Aurelia Butler

BRUSSELS (Reuters) – The European Commission wants to see more action from Hungary on stepping up anti-corruption safeguards before Brussels agrees to unlock EU funds, EU sources said.One source called Budapest’s efforts to secure funds a “charm offensive” but said there had been no “immediate breakthrough” in talks on the issue last week between EU officials and Hungarian Justice Minister Judit Varga.The European Commission has been withholding its approval for Hungary to draw on money meant to help lift economies from the COVID-19 pandemic, accusing nationalist Prime Minister Viktor Orban’s government of undermining the rule of law.Ahead of Varga’s talks in Brussels last Wednesday and Thursday, Hungary announced that it will create an anti-corruption authority and a working group involving non-government organisations to oversee the spending of European Union funds.The European Commission said after the meetings that it would consider Budapest’s proposals.Varga told EU officials last week that Budapest’s promise to set up a new anti-graft agency should be enough for Brussels to unlock some 6 billion euros ($6.08 billion) in COVID stimulus funds, and refrain from clawing back even more from money earmarked for Hungary from the bloc’s 2021-27 shared budget, according to EU sources.But the sources, familiar with Varga’s discussions, voiced caution. “Let’s call it a charm offensive,” one EU official said. “But the devil is in the detail.”A second EU official said that Hungary’s proposals were a step in the right direction but that implementation was key.Orban has come under increased pressure to strike a deal with the Commission as a weakening forint exacerbated economic woes in Hungary in recent weeks. But after years of increasingly bitter EU feuds with Budapest over democratic standards, corruption, migration and LGBTQ rights, a third EU official said: “There is little trust in Hungary.”Hungary had irregularities in nearly 4% of its spending of EU funds in 2015-2019, according to the bloc’s anti-fraud body OLAF, the highest among the 27 EU countries by far.EU lawmakers will likely call on the Commission not to let Hungary off the hook when they debate the state of democracy and fundamental rights in the ex-communist country on Wednesday. The Commission then has until Sept.21 to assess if the latest proposals from Budapest are enough to ease its concerns. If not, Brussels would recommend to the other EU countries punishing Budapest under the bloc’s “money for democracy” scheme that affects all of the bloc’s joint funding worth 1.8 trillion euros in 2021-27.EU Budget Commissioner Johannes Hahn has proposed that some 70% of EU funding envisaged for Hungary could be at risk, according to a July document published by the Commission.($1 = 0.9872 euros) More

Last week, the MPC raised interest rates by 25 basis points, and the governor of the National Bank of Poland (NBP) said that in October, key rates may either be hiked by 25 basis points or remain unchanged amid concern that excessive tightening of monetary policy could hurt a slowing economy.”… the space for further rate hikes has been significantly reduced, and the likelihood of ending the rate hike cycle has increased,” Kochalski wrote in response to Reuters’ questions.”After the September decision of the Council, the probability of leaving rates unchanged in October increased,” he added.The September rate hike was the smallest in the current cycle. So far, the MPC has raised interest rates 11 times, and the main interest rate is now at 6.75%.”I do not exclude the prospects of rate cuts in 2023. Much will depend on the size of the economic slowdown with the expected drop in inflation,” Kochalski wrote.The MPC was forced to significantly tighten monetary policy – interest rates have jumped by 665 basis points since October 2021 – due to rapidly accelerating inflation. In August, CPI stood at 16.1%, according to preliminary data.”I expect inflation close to 16% in the third quarter of this year, and lower in the fourth quarter, although not much,” wrote Kochalski.”There are many indications that given the high cost and price pressure, next year’s consumer inflation growth will be significantly influenced by the decision on the horizon of maintaining the anti-inflationary shield, which may significantly push inflation away from the 20% limit,” he said. More

Investing.com — The German economy is expected to contract in 2023, according to a forecast from the Ifo Institute in Munich, due mainly to spiking inflation eating away at private consumer spending.Europe’s largest economy is now seen declining by 0.3% next year, paring back an estimated expansion of 1.6% in 2022, the research group said in a statement Monday. Inflation is predicted to rise to 9.3% in 2023, with the figure peaking at around 11% in the first quarter in particular, as energy suppliers ratchet up prices to offset soaring procurement costs spurred on by dwindling Russian gas supplies.”This will result in a sharp drop in real household incomes and a noticeable decline in purchasing power,” Ifo said in a statement, adding that government measures to limit the impact of inflation and stem sliding growth will “fall far short” of these objectives.The forecast is “significantly” lower than Ifo’s previous outlook. Real GDP expectations have been drawn down by 4 percentage points, while inflation predictions were raised by 6 percentage points.Manufacturing will be the key driver of the German economy in the coming quarters, Ifo said, as ongoing supply chain constraints begin to ease because of cooling global growth. A renewed uptick in interest rates will also lead to more expensive financing costs for construction businesses and subsequently weigh on the entire sector.However, price increases are forecast to weaken throughout the coming year, thanks in part to large quantities of gas reserves that have been built up recently to counteract the cut to Russian fuel flows this winter. Energy costs are subsequently estimated to fall again from spring 2023 at the latest.The German economy is not estimated to “return to normal” until 2024, Ifo added, when growth will hit 1.8% and inflation will come in at 2.5%.Ifo flagged several risks to its forecast, including the development of energy prices, supply chain challenges, and restrictions on public life brought on by a potential resurgence of Covid-19 cases. More

Welcome to Trade Secrets. Today, we’ll check in on progress in something that we looked at previously — China’s role in debt crises and as a participant in global governance more generally. Also, because it’s more or less the only subject anyone is talking about publicly here in London, I’ll have a look at the late Queen Elizabeth II and her spectacular one-off policy intervention, taking on prime minister Margaret Thatcher. As ever I’m on [email protected] or open DMs on Twitter @alanbeattie for thoughts or questions. Today’s Charted waters looks at fresh global estimates of forced labour, as the EU has worked up plans to ban products made under these conditions.The danger for China in the crisis-lending gameBack in July I argued that the global system, if you can call it that, for working out sovereign debt defaults was unsatisfactorily ad hoc. In particular, China has become a big bilateral lender without participating in round-table creditor agreements to work out writedowns reasonably and equitably. Well, what do you know, just 10 days later (I’m not claiming a causal link), China announced it would participate in the plurilateral debt writedown negotiations in Zambia, having been a major lender in the Zambian economy for decades.So, is China displaying its occasional pragmatic tendency to use plurilateral systems when they’re of use to it — and particularly to avoid taking all the blame if everything goes wrong? Not so fast. My Financial Times colleagues have just revealed that China has also secretly been extending emergency loans to a variety of beleaguered countries, including Pakistan, Argentina and Sri Lanka. These are essentially countries that have previously received long-term financing under China’s Belt and Road Initiative (BRI) and are now in problem debt. This is a big deal because while China has for decades given long-term development loans in more or less direct competition with the World Bank, it has sensibly generally shied away from the uncertainty and unpopularity that comes with supplanting the IMF as a crisis lender. Secret emergency finance to bail out bad loans from the BRI without any conditionality to try to address underlying problems is not a cheering development. It’s going to mean throwing good money after bad and potentially getting the debtor further into trouble, impoverishing borrowers and other creditors alike. It also looks like poor co-ordination between different institutions in China, something that experts have always warned is an underestimated phenomenon. Just when you thought that global governance was improving a bit and authorities were working out problems pragmatically between themselves, you realise it’s never as simple as that.When the Queen went into battle for the CommonwealthOne of the reasons for the Queen’s popularity was surely her steadfast refusal to comment on political issues in public, which over a seventy-year reign is a truly impressive achievement. (I’ve tried it and managed about half an hour.)One famous exception when her views escaped into the public domain was her strong opposition to prime minister Margaret Thatcher blocking the British Commonwealth of Nations from putting trade and other sanctions on apartheid South Africa in 1986. Result: a lot of public pressure on Thatcher and a partial U-turn. It’s quite a thing for the Queen to care about the Commonwealth so much that she took the side of a bunch of foreign governments against her own. To be honest, it’s not difficult to make the case against taking the organisation seriously, as did Thatcher. It’s a group of governments of wildly disparate levels of development, and indeed democracy, and not much success in encouraging the latter among its members. It doesn’t offer privileged trade access to the UK (or indeed each others’) markets as it used to: the UK joining the European Communities in 1973 saw to that. The occasional monomaniacal dreamer goes on about a CANZUK (Canada, Australia, New Zealand, UK) trade deal, but that idea’s going nowhere. Unlike France with its former colonies, the UK doesn’t still run Commonwealth countries’ currencies or intervene quite as readily in their politics.Still, it’s clearly worth it for the Commonwealth’s members, of whom four relatively recent joiners (Mozambique, Rwanda, Gabon and Togo) weren’t even British colonies. It does provide technical assistance for trade and development, and it does some good work on aid. The heavily indebted poor countries (HIPC) campaign that wrote off sovereign debt owed to governments, the IMF and the World Bank in the late 1990s had its roots partly in the “Mauritius Mandate”, a call for debt relief made at a Commonwealth summit.As decolonisation recedes into the past, so does the Commonwealth’s original rationale of managing the process. But a forum for developing and developed countries to talk about salient issues seems more or less worth having. As well as this newsletter, I write a Trade Secrets column for FT.com every Wednesday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.Charted watersThe EU is on the brink of adopting a ban on all products made with forced labour, though officials admit it will be hard to identify them, Javier Espinoza and Andy Bounds report from Brussels. This net will be cast wider than that of the US, which earlier this year enacted a blanket ban on all imports from China’s Xinjiang province, where there have been allegations of human rights abuses against Muslim Uyghur and other minorities. But catching violations at any stage of the production process will be tricky for EU member states, especially if countries do not co-operate. Services — including trade, transport and hospitality — account for the biggest share of forced labour internationally. There are 28mn people around the world in situations of forced labour, up by nearly 11 per cent since 2016, a joint report by the International Labour Organization, Walk Free, and the International Organization for Migration revealed today. Migrants account for about 5 per cent of the total global labour force, but represent 15 per cent of adults in forced labour, the data showed. “Banning imports of products made with forced labour is a step in the right direction, but it must be a clear and transparent process that protects those who have been exploited,” Katharine Bryant, Walk Free’s head of policy and programmes, told Trade Secrets (Georgina Quach). Trade linksCargo freight costs are generally back down to the levels of last spring before the great post-lockdown surge, giving some support to Team Transitory (of which I am one) in the shipping snarl-up debate.The International Energy Agency details China’s massive dominance of the solar energy supply chain.The Economist looks at how the European energy market could be reformed to help address crises.The Times of India explains why Delhi stayed out of the US’s new Indo-Pacific trade initiative.Trade Secrets is edited by Georgina Quach today. More

WASHINGTON(Reuters) – The Biden administration plans next month to broaden curbs on U.S shipments to China of semiconductors used for artificial intelligence and chipmaking tools, several people familiar with the matter said.The Commerce Department intends to publish new regulations based on restrictions communicated in letters earlier this year to three U.S. companies — KLA Corp, Lam Research Corp (NASDAQ:LRCX) and Applied Materials Inc (NASDAQ:AMAT), the people said, speaking on the condition of anonymity. The plan for new rules has not been previously reported. The letters, which the companies publicly acknowledged, forbade them from exporting chipmaking equipment to Chinese factories that produce advanced semiconductors with sub-14 nanometer processes unless the sellers obtain Commerce Department licenses. The rules would also codify restrictions in Commerce Department letters sent to Nvidia (NASDAQ:NVDA) Corp and Advanced Micro Devices (NASDAQ:AMD) last month instructing them to halt shipments of several artificial intelligence computing chips to China unless they obtain licenses.Some of the sources said the regulations would likely include additional actions against China. The restrictions could also be changed and the rules published later than expected. So-called “is informed” letters allow the Commerce Department to bypass lengthy rule-writing processes to put controls in place quickly, but the letters only apply to the companies that receive them.Turning the letters into rules would broaden their reach and could subject other U.S. companies producing similar technology to the restrictions. The regulations could potentially apply to companies trying to challenge Nvidia and AMD’s dominance in artificial intelligence chips. Intel Corp (NASDAQ:INTC) and startups like Cerebras Systems are targeting the same advanced computing markets. Intel said it is closely monitoring the situation, while Cerebras declined to comment.One source said the rules could also impose license requirements on shipments to China of products that contain the targeted chips. Dell Technologies (NYSE:DELL), Hewlett Packard Enterprise (NYSE:HPE) and Super Micro Computer (NASDAQ:SMCI) make data center servers that contain Nvidia’s A100 chip. Dell and HPE said they were monitoring the situation, while Super Micro Computer did not respond to a request for comment.A senior Commerce official declined to comment on the upcoming action, but said: “As a general rule, we look to codify any restrictions that are in is-informed letters with a regulatory change.” A spokesperson for the Commerce Department on Friday declined to comment on specific regulations but reiterated that it is “taking a comprehensive approach to implement additional actions…to protect U.S. national security and foreign policy interests,” including to keep China from acquiring U.S. technology applicable to military modernization.  KLA, Applied Materials and Nvidia declined to comment while Lam did not respond to requests for comment. AMD did not comment on the specific policy move but reaffirmed it does not foresee a “material impact” from its new licensing requirement. ‘CHOKE POINT’The planned action comes as the President Joe Biden’s administration has sought to thwart China’s advances by targeting technologies where the United States still maintains dominance. “The strategy is to choke off China and they have discovered that chips are a choke point. They can’t make this stuff, they can’t make the manufacturing equipment,” said Jim Lewis a technology expert at the Center for Strategic and International Studies. “That will change.”In an update on China-related measures last week, the Chamber of Commerce, a U.S. business lobbying group, warned members of imminent restrictions on AI chips and chipmaking tools.”We are now hearing that members should expect a series of rules or perhaps an overarching rule prior to the mid-term election to codify the guidance in recently issued (Commerce Department) ‘is-informed’ letters to chip equipment and chip design companies,” the chamber said. The group also said the agency plans to add additional Chinese supercomputing entities to a trade blacklist.Reuters was first to report in July that the Biden administration was actively discussing banning exports of chipmaking tools to Chinese factories that make advanced semiconductors at the 14 nanometer node and smaller.U.S. officials have reached out to allies to lobby them to enact similar policies so that foreign companies would not be able to sell technology to China that American firms would be barred from shipping, two of the sources said.“Coordination with allies is key to maximizing effectiveness and minimizing unintended consequences,” Clete Willems, a former Trump administration trade official said. “This should favor broader regulations that others can replicate instead of one-off ‘is informed’ letters.” More