Good morning, happy Friday. Yesterday in Davos, Christine Lagarde poured a bucket of cold water over rising optimism that interest rates in the eurozone might not keep rising. That’s a blow to investors who have bet on it, and businesses and homeowners counting the costs of higher rates, writes our economics correspondent. And we look into the curious case of gifts given to European parliament president Roberta Metsola, and how a certain dried sausage appears to undermine her promise to always adhere to the rules.
Not so fast
If you thought that the European Central Bank was done raising interest rates, think again, writes Valentina Romei.
ECB president Christine Lagarde yesterday cooled hopes that the bank’s tightening cycle was ending, warning investors to “revise their position” when betting on lower peak interest rates. “They would be well advised to do so,” she pointedly told a panel at the World Economic Forum: the ECB was determined to “stay the course”.
Hours later, the minutes of the December ECB monetary policy meeting showed that a “large number” of rate-setters wanted a 75 basis point increase at the last meeting, before settling on a 50 basis point rise alongside hawkish communication.
Context: the ECB raised rates in the single currency zone to 2 per cent in December, up from 0.5 per cent in June, and some investors are betting that it may not go much further.
Not so. The hawk-o-meter hit new heights for the ECB yesterday, commented Ken Wattret, head of European analysis at S&P Global Market Intelligence.
The ECB wants to tighten monetary policy until inflation has really been killed, which could take some time, given that eurozone inflation excluding energy and food prices — those most affected by the war in Ukraine — is still accelerating. “Inflation, by all accounts, is way too high,” Lagarde said.
The bank feels empowered to take on inflation so directly thanks to an unexpected resilience in the eurozone economy, with some economists now suggesting there won’t be a recession in 2023, as previously feared.
“It’s not a brilliant year but it is a lot better than what we had feared,” as Lagarde put it.
The flip side of that, of course, is that higher borrowing costs for longer mean prolonged pressure on households and businesses.
If interest rates do not come down, growth next year could be weaker than previously expected, many economists are warning. You win some, you lose some.
Chart du jour: Cashing in
The number of European bankers earning over €1mn a year soared by more than 40 per cent in 2021 to the highest level ever recorded, according to the European Banking Authority, thanks to Brexit-related relocations from the UK and an increase in trading.
Gift dump
If you give a gift to Roberta Metsola what happens to it? Alice Hancock ponders.
That is the question hanging over the European parliament president, whose staff listed over 140 gifts on the parliament’s gift register on January 12, including a “sheer white dress” and a “dried sausage”. Coincidentally, that was the same day she told the Financial Times that she sent all her gifts back.
“I look at every gift and I send it back, and I go through a huge, you know, hassle,” she said. No gifts to Metsola had previously been listed on the register before that date — in fact, only nine MEPs had previously reported any presents.
Metsola has made reforming the European parliament’s ethics and transparency procedures, in the wake of one of the institution’s worst corruption scandals, a calling card for her reputation as the EU gears up for elections in 2024.
Not least as her name is on the lips of some in Brussels as a potential candidate for next president of the European Commission. The interview last Thursday was to set out 14 first steps towards cleaning up the EU’s largest democratically elected body — many of which do not go far enough, lawmakers say.
Metsola’s spokesperson said that the comment on sending gifts back was a slip of the tongue: “All the gifts that Metsola receives are considered gifts to the institution. We tried to come out and be transparent, hence the big bang on registering them. They are sent to the protocol service.”
Apparently there is also an exhibition of gifts sent to the parliament’s presidents in Strasbourg, should you wish to go see them. Including, we hope, the sausage.
What to watch today
Defence ministers from around 50 western nations meet in Ramstein to co-ordinate military assistance to Ukraine. US defence secretary Lloyd Austin to deliver opening remarks at 1000, closing press conference at 1630.
Christine Lagarde, IMF managing director Kristalina Georgieva and French finance minister Bruno Le Maire speak in Davos at 1000.
Now read these
Defending democracy: In this moving personal essay, Martin Wolf extols the benefits of democratic capitalism and demands that we reform and protect it for our descendants.
War games: John Thornhill steps inside an utterly frightening doomsday simulation: 300 Russian nuclear missiles are heading to the US. What do you do?
Green frenemies: The US says it prefers co-ordination rather than competition with the EU on green subsidies. But neither side has the institutions or the willingness to do so, argues Alan Beattie.
Source: Economy - ft.com
