Economy

It has been over two years, and I have to say that I’m really not looking forward to this week on the Magic Mountain. For starters, I am pretty sure that the last time I was at the World Economic Forum in January of 2020, I got Covid-19 (both Niall Ferguson and I believe it may have been a superspreader event, which maybe is fitting for a place that used to be a sanatorium). This time around, it’s meant to rain the entire time, so women at least will be forced to do the cumbersome outside-to-inside, boot-to- fancy-shoe swap, but without all the atmospheric snow.Perhaps this year, the two dozen or so women with full participant badges in attendance (OK, maybe there are a few more now) should all make a pact to wear our ugly boots on stage at Sanada and say “screw it”. We aren’t intellectual geishas, as our former FT colleague and current Canadian deputy prime minister Chrystia Freeland once so aptly put it. We are working people, and we are sick of pretending that anyone can walk down the promenade in heels instead of lug soles. Sharan Burrow, if you keep your boots on, so will I! (#WEFbootjustice)Why do we keep putting ourselves through this charade? The idea of the 0.1 per cent saving the world has been discredited by everyone from Anand Giridharadas to my good friend Peter Goodman, the New York Times reporter who wrote Davos Man: How Billionaires Devoured the World and strangely enough is not in attendance this year. Hmmm. I wonder if it was the book, or the time he took a picture of the bill from a faux populist senator’s expensive lunch following his panel on inequality and tweeted it.Peter, my friend, we will miss you at the annual dinner of journalists suffering from late-stage Davos dread, held every year by me and Columbia professor Anya Schiffrin Stiglitz. It’s for hacks and their friends only, on the last night of the week, when everyone either (a) wants to kill themselves because of the pain and injustice of a world in which the richest and most powerful people on the planet can spend decades trying to fix things and accomplish nothing, or (b) feels they’ve made terrible life choices relative to people who are not as smart as they are, but far richer, or (c) knows they’ve made great life choices but still just want to eat dinner with people who won’t use the words “upskilling”, “synergy”, “close the loop” or “B2H” (that’s business to human, folks, and no I am not joking).For executives themselves, the point of Davos is simply that it’s just an excellent place to network and make money, a kind of souk of big deal-closing. For politicians and policymakers, it’s a place to make lofty world view statements or grand gestures (remember Erdoğan walking out of a debate with Shimon Peres and receiving a hero’s welcome on the tarmac in Istanbul when he got home?). For media, it is economics of scale — particularly for the FT, it’s a good chunk of the people you might want to interview, all in one place.But I have to say that in the future, I am hoping that we can move from discussing the Fourth Industrial Revolution in a Brutalist concrete slab, and head into the metaverse instead. We skip the flights, carbon emissions, expenses and tiny food and just send our avatars to a pop-up panel on what’s more inflated: crypto or the weekly prices being charged for a two- star room with a Murphy bed on the promenade?Ed, if you were sending your own digital self to Davos (I know you’d never be so foolish as to send the real one), what panels would you put on the agenda?Recommended readingThis South China Morning Post article on the EU and Japan working together to counter China says something new and interesting about the emerging post-neoliberal world order. More on China from the always brilliant Michael Pettis, professor at Guanghua School of Management at Peking University.Also, one of my favourite think-tankers, Todd Tucker of the Roosevelt Institute, on supply chains as a national security concern. And the inestimable Dani Rodrik gets it spot on regarding why we need a reset of globalisation.And in the FT, check out my Monday column on what Davos Man: How Billionaires Devoured the World is missing about deglobalisation and I promise you’ll hear no more Davos news from me in these Notes. Edward Luce responds Rana, that’s a good question. To be brutally honest, I have never lobbied to be among the FT’s delegation of journalists to Davos because of a deep suspicion of its intellectual utility (I take your networking point, however). Year after year, without fail, the World Economic Forum’s annual reports routinely miss what is about to happen and turn last year’s conventional wisdom into their predictors of what will happen next year (ingredients: garnish last year’s completely unexpected happenings with an incremental spicing and you have the coming year’s over-ready forecast). It’s almost a ritual. If Davos says something is going to happen, that means it has already happened — events that they had previously failed to anticipate. So I preface my answer to your question with this healthy warning: I am a profound Davos sceptic. After what I’ve written about them I doubt the good burghers of WEF would ever want me to go near the Magic Mountain. So, my first panel would be entitled: “WTF WEF? Are you still here?” I expect that one to be packed. This would be followed by a series of mini-panels asking what happened to past expectations of future utopias. “Digital public square. What did this ever mean?”, then “Multi-stakeholder collaboration: the self-delusions of corporatespeak”, then “Global governance: by who and for whom?” And so on. You can see that I’m beginning to enjoy myself. That said, I’m glad you’re going, Rana, along with several of our colleagues. I am aware that the FT has a high subscription rate among Davos types and that many of them are smart people who are sincerely trying to figure out what is going on. My advice to them, though, would be to take one of two roads. Either call it the World Networking Opportunity, which would have the benefit of accuracy (and please don’t misunderstand me: there’s nothing wrong with making new contacts, doing deals and high-altitude socialising). Or come down to sea level and find out what’s going on. Mix with trade union leaders, mayors of post-industrial towns, local journalists, Muslim activists from Mumbai, Hong Kong democracy protesters, opioid specialists and campus free speech advocates. It is hard to enlighten yourself from inside a bubble. Your feedback And now a word from our Swampians . . . In response to ‘A whiny plea to acknowledge Generation X’:“My theory is that we grew up in the broken ashes of our parents’ decadent selfishness: free love, pre-AIDS sex lives, increased drug usage, rocketing divorce rates, the oil shocks, the [savings and loans] meltdown, the cold war, the opening salvos of the Republican war on democracy (the closing salvos we’re seeing now). We grew up as latchkey kids on crappy frozen dinners. The middle class dreams and the brief window of time when (white) people who graduated high school could own a home and a boat and a truck were over . . . The most selfish generation (the opposite extreme of their parents) has left us all with a giant shit sandwich. Does John Cusack in Say Anything count? Or maybe Chuck D from Public Enemy?” — Steve Shapero, London, England More

Greetings from Davos, that (in)famous and rather ugly Swiss mountain town that normally hosts the World Economic Forum’s annual meeting in January amid snow-capped peaks. This year’s meeting promises to be slightly different — and not just because it is being held in May amid sporadic rain and lush green meadows. For one thing, the event comes at a time of growing protest against the globalist and capitalist rhetoric that defines WEF. Check out, for example, the angry diatribes in the recently published book Davos Man, or Felix Marquardt’s punchy FT essay. (Read to the end of our note for the WEF’s rebuff.)There is also a swelling backlash against the environmental, social and governance themes that have shaped Davos in recent years. Stuart Kirk, the global head of responsible investing at HSBC Asset Management, for example, caused a stir at the FT Moral Money summit last week in London by denouncing what he called the “hyperbole” around climate change. Unsurprisingly, there was a backlash against this backlash, demonstrated by the social media storm that followed as HSBC executives rushed to distance the bank from Kirk’s comments — and then suspended him pending an investigation (despite the bank having cleared his remarks in advance).So what does all this mean for the wider sustainability movement? Moral Money will be on the ground, covering the good, the bad and the ugly in the Davos debates, delivering the newsletter to your inbox Monday to Friday. Tell us what you think. And in the meantime, here are seven themes to watch. PS Join the FT as we convene our top journalists and high-level speakers on the sidelines of the WEF Annual Meeting for breakfast briefings, drinks receptions and digital events to provide unique insights into the key topics of the week’s agenda. I will be there along with Simon Mundy, Andrew Edgecliffe-Johnson, Andrew Jack and Andrew Hill — come say hello.1. Ukraine, Ukraine and more UkraineRussia’s brutal invasion of Ukraine will get central billing in the Davos debates since many government officials from Kyiv will be present. (In one piece of not-so-subtle symbolism, Ukraine’s Pinchuk Foundation and other national leaders have taken over the building on the Davos high street that used to be designated as the “Russian House” and will stage a display of Russian war crimes.) War is not a classic topic in ESG. But the Edelman Trust Barometer, released today, shows that “59 per cent of respondents say geopolitics is now a top priority for business, while 47 per cent have bought or boycotted brands based on the parent company’s response to the invasion of Ukraine”. Moreover “nearly everyone surveyed (95 per cent) expects business to act in response to an unprovoked invasion, from applying political and economic pressure to publicly speaking out against the aggressor”. Companies at Davos that are still operating in Russia — such as UniCredit, Koch Industries and Lacoste — could be in the crosshairs.2. The food crisisThe Ukraine war is having a devastating impact on the global food supply, pushing prices up in a manner that threatens to cause famine and social unrest. This is now viewed by some key financiers as one of the biggest threats in the months ahead. David Beasley, the charismatic head of the World Food Programme, will be appealing to ESG-friendly executives and western governments for more help. Let us hope he gets it. Meanwhile, the crisis is also likely to intensify discussions about regenerative agriculture and the localisation of food supply chains. 3. Accounting standardsDo not yawn: efforts to create green accounting standards, via the International Sustainability Standards Board, will be another issue this week. Emmanuel Faber, the former head of Danone who is overseeing the ISSB, will be meeting with corporate leaders and governments to accelerate efforts to develop these standards. Expect to hear calls to action from Faber, Brian Moynihan, head of Bank of America, and the heads of the big accounting firms. No, that will not grab headlines. But it matters. 4. Green energy The hordes of hedgies, venture capitalists, sovereign wealth funds and other investors in Davos are always sniffing around for ways to deploy capital in private and public deals. Green energy is a big focus, particularly given that the Ukraine war is accelerating efforts to wean Europe away from Russian oil and gas. Expect discussion of new technologies to limit methane, capture carbon, install exhaust “scrubbers” on ships, develop clean(er) fuel for planes and install modular nuclear reactors. The two big issues to watch, however, will be battery technology — and whether public sector entities (such as the World Bank) are getting any better at creating blended finance partnerships to fund investment in developing markets. Events in Ukraine might force entities such as the European Bank for Reconstruction and Development to get a bit more creative on that front, given the future infrastructure needs there.5. Better bitcoin? Do not laugh: the “bitcoin bro” community will be heading to the Davos region too, to stage their own fringe meetings, and will be trying to look ESG-friendly. Expect to hear debates about the need for regulatory reform, following the G7’s statement on Friday calling for “consistent and comprehensive” regulation for crypto assets. There will also be pledges to use renewable energy in the digital asset space, embrace blockchain to promote financial inclusion and deploy distributed ledgers for carbon trading and offsets. That might make some ESG traditionalists howl; but it is a rising theme.6. The WEF rebuffDavos has always been divisive. No wonder. It is jarring to hear an elite conference dominated by white men preaching about inclusion and inequality, talking about climate change given that most attendees arrive by plane (and some by private jet). But the Davos organisers are trying to hit back against critics this year, on two fronts. First, they argue that the real value of WEF is its ability to convene public, private and non-governmental groups to take on sustainability initiatives faster than other forums. Second, they claim the event is adapting to the times and becoming less elitist. Can we believe this? Researchers at the London School of Economics recently studied the WEF’s press releases during the past eight years and noted that instead of focusing on “growth”, “development” and “globalisation”, the WEF now stresses environmental themes and social justice. And today “only” 80 per cent of delegates are men — a lamentably high number, but better than the 95 per cent seen a decade ago. “Although he is resurrected by the media every year, the Davos Man of the early 2000s is becoming an anachronism,” the LSE blog said. It argued: “The WEF has evolved to focus more on the issues of social inclusion and environmentalism and to embed these issues in a host of practical frameworks . . . once an elitist, Davos Man now preaches inclusion.” Hmm. 7. Mixed messages for the geopolitical CEOThe “geopolitical CEOs” Edelman identifies will enjoy hearing that its survey finds business is still more trusted than NGOs, governments or journalists. But those headlines conceal a more troubling fact: the trust gains seen this year are almost all among wealthier people. So while 72 per cent of the top income quartile of people that Edelman polled trust business, just 52 per cent of the lowest income group feel the same. One final warning for those who believe the cross-border creed that the WEF epitomises: consumers are becoming more nationalistic. Outside China, there have been sharp increases in trust in domestic brands at foreign brands’ expense. Add that to the list of things to worry a Davos-going globalist. And a question for ESG advocates: how will this interact with a more nationalist world?Smart readThe New York Times has taken plenty of potshots against the elitism of Davos over the years. But check out this piece for an explanation of the better side of Davos — namely that it is a place where activists can collide with policymakers and executives and get things done. Here is hoping. More

Ajay Rajadhyaksha is global chair of research at Barclays. Here he argues that markets are fretting too much about consumer-led recessions.For months now, markets have waited anxiously to answer the question — how is the Western consumer doing? After all, consumption accounts for over two-thirds of activity in many countries, and consumers have had a rough go of it recently. The answer seems pretty clear.

Food and gas prices exploded after Russia’s invasion of Ukraine. Energy inflation is rampant in Europe; German energy costs rose 35 per cent year-on-year last month. Country after country is battening down the hatches on grain exports as prices skyrocket and food security becomes an existential threat to regimes. (Just last week India banned all wheat exports).This is a big fat punch in the face for many households. Despite all the talk of a labour shortage, wages are not keeping pace with inflation. US wages are running at 5-5.5 per cent while inflation is currently 8.3 per cent. Europe is even further behind; Spanish inflation is 10 per cent while salary increases are below 2.5 pert cent. And things could get even worse. Russian natural gas is still flowing to most of Europe; but that could change. If the planting season in Ukraine and Russia is affected, the world will struggle to feed itself in coming months. So yes, there is not yet a flock of locusts on the horizon, but everything else that could go wrong has.No wonder Western consumers are in a bleak mood. Survey after survey shows that their confidence is at the lowest level in decades. US consumer sentiment has worsened to the lowest levels since mid-2011. German consumer confidence is now below May 2020, when the nation was reeling from a protracted Covid lockdown. In the UK, consumer confidence is now at the lowest levels ever, since records began in 1974.With such soul-crushing doom and gloom, it seemed only a matter of time before Western consumers turned the lights out, pulled their covers over their heads, and stopped spending. That time now appears to have arrived. Several large US retailers reported first-quarter earnings last week, and it wasn’t pretty. Walmart and Target cut earnings guidance and complained about weaker consumer demand, especially for higher margin items. Sure, there were some management missteps as well, but investors weren’t sticking around for a second look: they fled in droves. Walmart and Target both had their single worst trading days since Black Friday of 1987. These were moves you’d normally see in crypto, not big boring staples retailers. More telling, the damage extended beyond these companies. The S&P 500 fell over 4 per cent and the Nasdaq almost 5 per cent, their worst trading days respectively for 2022. In the market’s mind, the results seemed to finally confirm what investors had dreaded since the start of the year: the consumer is finally in trouble, and a recession may be looming.Not so fast. It’s a neat theory, all wrapped up in a bow. And yet, the aggregate data just doesn’t bear it out. Early last week, right as Walmart and Target were reporting, US retail sales surprised to the upside, including strong revisions for March. UK retail sales in April grew 1.4 per cent in April, even as consumer confidence plunged. And European purchasing manager surveys were surprisingly strong in April. Consumers keep telling us they feel terrible, and they have good reason to do so, but crucially they are still spending.What’s going on? Why is consumption holding up despite so many headwinds? Because there are tailwinds too. First, unemployment rates are at or near record lows in both the US and Europe. Yes, real wage growth is negative for now, but pretty much everyone is employed — that’s a huge positive. Second, Western households have lots and lots of excess cash — money that they didn’t spend on services during the Covid-affected years of 2020 and 2021. The numbers are large; US households for example have several trillion dollars of savings above and beyond what they would have had if Covid had never occurred. And they seem willing to dip into these savings to fuel consumption even as real incomes take a hit.Third is the changing nature of consumption. As we emerge from the pandemic, services activity is ramping up. We are eating out more, taking those vacations we never did in 2020 and 2021, and business travel is resuming. To my lament, sellside analysts are being dispatched around the world again (I’m writing this piece on a work trip in Asia). There is a tourism boom playing out in the US and Europe right now. We will spend fewer dollars on goods this year, especially given the buying binge most of us went on in 2021. This shift away from goods is likely to disproportionately hurt companies that make or sell those goods, which is mostly the large companies we see listed on the stock market. But it’s not indicative of the overall consumer pulling back. Instead, we are spending more but in places like the local restaurant, the neighbourhood hair salon, and on that family trip.This is not an argument for unbridled optimism. One place where consumption is taking a massive hit is China, as the zero-Covid approach affects activity. Financial markets everywhere are creaking and central banks are unmoved — not a recipe to buoy consumers’ mood. But a consumer-driven recession in 2022 remains very unlikely, at least in the US, whatever equities seemed to be screaming last week. For now, investors should just focus on what Western consumers do and ignore what they say. More

Christine Lagarde has signalled for the first time that the European Central Bank’s eight-year experiment with negative rates will end within months, saying borrowing costs are on track to hit zero by the end of September. The ECB president wrote in a blog on Monday that, “based on the current outlook”, the institution was “likely to be in a position to exit negative interest rates by the end of the third quarter”. The deposit rate is now minus 0.5 per cent and has been in negative territory since 2014, when the region was facing a sovereign debt crisis. The euro hit its highest level for a month against the dollar, partially offsetting concerns among officials that a weaker single currency would exacerbate price pressures. Borrowing costs for eurozone governments rose on the back of the remarks. The ECB president is under pressure to accelerate the withdrawal of its ultra-loose monetary policy to tackle record eurozone inflation. Most analysts now expect the bank to raise rates by at least 0.25 percentage points at its July meeting a few weeks after it stops buying more bonds.Lagarde wrote: “If we see inflation stabilising at 2 per cent over the medium term, a progressive further normalisation of interest rates towards the neutral rate will be appropriate.” The neutral level of rates is the optimal level where an economy is neither overheating nor being held back. ECB officials estimate the neutral rate for the eurozone at between 1 per cent and 2 per cent, but economists are divided on whether it will raise rates above that level to constrict demand in an effort to tame inflation.Lagarde said rates could rise above the neutral rate “if the euro area were overheating”. But with the eurozone facing “negative supply shocks” from the war in Ukraine, supply chain bottlenecks and Chinese coronavirus lockdowns, there were “arguments for gradualism, optionality and flexibility when adjusting monetary policy”.Lagarde’s comments sent the euro up 1.1 per cent against the dollar to $1.0684. The euro has fallen more than 12 per cent against the dollar in the past year. Highlighting the impact of the weaker currency, Lagarde said higher import prices had cost the eurozone €170bn, or 1.3 per cent of gross domestic product, in the year to March. Germany’s 10-year bond yield rose 0.05 percentage points to 0.99 per cent. Bond yields rise when their prices fall.Frederik Ducrozet, a strategist at Pictet Wealth Management, said the market reaction “looks counterintuitive”, adding that “Lagarde’s comments on flexibility suggest no rush to tighten policy beyond neutral”.Investors were also encouraged by an unexpected brightening of German business sentiment, after the Ifo Institute’s monthly index of business confidence rose 1.1 points to 93, its highest level since February.After inflation soared to a eurozone record of 7.4 per cent in April, far above the ECB’s 2 per cent target, a growing number of its governing council members have have signalled the first rise in its deposit rate for a decade is likely at its meeting on July 21.Markets are pricing in four quarter-point rate rises by the ECB this year — one at every meeting from July to December. Rohan Khanna, a fixed-income strategist at UBS, said: “Every time any policymaker moves towards what the market is pricing, the market tends to price in a bit more.”The Dutch central bank chief Klaas Knot even said last week it could consider raising its deposit rate by half a percentage point at the July meeting, which would lift it from minus 0.5 per cent to zero in one go.However, Lagarde said gradualism was “a prudent strategy under uncertainty”, signalling a preference for quarter-point rate rises. “It is sensible to move step by step, observing the effects on the economy and the inflation outlook as rates rise,” she added.The eurozone was “not facing a straightforward situation of excess aggregate demand: in fact, supply shocks are raising inflation and slowing growth in the near term,” she said. More

Joe Biden has launched a trade initiative with 12 Indo-Pacific countries, in his first serious effort to boost economic engagement in the region as the US seeks to counter a more assertive China.Biden unveiled the Indo-Pacific Economic Framework in Tokyo on Monday after meeting Prime Minister Fumio Kishida on his first visit to Asia as US president.Jake Sullivan, US national security adviser, said allies such as Japan, Australia, New Zealand and South Korea would join the agreement. India and seven south-east Asian nations — Singapore, Malaysia, Indonesia, Vietnam, the Philippines, Thailand and Brunei — will also join IPEF, which includes nations that represent 40 per cent of the global economy.“The fact that we have such a range, and a significant number of partner countries in on the ground floor for the launch . . . indicates that there’s deep interest across the region,” said Sullivan, who added that the Indo-Pacific was projected to be the biggest driver of global growth for 30 years.US commerce secretary Gina Raimondo said IPEF was an “important turning point in restoring US economic leadership in the region” that would provide countries with “an alternative to China’s approach”. China is part of a separate broader trade deal in the region, the 15-member Regional Comprehensive Economic Partnership, or RCEP, that also includes Japan and South Korea as well as the 10 Asean members. Analysts had said RCEP would further diminish the economic role of the US in the Indo-Pacific.IPEF contains four pillars: trade; supply chains; clean energy and infrastructure; and tax and anti-corruption.Biden hopes IPEF will blunt criticism that he has not included a trade component in his security-heavy Indo-Pacific strategy. Many countries want the US to join an 11-nation trade deal that was rebranded the Comprehensive and Progressive Agreement for Trans-Pacific Partnership after President Donald Trump left the Trans-Pacific Partnership in 2017.Katherine Tai, US trade representative, said there had been insufficient support in Congress for TPP, a traditional trade deal that lowered tariffs to boost market access. She said IPEF was tailored to the modern economy and would include an important component on digital trade. “Our aim is for IPEF to address the challenges in the 21st-century global economy,” Tai said.One US official said IPEF members would spend two weeks deciding how many of the four pillars they wanted to join. She said Washington hoped to finalise agreements for each pillar within 12 to 18 months, and that deals on one or more pillars could be concluded before agreement on the remaining ones.The official added that the Biden administration would attempt to show the IPEF countries that the agreements would be durable by keeping the US Congress fully informed during the negotiations to increase buy-in from American lawmakers and avoid the political problems that derailed TPP.Many countries, particularly in south-east Asia, were initially lukewarm because IPEF did not provide US market access. Japan urged the US to change the launch statement to make it easier for countries to join IPEF by saying it would start with consultations that would lead to negotiations.

Illustrating those concerns, Arsjad Rasjid, chair of the Indonesian Chamber of Commerce and Industry, suggested it was difficult to commit to IPEF at this stage because there was a “lack of transparency”.“How can we make a comment, how can we actually support it if we don’t understand what it is?” asked Rasjid. He said that he would like to see access to the US market added to IPEF.Japan has backed the US push for IPEF as the “next best alternative” to CPTPP given the slim chances of a US return to a traditional trade agreement.Tokyo views IPEF as symbolically critical for the US to maintain economic influence in the region even if the agreement pales in comparison with CPTPP. Japan urged the US to be flexible, and focus on digital trade as an alternative to providing market access.“Considering the position the US is in at the moment, the IPEF gives the US its best shot to take an initiative in the region and maintain its economic presence,” said Kenichiro Sasae, a former Japanese ambassador to Washington who heads the Japan Institute of International Affairs. “That is why Japan is going to support it.”The US did not ask Taiwan to join IPEF, partly because south-east Asian countries were concerned about antagonising China. Some experts have questioned how the US can complete a meaningful agreement on supply chains without Taiwan, the most important manufacturer of semiconductors.The US official said Washington was “thinking about things we can do with Taiwan in parallel” that would ensure that any final agreement on supply chains in IPEF dovetailed with separate efforts involving Taipei.Additional reporting by Oliver Telling in SingaporeFollow Demetri Sevastopulo and Kana Inagaki on Twitter More

Good morning and welcome to Europe Express.It’s a short but packed week, with leaders exceptionally gathering in Davos for a summer edition of the World Economic Forum (here’s the FT primer on it). One idea that may pop up in the various forums ahead of next week’s EU summit is the idea of seizing and selling off Russian assets to pay for Ukraine’s reconstruction. We’ll also look at what finance ministers meeting in Brussels today and tomorrow for their regular eurogroup-Ecofin combo are likely to discuss. One emerging prospect is the need for an extra EU budgetary top-up, given all the Ukraine-related expenditure, as the FT reports.And with the World Trade Organization’s ministerial meeting fast approaching, we examine its checklist of reforms. EU institutions (and some capitals) are engaging in the tradition of faire le pont (around Ascension day, for those observing), so we’ll be off on Thursday and Friday, and back in your inboxes on Monday.To confiscate or not; that is the questionValdis Dombrovskis, European Commission executive vice-president, struck an uncompromising note last week when asked about the idea of confiscating Russian assets to pay for the reconstruction of Ukraine, writes Sam Fleming in Brussels.There was, he said, a principle of “aggressor pays” that applies, as he called for the net to be cast wide when it comes to examining the confiscation of both private and public Russian assets. “We must make Russia pay for the damage it is creating,” the Latvian commissioner said. Behind the scenes, the topic is proving a divisive one between member states, some of which are wary of the legal and political tripwires the EU will encounter as it examines asset confiscation. Diplomats last week debated whether asset confiscation should be discussed at EU leaders’ level as soon as this month’s European Council meeting, after the topic appeared on draft summit conclusions. Opinions varied sharply. As a reminder, there are two main avenues for Ukraine’s allies to pursue here: either confiscating the frozen assets of Russian oligarchs who have been placed under sanctions, or seeking to liquidate some of the frozen assets of the Russian central bank. The former route is less lucrative in terms of the money raised, but it may be legally easier to pull off than the latter, which would mark an extraordinary precedent and raise complications within international law. The draft European Council conclusions would have EU leaders welcoming “efforts made with a view to providing for appropriate confiscation measures, including exploring options aimed at using frozen Russian assets to support Ukraine’s reconstruction”.But in a meeting of EU diplomats on Friday a number of member states sounded wary about the idea of having a leaders’ debate on the topic, according to people familiar with the meeting, noting how delicate it is, as well as the need to ensure compliance with national and international law. Among the countries that are cautious in this area is Germany, where even enforcement of asset freezes is patchy, because of constitutional law restrictions. The country’s fundamental law explicitly says that expropriation by the government can occur only “for the public good” and must be combined with compensation — which could open the door for massive compensation lawsuits from Russians hit with sanctions.The upshot is that it is not yet clear if the wording will make it on to the EU leaders’ menu when they gather a week from now.That said, the commission is pretty active in this area already. This week it is due to propose a new directive on asset recovery and confiscation, along with a council proposal on adding the evasion or violation of sanctions to criminal law. The latter is important, because it is easier to engineer the seizure of assets as part of a criminal process, and not all member states currently have sanctions evasion on their list of offences. Chart du jour: Deglobalisation talkRead more here about why talk about deglobalisation among companies has mounted in recent weeks. Mentions of nearshoring, onshoring and reshoring on corporate earning calls and investor conferences are at their highest level since in nearly two decades. Fiscal rules, postponed againThe commission is expected today to confirm its proposal that the EU’s debt and deficit rules should remain suspended for another year as it releases a swath of economic recommendations to member states in its “semester” process, writes Sam Fleming.The intended suspension of the Stability and Growth Pact (SGP) until 2024 is not without controversy inside the commission, given that the latest growth forecasts by no means show the kind of nosedive in output that accompanied the EU’s initial decision to freeze the rules in 2020. The commission’s latest forecast was for 2.7 per cent growth this year and 2.3 per cent in 2023, in both the eurozone and the EU as a whole.EU fiscal hawks are already warning of the risks of fiscal indiscipline being taken too far. Germany’s finance minister Christian Lindner said in an interview with the Financial Times over the weekend that the fact that member states are now able to deviate from the SGP doesn’t mean they actually should do so.And for high-debt countries, among them Italy (here is FT’s deep-dive into the country’s economic woes), the message from Brussels remains that current spending needs to be kept in check, even while investment demands rise. One country heeding that message is Portugal, whose finance minister has vowed to push through policies aimed at removing his country from the top three most indebted economies in Europe (just behind Greece and Italy), to protect families and businesses from the impact of higher interest rates. For the commission, the key goal is ensuring the growth rate of current expenditure is kept below potential GDP growth rates in high-debt economies. The semester recommendations come alongside meetings of finance ministers both today and tomorrow. Among the items on the agenda are the eurogroup’s upcoming decision on the next chief of the European Stability Mechanism. And for EU finance ministers tomorrow one key question is whether Poland will finally drop its opposition to the minimum effective corporate tax rate that the EU is seeking to implement pursuant to last year’s OECD deal. France’s finance minister Bruno Le Maire has been pushing for a deal on the corporate tax rules under France’s EU presidency, but the clock is ticking given Paris’s six-month stint expires at the end of June. What’s in a meetingIn Geneva the World Trade Organization is preparing for a much-hyped ministerial meeting that is on course to achieve very little, writes Andy Bounds in Brussels.It is three weeks until trade ministers finally jet in for their get-together dubbed MC12, which has been delayed for a year by the Covid-19 pandemic.The extra time has not brought the big trading blocs any closer together on the issues that need settling, however. There are four priority topics, and despite tireless work by some WTO ambassadors and officials, and director-general Ngozi Okonjo-Iweala, agreement is far away. Here are some of the key topics.An intellectual property waiver to allow developing countries to manufacture Covid vaccines. A deal between the four main interested parties — the EU, US, India and South Africa — was discussed last week and hit heavy opposition. The US wants China excluded from any deal to allow poorer countries patent waivers to make western vaccines. The UK and Switzerland, with big pharmaceutical industries, are demanding a bigger role in talks.Farm policy: Talks on abolishing hidden export subsidies, domestic support, and opening up markets to imports are stalled. But with India determined to defend its vast grain stockpiles and export bans, “WTO members are unlikely to agree on anything substantial on agriculture”, says Peter Ungphakorn, a former WTO official and trade commentator.Fishing: Colombia’s WTO ambassador Santiago Wills has been working overtime to eliminate the most damaging overfishing practices. He said on Friday that there were “positive vibes” but added “we are not done yet”. “It is clear that to reach an agreement before MC12, we must get this done no later than the week of May 30, which I see as ‘fish decision week’”. Again, India is blocking a deal by demanding poorer nations are exempted from some provisions. WTO reform: There has not been a meaningful multilateral trade deal since it was founded in the 1990s. The appeals panel that hears disputes is not functioning because the US refuses to nominate members. Ministers are likely only to agree to set up a group to examine reform to report back to the next ministerial meeting, hopefully in one year’s time. Expectations are low overall. Asked what the best achievement from MC12 would be, one senior EU official said: “Having a meeting.” What to watch today EU affairs ministers and, separately, eurozone finance ministers meet in BrusselsUkraine’s president Volodymyr Zelensky addresses World Economic Forum in DavosEuropean parliament chief Roberta Metsola visits Israel. . . and later this weekEU finance ministers meet in Brussels tomorrowNato and EU leaders speak at the World Economic Forum tomorrow and WednesdayNotable, Quotable

Smallpox jabs: With cases of the new monkeypox disease on the rise, EU’s infectious-disease agency is to recommend that member states devise vaccination strategies with existing smallpox jabs, as there is no approved monkeypox inoculation as of yet. Borne identity: Élisabeth Borne, France’s new prime minister-to be, is the daughter of a Resistance fighter and more of a political animal than most give her credit for, although she still needs to prove she can connect with a broader public.Lithuanian freedom: As of yesterday, Lithuania became fully independent of Russian oil, gas and coal — in what its government described on Twitter as a “mission possible”. More

Behind the counter of F.lli Gondola, a coffee bar and pastry shop in Frattamaggiore, owner Salvatore Gondola keeps a picture of Italian footballer Lorenzo Insigne.Insigne, who grew up in this small town to the north of Naples, and his fellow Azzurri players won the nation’s hearts when they clinched the European football championship against England last year — a fitting symbol for a country bouncing back after a devastating pandemic hit.Italy began 2022 poised for a year of buoyant growth and structural reforms, underpinned by Prime Minister Mario Draghi’s assured leadership and the infusion of EU funds. A once-in-a-generation effort to tackle its chronic weakness and raise its long-term growth trajectory, funded by a €191bn chunk of the EU’s €750bn Covid recovery plan, was under way. On and off the pitch, the glory has faded fast. The Azzurri missed out on qualification for the World Cup after an embarrassing defeat to North Macedonia and the economic outlook has turned so bleak that there is the possibility of a recession this year.

Coffee bar owner Salvatore Gondola, who has seen sales decline and costs rise over the course of 2022 © Amy Kazmin/FT

Any momentum built up in 2021 has been dented by soaring food and energy prices, which are squeezing household incomes and battering fragile small businesses. “Today it’s hard, really hard,” said Gondola. “It’s like during Covid. The only difference is that this time, it’s without a mask.” Italy is hardly the only European economy facing hard times. Brussels recently pared back its forecast for GDP growth in the EU this year to 2.7 per cent, down from a 4 per cent estimate in February. Inflation is higher in economies to the east, in Germany and in the Netherlands. But Italy relies heavily on Russia for its energy, leaving it vulnerable to the conflict in Ukraine. “Some countries are more exposed than others,” said Lorenzo Codogno, former director-general of the Italian treasury. “Within the major countries, Italy is as exposed as Germany, and probably even more, to high energy costs . . . It is a massive terms of trade shock to consumers, which means the whole country becomes poorer.” A deal signed with Algeria to provide gas from north Africa will take years to pay off.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

The economic downturn — and expectations of rate increases from the European Central Bank beginning in July — are reviving concerns about the health of Italy’s longer-term finances. With the second highest debt-to-GDP ratio after Greece and the highest government deficit of any major Eurozone economy, Italy’s position is precarious. Markets have grown gloomier on its prospects. The spread between Italy’s 10-year bond yield and Germany’s, considered a barometer of political and economic risks in the euro area, has climbed as high as 2 percentage points in recent weeks, its widest since the early stages of the pandemic when investors dumped riskier European government debt. “It’s going to become a very delicate environment,” Codogno said.Italy is on a path of fiscal consolidation. A target budget deficit of 5.6 per cent is forecast for this year, down from the 7.2 per cent recorded for last year. But economists warned that a sharp slowdown in growth would raise doubts about the deficit.“If GDP is going to weaken substantially, the dynamic doesn’t look pretty,” said Lucrezia Reichlin, an economics professor at the London Business School. “The market has now become quite pessimistic and possible recession in 2022 is something many people expect.”The influx of EU funds for investment is one positive. Italians also amassed higher-than-usual savings during lockdowns, which can now be drawn down to sustain consumption. But the impact will fade and the hit to disposable income in the coming quarters is, according to Codogno, set to be “massive”. Residents of Frattamaggiore are already feeling the pinch. Sosso Fardello, 74, a retired public transport worker living on a fixed €1,500 monthly pension, has cut out virtually all discretionary spending after his energy bills surged. “We have to think about everything we buy, and what is necessary to live,” he said. The Draghi government this month imposed a 25 per cent windfall tax on the energy companies’ excess profits to generate funds to cushion millions of financially vulnerable families, including pensioners, with energy subsidies and a one-time €200 cash payment.Pensioner Raffaele Rega, 74, who worked at a shoemaker, said such measures were not enough. “Our pension is just enough to survive and pay for food.” Gondola — who runs his pastry shop with his brother, brother-in-law and nephew — said he was struggling to make the business generate enough surplus to sustain four families. Monthly energy bills that used to average €1,200 are now €1,600; the small paper trays on which they serve pastries recently doubled in price; sales are down 30 per cent since January. Gondola had no choice but to pass on these rising costs to his customers, increasing the price of a coffee from 80 cents to €1.20, and of a 1kg fruit tart from €13 to €15. He discontinued his larger 1.5kg tarts, because his customers cannot afford them any more. “We are all trying to squeeze little pieces from a smaller cake,” Gondola said. Additional reporting by Martin Arnold in Frankfurt More

The head of the IMF has warned at the start of the World Economic Forum in Davos that the global economy faces perhaps its “biggest test since the second world war”. Kristalina Georgieva, IMF managing director, said Russia’s invasion was “devastating lives, dragging down growth and pushing up inflation”, and urged countries not to “surrender to the forces of geoeconomic fragmentation that will make our world poorer and more dangerous”.Georgieva’s warning came as Ukraine stepped up its bid to give its citizens hope of a brighter future, if the war can be won, with a $1tn package of reconstruction support, financed from confiscating frozen Russian assets. Speaking on Monday morning at the forum, Yulia Svyrydenko, Ukraine’s deputy prime minister and minister of the economy, said the whole world should get behind Ukraine in supporting its reconstruction and imposing sanctions on Russia. “There is no room for a neutral position, no time to wait for decisions as this war affects every country,” she added. Svyrydenko criticised countries and companies that had not imposed or enforced economic sanctions and said the world was suffering from the consequences of Russian aggression through higher food, oil and gas prices. Calling for a new Marshall Plan plus for reconstruction, she said that it could be financed from the frozen assets of the Russian state and from oligarchs. “You have these frozen Russian assets all around the world and we need to find a clear solution on how to sell these assets for the reconstruction of Ukraine.”Recognising that this was not something that had been done before, she justified the stance on Russia financing reconstruction, saying “this is not a conflict . . . it is a war and it includes all countries”.Ukraine’s former finance minister, Natalie Jaresko, told the Financial Times in Davos that, with bombs raining down every night across Ukraine, the rebuilding costs were likely to be higher than Kyiv’s current estimates of $560bn to $600bn. “I’m putting this at $1tn,” Jaresko said.Ukraine’s representatives at the World Economic Forum have been adamant that sanctions on Russia should be toughened even if they came with economic costs for other countries. Ukrainian delegates have expressed frustration with the actions taken by the US and European countries, as well as the lack of measures taken by other big economies, especially India and China. Svyrydenko said Europe should immediately go ahead with the proposed ban on Russian oil imports and accelerate the move away from Russian gas. “There is no other answer than this: you should launch the second [EU] package of sanctions and ban the purchase of oil and gas from Russia.” The sanctions have contributed to concerns, however, in the global economy that it is moving into a more turbulent period. Increasing numbers of economists have become alarmed that the world is sliding towards a recession, with Chinese production falling sharply as it battles coronavirus, Europe suffering from a cost of living crisis, the US moving from boom to bust and emerging markets facing food shortages.Georgieva urged all countries to lower barriers to trade, help countries in debt distress and modernise cross-border payments systems. But she warned: “There is no silver bullet to address the most destructive forms of fragmentation.” More