened a criminal investigation into Greensill’s activities and the way in which Credit Suisse funds that financed the British firm’s contentious lending schemes were managed and marketed, according to two people familiar with the probe.
EU insolvency rules: Proposed rules to deal with failing insurance companies have been criticised for potentially exposing policyholders to losses. Brussels last month unveiled a bloc-wide resolution framework for the sector, similar to banking rules that came into force in 2015.
Post-election Germany, unpacked
Join the Europe Express team this afternoon for a subscriber-only webinar on the outcome of Germany’s election and its implications for Germany and the rest of the world. Register free at ft.com/germanwebinar