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EU’s environmental and energy independence plans, known as, RePowerEU will be published tomorrow — including plans on installing solar panels on all buildings. We will look at what the package has to say about independence from Russian gas and why some environmental groups claim it can be achieved faster than what the European Commission proposes.
On the oil embargo, there was no breakthrough at the EU foreign ministers’ meeting yesterday, with Hungary demanding up to €18bn to cover their transition and adjustment from Russian oil to alternative energy sources.
With payment deadlines for several large European gas importers fast approaching, the commission has clarified its guidance on sanctions-compliance vis-à-vis Gazprombank, saying that companies can open an account to make their payments, as long as their transaction is considered complete once they’ve wired over the amounts in euro or US dollars (rather than continuing to be on the hook until the sum gets converted into roubles).
EU defence ministers are meeting Nato and European Defence Agency officials today in Brussels, with their Ukrainian counterpart tuning in remotely to ask for more weapons. But the commission’s own assessment on remaining defence spending gaps and plans on creating a dedicated task force to co-ordinate joint purchasing (including US weaponry) are only happening after the meeting, either tomorrow or Thursday.
With Chinese industrial output having contracted last month for the first time since 2020, we will look at Europe’s economic headwinds and what IMF officials have to say about it.
And after French president Emmanuel Macron finally nominated his new prime minister, we will explore a power struggle within the European Central Bank, where it briefly appeared as if Christine Lagarde was a possible option.
Gas-free industry
The EU tomorrow will unveil a €195bn plan to wean itself off Russian oil and gas by 2027, but, according to a study discussed with commission officials, European industry could cut its reliance on natural gas much faster than that, writes Alice Hancock in London.
Draft RePowerEU documents suggest that changes to behaviour could cut overall EU gas use by 5 per cent in the short-term and that actions taken by industry could save up to 35bn cubic metres of natural gas by 2030.
But a report from Climact, the environmental NGO, estimates that industrial players could reduce near-term natural gas consumption by 26.6 bcm by 2027.
To achieve this, companies must take “ambitious” short-term actions, the report says by rapidly installing heat pumps, recycling more plastic waste and, in the food industry for example, moving to electric ovens and microwaves.
Gas makes up 28 per cent of the total energy use in European industry, roughly 1,030 TWh, according to Climact’s figures. The chemical and food industries are the two heaviest users of the fuel.
The commission suggests hydrogen as the best way to replace gas in industrial production, but its draft proposals leave a blank where figures for how much transitioning to renewable hydrogen (as opposed to methane-generated hydrogen) would cost and does not give specifics on what industries should do to cut gas use.
Climact goes heavy on recommending heat pumps and electrification as a quicker and more sustainable way to reduce gas use in the short term. The commission says in the RePower proposals that it will revise the current requirements for heat pumps in the first quarter of 2023.
The big hurdles for industry to lower gas use are lack of infrastructure and the availability of renewable energy, executives say.
Paul Skehan, senior director of EU affairs at PepsiCo, said “the cost of moving to electricity for our heat requirements is often double” and that made investment “prohibitive”.
Chart du jour: China factor
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The shadow cast by the Ukraine war on the EU economy was underscored by a dreary set of economic projections from the commission yesterday. But the threats to growth also come from further afield, as Gita Gopinath, the IMF’s first deputy managing director, explained in an interview, writes Sam Fleming in Brussels.
Figures from China yesterday showed its economic activity contracted sharply in April, driven by a wave of Covid-19-related lockdowns across the country.
Speaking on a trip to Brussels, Gopinath noted that activity in China had fallen notably below expectations in April, and that this would increase the downside risks to the fund’s forecasts. The fund in April predicted 4.4 per cent growth for China this year, sharply down from 8.1 per cent in 2021.
Other economies would also feel the impact, she explained. The slowdown would add a “significant headwind” to major manufacturing economies such as Germany which were important trading partners for China. The same applied to Asian economies which do a lot of business with China.
“The supply chain frictions we were hoping would seriously alleviate this year: we are not seeing that yet,” she added.
Addressing the situation in China, she said: “We certainly expected that this combination of more frequent outbreaks and more lockdowns would slow down activity significantly in China. Now the lockdowns have become much more broad-based than they were a few months ago, when it was much more targeted.”
Lagarde rivals
With labour minister Élisabeth Borne nominated as French prime minister yesterday, the rumour mill about the fate of Christine Lagarde as head of the European Central Bank has ground to a halt.
Up until yesterday, no matter how slim Lagarde’s chances to move back to Paris may had been, they hadn’t stopped potential successors from jostling for position just in case she got the job, write Martin Arnold in Frankfurt and Leila Abboud in Paris.
In the build-up to the prime ministerial announcement, it has not gone unnoticed that some ECB governing council seemed to have been behaving unusually.
Krishna Guha, a former US Federal Reserve staffer who is vice-chair at investment bank Evercore ISI, said, “The balance of power has been unsettled by speculation that Lagarde could leave to become prime minister of France in June, creating a vacancy for the top job.”
Dutch central bank head Klaas Knot, Finland’s central bank boss Olli Rehn, and Banque de France’s governor François Villeroy de Galhau were all considered potential replacements for Lagarde, in the event of her leaving halfway through her eight-year term.
Knot, usually on the hawkish side of the monetary policy debate, was oddly quiet in recent weeks, even as other governing council members have been lining up to call for the ECB’s first rate rise in a decade to come by July.
Meanwhile Rehn and Villeroy, normally considered to be more centrist on policy, have been loudly calling for an ECB rate rise in July — a more hawkish position aimed at appealing to northern countries.
All this posturing seems to have been for a job vacancy that was never likely to exist. Although Lagarde had been rumoured to be a possible future prime minister earlier this year, she was seen by experts in Paris as an unlikely choice because her post at the ECB is arguably more prestigious and powerful, especially under Macron who centralises power in the Elysée palace.
Her profile as a successful US lawyer, IMF president, and a centre-right politician who served as minister under former president Nicolas Sarkozy was also not the right political choice for Macron, who will be seeking to court leftwing voters in the run-up to next month’s parliamentary elections. Borne, a government official who served several centre-left administrations before being appointed labour minister in 2020, fits that bill.
Plus, it is in France’s interest to have a friendly politician at the head of the ECB, especially with recession looming, inflation rearing its head and the central bank preparing to ditch a decade of ultra-loose monetary policy.
What to watch today
EU defence ministers meet in Brussels
US Treasury secretary Janet Yellen speaks at the Brussels Economic Forum
Notable, Quotable
Nod to Nato enlargement: Vladimir Putin has signalled that Russia will tolerate Finland and Sweden joining Nato, but warned that the Kremlin will respond if the alliance installs military bases or equipment in either country.
Corporate exodus: US fast food giant McDonald’s will sell its Russian business, two months after temporarily closing its restaurants in the country, the latest corporate pullout in response to the invasion of Ukraine. France’s carmaker Renault, for its part, plans to sell its stake in Avtovaz, the manufacturer of Lada cars, for the symbolic sum of two roubles.
Scholz curse: German chancellor Olaf Scholz suffered a major setback in regional elections on Sunday when his Social Democrats slumped to their worst electoral result in North Rhine-Westphalia, once an SPD stronghold. The two big winners were the opposition Christian Democrats and the Greens.
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Source: Economy - ft.com
