Aurelia Butler

A top EU lawmaker has questioned whether the bloc’s seven-year budgeting cycle is sustainable as emerging crises such as the Ukraine war and soaring inflation increase the need for rapid financial responses. Roberta Metsola, the Maltese MEP who was elected president of the European parliament this year, said she wanted to take a “long, hard look” at the EU’s financing model, including the lengthy seven-year timespan of the Multiannual Financial Framework, as she seeks to ensure the union can respond flexibly to budgetary challenges. “From a broader perspective we should seriously consider whether the seven-year idea remains something we as a European Union can continue to rely on in terms of economic dependability,” said Metsola in an interview. “It has to be seen whether it can continue to be a sustainable model of financing the union’s budget.”The EU finalised its latest €1tn, seven-year budgetary framework in late 2020, twinning it with an €800bn pandemic recovery programme backed by common borrowing. Brussels officials are already worried about the competing demands on the budget amid soaring costs, however, sparking discussions in the European Commission over whether member states may need to chip in extra cash to boost the union’s firepower. The current MFF runs from 2021 to 2027, but the EU faces several tests of its budgetary capacity, including the arrival of millions of refugees from Ukraine, soaring energy costs, the threat of a global food crisis and the costs of rebuilding Ukraine after the war. Surging inflation is putting the budgets of the EU and its member states under increasing strain, with prices in the euro area rising 8.1 per cent in May from the same time last year.Metsola was speaking ahead of today’s European Summit in Brussels, which takes place amid fears of energy shortages as Russia curbs gas flows to Europe and countries such as Germany launch emergency measures to manage supplies. The parliament president warned that the EU was entering a highly uncertain period, both from the point of energy and economic stability, and that this was making people “justifiably nervous”. The EU, she added, needed to be prepared for “serious” gas cuts. Metsola, of the centre-right European People’s party, said the EU was already operating beyond its traditional framework following the creation of the €800bn NextGenerationEU borrowing programme in response to the Covid-19 economic crisis. Her colleagues would need to speak with the EU’s budget commissioner about “what kind of flexibility we can give ourselves” given the current pressures. “No debate should be off the table in this context,” she said. The commission has in the past raised questions about the MFF cycle — which under the EU’s treaties needs to run for at least five years. A 2017 paper outlined the pros and cons of changing the budgeting process. A shorter MFF duration would “bring more flexibility and make it easier to adjust to unforeseen developments”, while creating the possibility to align a five-year timeframe with the mandates of the European parliament and the commission, the commission paper said. But it would also introduce greater uncertainty into funding. Wind turbines in Germany. Member states have been warned not to renege on their carbon-cutting targets © Andreas Rentz/Getty ImagesConcerns over energy security were something politicians including MEPs needed to explain clearly to electorates as the parliament prepared for elections in 2024, Metsola said.“Where I am particularly worried is we could see further government instability across member states,” she added, citing the threat of “populist arguments” on the issue. The turmoil has prompted questions about whether the EU’s green agenda, in particular, remains realistic, as fears of energy shortages prompt some countries including Germany and the Netherlands to fire up coal-fired power plants. Ursula von der Leyen, the commission president, this week warned member states not to renege on their carbon-reduction goals.Metsola said the parliament remained ambitious on the climate agenda, arguing that “we cannot allow drastic backtracking by the European Council, which we have seen in other packages of legislation”. But she added: “I am very much aware of the impact of political decisions and economic pressures we have in some countries more than others — either due to geographic proximity to Russia and systemic dependence on Russia, but also others that were not prepared for such high inflation.”  More

The ministry said the payments were on Eurobonds maturing in 2027 and 2047.”Thus, obligations on servicing the state securities of the Russian Federation were fulfilled by the finance ministry in full,” the ministry said in a statement. Finance Minister Anton Siluanov said in a statement that Russia not making payments in the currency of issue did not amount to a default on its foreign debt. President Vladimir Putin signed a decree on Wednesday to establish temporary procedures aimed at fulfilling Russia’s foreign debt obligations as the country teeters on the brink of default.The ministry said it was transitioning to the procedure established by Putin’s decree, whereby funds will be disbursed in roubles to the NSD before being distributed to three groups of bondholders in stages, depending on the amount of sanctions red tape applicable to each investor. Eurobond holders whose ownership rights are contained within Russia’s financial system will be paid in roubles, while the holdings of investors to whom funds cannot be transferred due to sanctions imposed on Moscow will be credited to a special rouble account at the NSD. “In order to ensure strict compliance with Eurobond obligations undertaken by the Russian Federation, funds from this account will be indexed at the current market exchange rate of the nominal currency until the moment of actual settlements with holders,” the ministry said. Investors will need to open a rouble account to receive those funds, the ministry said. “Holders of Eurobonds of each of these three groups will have the right to dispose of the rouble funds received at their discretion, including converting them into the nominated foreign currency, or into another currency,” the ministry said. “Permission to transfer the received roubles or the obtained foreign currency abroad will be granted in due course.” Asked whether the new scheme would allow Russia to make the case that no default had occurred, Siluanov said: “Everyone will still say what they want to say.” ($1 = 53.3500 roubles) More

Jay Powell said a US recession is “certainly a possibility” as the Federal Reserve battles the biggest spike in prices for four decades. In testimony to the Senate banking committee yesterday, the Fed chair acknowledged it was now more challenging for the US central bank to root out soaring inflation due to factors beyond its control, such as the war in Ukraine and China’s Covid-19 policy.“It’s not our intended outcome at all, but it’s certainly a possibility,” Powell said, responding to a question about the risk the Fed’s plans to raise rates this year could lead to a recession.He added that because of the “events of the last few months around the world”, it was “now more difficult” for the central bank to achieve its goals of 2 per cent inflation and a strong labour market.Lawmakers pressed Powell several times about the burden imposed by the Fed’s recent 75 basis point rise in its main policy rate, the biggest interest rate increase since 1994.“You know what’s worse than high inflation and low unemployment? It’s high inflation and a recession with millions of people out of work,” said Elizabeth Warren, the progressive Democratic senator from Massachusetts. “I hope you will reconsider that before you drive this economy off a cliff.”Powell said in a separate exchange there would be considerable risks if the Fed did not act to restore price stability, with inflation becoming entrenched.Meanwhile, Joe Biden’s plan for the three-month suspension of federal taxes on petrol and diesel to help American families cope with surging inflation has run into early opposition from Democrats and Republicans in Congress. John Thune, the Republican senator from South Dakota, told reporters that the plan which would involve scrapping the 18.4 cent federal levy on every gallon of petrol and the 24 cent levy on diesel until September was a “gimmick”.Peter DeFazio, the Oregon Democrat and chair of the House transportation committee, said although well intentioned the plan would “achieve only minuscule relief” for American families facing the fastest rising prices in a generation.A senior Biden administration official told reporters yesterday that G7 leaders are expected to debate steps to “stabilise global energy markets” at a summit this weekend in Germany.Delve deeper: With the Democrats facing defeat in midterm elections, has the president run out of political capital?Thanks for reading FirstFT Americas. Here is the rest of the day’s news — GordonFive more stories in the news1. Inflation drives surge in UK debt interest payments UK interest debt payments rose to one of the highest levels on record last month, official data released today revealed. Interest costs hit £7.6bn in May as surging inflation lifted the government’s borrowing costs.2. Germany fears total shutdown of Russian gas pipeline The government in Berlin fears Russia could take advantage of annual maintenance on its main export pipeline to shut off gas supplies to the country completely, increasing the risk of a winter energy crisis in Europe’s largest economy.2. Emmanuel Macron calls for compromise The French president has urged his opponents to end the nation’s political deadlock by joining his minority government in voting through laws in parliament. The call for compromise made in a televised address to the nation came three days after his government lost control of the National Assembly in legislative elections.4. Quant hedge funds profit from crypto turmoil A small group of algorithm-driven hedge funds have picked up winnings from rapid declines in digital assets such as bitcoin and luna, as the turmoil that wiped trillions of dollars off the value of cryptocurrencies created a lucrative opportunity.5. PGA Tour chief blasts breakaway tournament Jay Monahan, commissioner of the PGA Tour, has said that LIV Golf, which is majority-owned by Saudi’s $620bn sovereign wealth fund, was attempting to “buy the game of golf”. Former world number one Brooks Koepka has become the latest player to defect. Read more on the business of sport by signing up to our weekly Scoreboard newsletter.The day aheadJay Powell testimony The Federal Reserve chair will testify before the House Financial Services panel in a second day of testimony on Capitol Hill. Separately, the Fed will release the results of its annual bank stress test, which assesses how a bank would respond to an economic downturn. Here’s what to look out for. Mexico interest rate decision The country’s central bank is expected to raise its benchmark policy rate for the eighth time in a row. Economists expect the cost of borrowing to increase by 0.75 percentage points, bringing it to 7.75 per cent.Earnings Logistics group FedEx, often considered a proxy of economic growth, is expected to report a profit of $6.86 a share on $24.6bn in revenues after the market closes. Firearms manufacturer Smith & Wesson will also report earnings just weeks after two high-profile mass shootings in the US. And professional services company Accenture reports results before the bell.Economic data New applications for unemployment aid in the US are expected to dip slightly to 227,000 in the week ended June 18. Applications have come in at 229,000 in each of the past two weeks, both times exceeding the expectations of economists polled by Reuters.January 6 hearing A select committee created to investigate last year’s attack on the US Capitol will hold its fifth public hearing in Washington. On Tuesday the committee heard that Donald Trump and his lawyers tried to pressure Republican state officials to overturn the 2020 election.Ukraine A summit of EU leaders in Brussels is expected to accept Ukraine as a candidate country as the war against Russia rages. Discussions with Balkan countries on their membership ambitions are likely to be overshadowed by yesterday’s ousting of Bulgaria’s pro-EU government.What else we’re readingThe time to put Donald Trump on trial is drawing near The evidence amassed by the US House of Representatives’ January 6 committee is making it much harder for US Attorney-General Merrick Garland to turn a blind eye. But any prosecution of the former president comes with acute risks, writes Edward Luce.Why New York gun violence victims may have their day in court Gun manufacturers are broadly shielded from federal lawsuits brought against them in the US, but New York is trying to find a way around that. A woman shot on the New York City subway in April has brought a lawsuit against the maker of the pistol used in the attack: Glock.Revlon has become a meme stock Revlon shares have zoomed from about $1 a share to $8 a share — less than a week after the company was placed in bankruptcy. But don’t expect a resurgence in the company’s fortunes reminiscent of car hire company Hertz, says Sujeet Indap.Food crisis bites across Africa Steep global rises in food, fuel and fertiliser prices since Russia’s invasion of Ukraine have compounded economic pain from the coronavirus pandemic and left millions of Africans facing an “unprecedented food emergency”, the World Food Programme has warned. It has also raised the risk of social unrest in poorer countries.

How ‘vice-signalling’ swallowed electoral politics Politicians around the world have always pandered. But lately political stunts, from former US president Donald Trump’s border wall to UK prime minister Boris Johnson’s Rwanda flights, have taken a darker turn, Stephen Bush writes.Putinism delays a reformist turn Change is coming to Russia. Precisely, “the Great Change” — the name of a youth movement that the Kremlin is setting up under Vladimir Putin, whose presidency has been defined by domestic repression and mind manipulation, writes Tony Barber.BooksInnovation Editor John Thornhill selects the best mid-year reads from the world of technology, including a short guide to ethics by Stephanie Hare and a book looking at the power of venture capital by Sebastian Mallaby. Our Summer Books 2022 page has a full round-up of the year’s best reads so far from FT critics and columnists. More

Interest payments on UK government debt hit one of the highest levels on record last month as rising inflation limited an expected fall in public sector borrowing.Interest costs rose to £7.6bn in May, up 70 per cent from last year and higher than the £5.1bn forecast by the independent fiscal watchdog, following a rapid rise in retail price inflation to which many debt payments are linked.The figures were released as the closely watched S&P Global/CIPS UK purchasing managers’ survey showed business sentiment falling to the lowest level in two years amid concerns over the impact of surging inflation on household spending and long-term growth prospects. The Office for National Statistics said the debt interest payments were the third-highest made by the government in any single month and the highest payment made in any May on record.Inflation lifts government borrowing costs because gilts linked to the retail price index make up 25 per cent of UK sovereign debt. Official data released on Wednesday showed that the RPI rose at an annual rate of 11.7 per cent in May, the fastest pace since December 1981.Public sector net borrowing nonetheless declined in May — but by less than expected — as inflation also aided government finances by bringing in higher tax revenues.Borrowing in May was £14bn, down £4bn from the same month last year, according to ONS data published on Thursday. But May’s borrowing was higher than the £12bn forecast by economists polled by Reuters and well above the £10.3bn expected by the Office for Budget Responsibility, the watchdog.The strong labour market and reopening of the economy boosted government income too. In May, government receipts rose by £5.7bn, including a £3.4bn annual increase in tax receipts.Samuel Tombs, economist at Pantheon Macroeconomics, noted that government receipts undershot the OBR forecasts, particularly for consumption tax revenues. This may suggest “that the economy is underperforming the OBR’s expectations”, he said.Borrowing for April was also revised up. This means that the public finances for the current fiscal year “have got off to a disappointing start”, said Martin Beck, chief economic adviser to the EY Item Club.Chancellor Rishi Sunak said: “Rising inflation and increasing debt interest costs pose a challenge for the public finances, as they do for family budgets.”The higher interest payments were also partially offset by the end of most Covid-19 government support schemes. Public sector net debt, or the borrowing accumulated over time, was 95.8 per cent of gross domestic product, the highest ratio since the early 1960s.Borrowing figures for this year do not yet include the £15bn package of government measures announced last month aimed at supporting households with soaring energy bills.Michal Stelmach, senior economist at KPMG UK, said “the pace of deficit reduction is set to slow over the coming months” as a result of the government’s latest support package and weaker economic growth. June’s PMIs indices fuelled concerns over a new economic downturn. The interim composite PMI index, a barometer of the change in private sector activity relative to the previous month, was unchanged from the 15-month low seen in the previous month at 53.1.However, the forward-looking index of business expectations registered the largest monthly decline since the start of the pandemic. The new order index also dropped to 50.8 in June from 53.8 in May, signalling the weakest rate of growth in more than one yearChris Williamson, chief business economist at S&P Global Market Intelligence, said that “business confidence has now slumped to a level which has in the past typically signalled an imminent recession”. More

Ireland’s central bank has fined AIB, the country’s second-biggest lender, €83.3mn over its failure to give customers access to cheap mortgage interest rates in a scandal stretching back more than a decade.The penalty for AIB dwarfed the €38mn Ulster Bank was fined last year for overcharging for mortgages after tens of thousands of Irish customers at major banks were denied loans whose rates tracked those of the European Central Bank.AIB had set aside €70mn for a fine.The tracker mortgage scandal further dented the reputation of Irish banks, which had to be bailed out during the financial crisis. Tracker mortgages became unprofitable for Irish banks after the ECB’s interest rates fell close to zero at the end of 2011.As a result, Irish banks switched 40,000 customers to more expensive interest rates, including fixed or variable rate loans. The central bank began an investigation in 2015.The AIB sanction brings to €174mn the amount banks have been fined over tracker mortgage failings, the central bank said in a statement. The lenders have themselves paid €737mn to customers in redress and compensation.After AIB’s sanction, Ireland’s biggest lender, Bank of Ireland, is still to receive a penalty. More

Investing.com — Federal Reserve Chair Jerome Powell heads to the House for a second day of Congressional testimony, as monetary tightening continues from the Philippines to Norway and, most likely, Egypt and Mexico. Germany sounds the alarm on natural gas supplies after Russia closes the taps, and the effects of the Ukraine war take an ever-greater toll on the French and German economies. Jobless claims are due, as are earnings from Accenture (NYSE:ACN), Darden Restaurants (NYSE:DRI), Rite Aid (NYSE:RAD) and – after the bell – FedEx (NYSE:FDX). And the government’s oil inventory data are delayed by technical problems. Here’s what you need to know in financial markets on Thursday, June 23.1. Powell heads back to Congress; rate hikes continue around the worldFederal Reserve chairman Jerome Powell heads to the House of Representatives for the second day of his regular testimony on the state of the U.S. economy. Powell told the Senate on Wednesday that the risks of a recession have risen, but that the central bank will still prioritize bringing down the highest inflation in a generation.Powell will take his seat minutes after the week’s update on jobless claims, which have been trending gently, but nonetheless, clearly upward in recent weeks. Elsewhere, the tightening of monetary policy around the world continued, with Norway’s central bank raising its key rate by 50 basis points to 1.25%, more than expected. The Philippines also raised, but only by 25 basis points, while Indonesia kept its key rate steady. The central banks of Egypt and Mexico are expected to hike by 50 and 75 basis points respectively when they meet later.2. Germany sounds the gas alarmEuropean Natural Gas Futures hit a new three-month high as Germany moved a step closer to rationing natural gas supply, activating the second stage of a three-part plan to ensure security of supplies.The move formalizes other actions already initiated by Berlin in recent days in response to a 60% cut in Russian gas supplies for reasons the government sees as politically-motivated.  However, the government won’t immediately activate a provision that would have enabled supplies to pass on price increases ahead of contractually-allowed adjustments.The news comes on a day when the European Union will formally invite Ukraine – or what’s left of it – to join the bloc. Russian artillery strikes have intensified over the last week, damaging two grain export terminals owned by Canadian and U.S. companies in the port city of Mykolaiv. Ukrainian publications also reported that Russians have dismantled and removed the largest solar power plant in Ukraine, a 50-megawatt installation called TokMak.3. Stocks set to open higher; Accenture, Darden, FedEx earnings dueU.S. stock markets are set to open moderately higher, as investors adjust to the latest commentary on the economic outlook from Powell and others.By 06:15 AM ET (1015 GMT), Dow Jones futures were up 41 points, or 0.1%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.7%.  All three had edged down by between 0.1% and 0.2% after Powell’s first day of testimony.Stocks likely to be in focus include Accenture and Darden Restaurants, which both report earnings before the open. They’ll provide an insight into current trends in business investment and consumer spending, respectively. FedEx, a bellwether of the online shopping and remote economy in general, reports after the close.4. European economy slows further; U.K. by-elections eyedBusiness activity in the eurozone slid to its lowest level in 16 months in June, as soaring inflation and rising interest rates took a bite out of demand and soured the economic outlook.S&P Global’s flash June composite purchasing managers index – which combines data from the currency bloc’s service and manufacturing sectors – slumped to 51.9 points, down from 54.8 in May, and below analyst estimates.S&P also said that the U.K. economy was “running on empty” after business expectations there weakened to their lowest level in almost a year and a half. The latest in a string of weak U.K. data come ahead of two by-elections later Thursday, which are expected to show a big swing against the ruling Conservative Party.5. Oil falls after big rise in API stockpiles, upbeat Iranian comments; EIA data delayedCrude oil prices fell on optimistic noises out of Teheran on the prospects for a deal that could see western sanctions lifted, smoothing the path to world markets for Iranian exports.By 6:25 AM ET, U.S. crude futures were down 0.8% at $105.39 a barrel, while Brent crude was down 0.7% at $110.98 a barrel.There was more bad news for European fuel suppliers earlier as TotalEnergies (EPA:TTEF) was forced to shut down its Donges refinery in France. Elsewhere, the U.S. government said the Energy Information Administration’s weekly inventory data will be delayed due to technical problems. Parallel data from the oil and gas industry body API on Wednesday had shown the biggest weekly rise in crude stocks in over two months. More

Growth in eurozone business activity suffered a sharp slowdown in June, according to a closely watched survey of companies, intensifying concerns that the fallout from Russia’s invasion of Ukraine could drag the bloc into recession.S&P Global said its flash eurozone composite purchasing managers’ index, which takes the pulse of business activity, fell to a 16-month low as manufacturers’ output and new orders both fell and companies complained of high inflation, weak demand and political uncertainty.The news pushed European share indices lower on Thursday and prompted traders to scale back their bets on how much the European Central Bank will raise interest rates this year, sending government bond prices up. The euro fell 0.7 per cent against the dollar to $1.0497.Christoph Weil, an economist at Commerzbank, said: “Today’s figures should prompt the ECB to raise interest rates rather cautiously.”Economists believe the eurozone risks falling into a recession later this year as Russia squeezes natural gas supplies to Europe, record inflation eats into consumer spending, and the ECB raises interest rates.Jens Eisenschmidt, chief Europe economics at Morgan Stanley, said the PMI data raised the prospect that an anticipated stalling of the economy could arrive sooner than expected. A recession was “rather likely” if Russia continues to significantly cut the supply of natural gas to Europe, creating potential shortages.The European Commission said on Tuesday that its flash consumer confidence indicator for the eurozone had fallen 2.4 points to minus 23.6 this month, its weakest reading since an all-time low, recorded just after the Covid-19 crisis started in April 2020.“With the price indices remaining extremely strong, the eurozone appears to have entered a period of stagflation,” said Jack Allen-Reynolds, an economist at Capital Economics, referring to a 1970s-era combination of soaring inflation and stagnant growth.The composite PMI for the eurozone in June was 51.9, down from 54.8 last month. The reading fell well below the consensus economists’ expectations of 54 to hit its lowest level since the pandemic was still restricting much of normal life in early 2021.A PMI score above 50 indicates that a majority of businesses are reporting higher activity levels than a month ago. But S&P Global said its monthly survey of purchasing managers pointed to “an imminent downturn unless demand revives”.New orders for goods and services failed to grow for the first time since March 2021, it said, adding that manufacturers’ output fell for the first time in two years. A surge in tourism and recreation activity in April and May slowed “to near a standstill” in June. Business expectations for the year ahead fell to the lowest since October 2020.Price pressures remained at near record levels for eurozone companies, despite growing at a slower rate for the third consecutive month, which S&P Global said “hinted at a peaking in the rate of inflation”. Factory output “continued to be constrained by widespread supply shortages” caused by the war in Ukraine and Covid lockdowns in China.The PMI for eurozone services fell to a five-month low of 52.8, while the reading for manufacturing hit a 22-month low of 52. Confidence among French businesses fell to its lowest level for 19 months, with some of them complaining of increased political uncertainty after President Emmanuel Macron lost control of the national assembly in last weekend’s parliamentary election. More