Economy

“200 billion euros in funding for the transformation of the economy, society and the state,” Christian Lindner told public broadcaster ARD on Sunday, adding that this also included the removal of renewable energy levies.Lindner’s comments come as Germany is intensifying efforts to cut reliance on Russian gas by boosting infrastructure to import liquefied natural gas (LNG) and possibly relying more on coal-fired power plants.At the same time, Germany is planning to boost investment in renewables for energy production.In comments to Reuters, economy minister Robert Habeck said that agreeing on funds to boost the transition of Europe’s largest economy was a great success.”More urgently than ever, we need to invest in our energy sovereignty. And I am glad that we as members of the coalition are pulling in the same direction. Now we must make every effort to become more independent and climate-neutral.”($1 = 0.9152 euros) More

The Dutch finance minister has warned against watering down the EU’s borrowing rules by stripping out defence and other strategic investments, saying the bloc needed to keep its eyes on debt sustainability even as it confronts the economic challenges posed by the war in Ukraine. Sigrid Kaag said that the Netherlands was open to discussing reforms to the Stability and Growth Pact, which sets debt and deficit limits for member states, but that removing military spending or green investment from the SGP, as suggested by some member states, would entail “significant risks”. Shifting some investments “off the books” could damage the drive for economic convergence and debt sustainability, she told the Financial Times in an interview. Kaag spoke amid calls in France and other member states for certain kinds of strategic government spending to get preferential treatment under a reformed SGP. Brussels is signalling that the pact may not get reimposed until 2024 — a year later than previously envisaged — given the damage to growth caused by Russia’s invasion of Ukraine. The drive to reduce Europe’s reliance on Russian gas has ignited a further debate over whether the EU should undertake extra common borrowing to boost its energy investments.

Kaag, of the Dutch liberal Democrats (D66), is a former UN diplomat who served as trade minister and then foreign minister in the last government before taking up her post early this year. She is a pro-European who is expected by some officials to take a less hawkish posture on EU budgetary policy than her predecessor, Wopke Hoekstra of the Christian Democrats. Kaag will set out her approach in a speech in Maastricht on Tuesday, after meeting with German counterpart Christian Lindner on Monday in Berlin. The minister stressed that the Netherlands was open to new ideas for confronting the economic challenges posed by Russia’s war on Ukraine. While the government does not have a position yet on whether the SGP should remain suspended for another year, and it wants to go back to regular decision making, she acknowledged that “the war in Ukraine has shifted the paradigm”.When it came to excluding certain categories of investment from the SGP, Kaag said the Netherlands was not saying a definitive “no, never”. But she warned: “We think there are significant risks, because you create parallel pathways and it doesn’t do justice to the real economic situation.”A modernisation of the SGP could involve ensuring debt reduction was “viable and feasible” for countries with significant public debt burdens, she said. “But by placing investments off the books, we are not quite sure that is a solution to the serious problem of economic convergence and debt sustainability.”

When it came to the common EU response to the economic shock, she said it was “prudent and wise” to explore the scope within existing budgets to mitigate the effects of the crisis. But Kaag poured cold water on the idea of an immediate dash for extra EU debt issuance to battle the economic shock. “Yes, it’s an understandable reflex to want to borrow more, but our very sober position would be, ‘let’s take stock, let’s find out how bad the damage is and where, and if and under which conditions assistance or compensation could be provided’.” Kaag stressed that while EU policy had been evolving rapidly, given the current crisis, it was still important to apply “appropriate processes and decision-making” rather than rushing through decisions that would have lasting consequences. “In terms of crisis, one tends to sometimes overpromise and then underdeliver. I’m in favour of underpromising and overdelivering,” she said. “Keep calm and carry on, so to speak.”  More

Hello and welcome to the working week.Once again an anniversary gives us pause for thought. It will be two years ago this Friday since the World Health Organization declared Covid-19 a global pandemic. It was not so long ago that this was the biggest story on the planet. Vladimir Putin has ensured that this is no longer the case.This newsletter only deals with events in the diary, which limits our ability to warn you about significant developments in the Russian onslaught of Ukraine. However, we do know about two significant events relating to the west’s response to the conflict.First, Boris Johnson, UK prime minister, will host the leaders of the V4 countries — Poland, Hungary, the Czech Republic and Slovakia — in London to discuss the Ukraine crisis. Perhaps most interesting will be the British prime minister’s conversations with his Hungarian counterpart Viktor Orban. The Hungarian government has nurtured a close relationship with the Kremlin over the past decade, but it has also condemned Russia’s invasion of Ukraine and agreed to most European sanctions. Could Johnson persuade Orban to allow weapons as well as aid to flow across its border with Ukraine?On Thursday Emmanuel Macron, French president, will host a gathering of EU leaders in Versailles for an informal European Council summit. On the agenda is a wave of applications from former Soviet states to be fast-tracked into EU membership, a move framed as a way to show solidarity with Ukraine but one that is unlikely to be fulfilled, not least because it is fraught with complexity.South Koreans go to the polls on Wednesday to decide a presidential contest that has been tainted by scandal, family drama and insinuations of corruption, criminality and nepotism, and fraud. A tragedy for an important country — it is the world’s 10th-largest economy — that has been a model in its handling of the Covid pandemic and needs good leadership to tackle real economic problems.Finally, a clarification. Last week I noted that we had entered the Christian period of Lent and was rightly corrected by Fr Andrew Bushell, a monk in the Orthodox Church, from the St Paul’s Foundation in Massachusetts. As Fr Andrew explained, very graciously, last Wednesday was only the beginning of Lent for western Christians. For the Orthodox Church, the Great Lent — one of four lents in its calendar — begins this week on Clean Monday. I am happy to set the record straight, as you will see in the full calendar of events below.Thank you for all of your emails — to [email protected] — about what you like and dislike about this newsletter. Please keep them coming.Economic dataThe unfolding tragedy of the Ukraine invasion has rendered a lot of the historic economic data of recent days irrelevant. However, the crisis will be very much on the minds of the governing council of the European Central Bank when they meet to decide its next move on interest rates on Thursday. The main UK data releases are backward looking, with January gross domestic product, trade and industrial production figures due on Friday. Expect also inflation updates from several nations including China, Japan, Germany, Italy and the US.CompaniesIt’s a week of insurance industry earnings reports. FTSE 100 insurer Prudential will reveal its annual results on Wednesday, a little more than a month after chief executive Mike Wells announced his departure and the group said the next person to lead it would do so from Asia for the first time. Prudential’s break-up in recent years has left a UK-domiciled company with primary listings in London and Hong Kong, but markets in Asia and Africa. The next global chief might be forced to be stationed outside Hong Kong in the short term, however, given the “friction” created by pandemic-related restrictions, the Financial Times recently revealed. Lego, the world’s largest toymaker, whose little plastic bricks have been valued more highly than gold, reports full-year results on Tuesday. Expectations will be higher than a child with the Millennium Falcon set on their birthday wish list. Lego’s growth has accelerated throughout the coronavirus pandemic. The question is whether the company can maintain its impressive performance.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayChina, February trade balance figuresGermany, January factory order statisticsJapan, January current account and trade balance figuresUK, Halifax monthly house price indexUS, January consumer instalment credit figuresTuesdayApple stages spring product launch eventEurozone, Q4 GDP dataGermany, January industrial production figuresItaly, January retail sales figuresJapan, Q4 GDP dataOECD publishes interim economic outlookUK, Q4 Mortgage Lenders and Administrators Return statisticsResults: Ashtead Group Q3, Direct Line Insurance FY, Domino’s Pizza FY, Fresnillo FY, Greggs FY, Lego FY, Wood Group FYWednesdayChina, February consumer price index (CPI) and producer price index (PPI) figuresItaly, January industrial production dataJapan, February PPI figuresMexico, February CPI figuresUK, family and households data, revealing trends in living arrangementsResults: 888 Holdings FY, Adidas FY, Cathay Pacific FY, Continental FY, Deutsche Post FY, Kier FY, Legal and General FY, Prudential FY, Vivendi FYThursdayEU, European Central Bank governing council meeting in FrankfurtFrance, January balance of trade figures and industrial production dataIsrael, Q4 GDP dataItaly, January PPI figuresUK, Royal Institution of Chartered Surveyors February residential market survey plus Recruitment & Employment Confederation & KPMG monthly jobs reportUS, February CPI data and weekly jobless claims Results: Boohoo FY trading update, Brunello Cucinelli FY, Forterra FY, Hapag-Lloyd FY, Hugo Boss FY, Leonardo FY, National Express FY, TCS Group FY, Tod’s FYFridayCanada, February employment dataGermany, February CPI dataIndia, January industrial production figuresUK, January GDP estimate plus monthly production figuresResults: Standard Bank FYWorld eventsFinally, here is a rundown of other events and milestones this week. MondayAustria, the board of governors of the International Atomic Energy Agency meet in ViennaClean Monday, also known as Pure Monday, Ash Monday, Monday of Lent or Green Monday, is marked in the Eastern Orthodox ChurchFrance, deadline for candidates to collect enough sponsors to participate in the country’s presidential electionIndia, Voting ends in the last of the seven-phase election in India’s most populous state of Uttar PradeshUS, trial begins for three former Minneapolis police officers charged with aiding and abetting unintentional second-degree murder and aiding and abetting second-degree manslaughter in relation to the death of George Floyd in May 2020.TuesdayInternational Women’s DayUK, Hungarian prime minister Viktor Orban meets his counterpart Boris Johnson for talks in LondonWednesdaySouth Korea, presidential electionSpain, Madrid Fashion Week beginsThursdayFrance, EU leaders gather for an informal summit in VersaillesUK, longlist for the Booker Prize for literature is announced, plus Crufts, the largest dog show in the world, opens in BirminghamWorld Bagpipe Day, celebrating the idiosyncratic instrumentFridaySecond anniversary of the World Health Organization declaring Covid-19 a pandemicDjibouti, municipal electionsNorway, start of Finnmarkslopet, Europe’s longest and toughest dog-sledge raceUS, the South By Southwest Conferences and Festivals for music and film begin in Austin, TexasSaturdaySir Tim Berners-Lee publishes annual letter marking the world wide web’s 33rd birthday, on the state of his invention and his vision for its futureTurkmenistan, early presidential election after incumbent Kurbanguly Berdymukhamedov resignedSundayColombia, parliamentary electionsMali, first round of parliamentary and presidential electionsUK, EE British Academy Film Awards take place at the Royal Albert Hall, LondonUS daylight savings starts, clocks go forward one hourVatican City, Pope Francis marks the ninth anniversary of his appointment More

VTB has an investment banking operation in London and a retail bank in Germany with 160,000 customers but has decided it is unable to operate outside Russia after its assets were frozen by Western allies, the FT said, citing people with knowledge of internal discussions.Reuters had reported on Wednesday that regulators are preparing for a possible closure of the European arm of VTB, Russia’s second-largest bank, amid growing concerns about the impact of Western sanctions on the bank after Russia’s invasion of Ukraine. More

For Maxim Potimkov of Ukraine’s state arms exporter and importer, standing alone amid his country’s armoured vehicles, sales were the farthest thing from his mind.”I came for this show because there has to be someone here and we have so much equipment here,” he told Reuters. “There was expected to be 50-plus people from Ukraine.”Potimkov, from Kyiv, was travelling to Ukraine from a trade show in the United Arab Emirates when Russia launched its invasion last week, and he had to cancel his plans. Now back in the Middle East, he staffs a booth to promote Ukraine’s Kozark 7 and Kozark 2M tactical armoured vehicles and anti-drone systems.Meanwhile, in an adjacent hall, Russian weapons makers were displaying Moscow’s hardware, including anti-aircraft weapons and air defence systems. Russian industry representatives, when approached by Reuters, declined to discuss economic sanctions imposed by the West in response to the war. Hundreds of visitors at the defence show in Riyadh, including regional government, military and corporate officials, surveyed this exhibition of might from nations around the world even as residents of the Ukrainian coastal city of Mariupol experienced the dread power of such hardware at first hand.Efforts to evacuate people from Mariupol – which has endured days of Russian shelling that has trapped people without heat, power and water – failed for a second day in a row on Sunday after a ceasefire plan collapsed.Many arms-producing nations vie for influence and contracts from wealthy Gulf Arab countries, especially Saudi Arabia and the United Arab Emirates, which have moved to diversify their defence partners and want to develop their own industries..Saudi Arabia leads a military coalition, which includes the UAE, that has been battling the Iran-aligned Houthi movement in Yemen for seven years. More

Russian invasion creates a dilemma for the ECBChristine Lagarde, the president of the European Central Bank, will have her first chance to outline how seriously Russia’s invasion of Ukraine has upended the outlook for the eurozone economy when she presents new forecasts on Thursday.The ECB is widely expected to postpone any major policy decisions when its governing council meets in Frankfurt this week, preferring to maintain as much flexibility as possible while assessing the economic fallout from the war in Ukraine.The crisis creates a dilemma for the ECB. While on the one hand economists have slashed their growth forecasts for the euro area this year and expect the ECB to do the same, the disruption to the supply of energy and other commodities is expected to drive up inflation.Consumer prices are already rising at their fastest rate in the 22-year history of the single currency — jumping 5.8 per cent in the year to February — and most economists expect it to remain well above the ECB’s 2 per cent target at least for the rest of this year.“The invasion of Ukraine has dramatically complicated the picture further for the ECB: energy prices and inflation will be pushed higher, while growth will weaken,” said Dirk Schumacher, head of European macro research at Natixis.He predicted Lagarde would take a “neutral stance” on the potential of the ECB raising interest rates this year, neither signalling that it was likely nor ruling it out.UBS economist Reinhard Cluse said he did not expect the ECB to shift to an “outright dovish” position and predicted it would keep its inflation forecast for the next two years slightly below its 2 per cent target, allowing the central bank to maintain its generous stimulus for at least a few more months. Martin ArnoldDid US inflation continue rising in February?US inflation is expected to have accelerated further in February, according to forecasts compiled ahead of Thursday’s report on consumer prices. Led by higher energy costs, economists polled by Reuters forecast that the consumer price index rose by 7.9 per cent in the 12 months to February — the highest rate since the early 1980s. It registered 7.5 per cent in January.The rising cost of heating oil and gasoline, which has been exacerbated by the conflict in Ukraine, is expected to have driven energy prices up 4.7 per cent, according to Barclays analysts. Rents are also projected to have increased, in pace with the prior month. The rise in food prices is expected to have slowed slightly, but could pick up again in the coming months as people return to restaurants following the Omicron coronavirus wave. Still, the inflation report is forecast to show that some consumer prices have moderated — most notably in new and used cars. The Manheim Used Vehicles Value index, a leading indicator of used car prices, fell in February for the first time in six months. Yet none of this is expected to change the Federal Reserve’s course of action at its March meeting. The US central bank is still forecast to raise interest rates by 0.25 percentage points for the first time since cutting its key rate to zero at the beginning of the pandemic. Kate DuguidWhich companies are exposed to the economic fallout of the war in Ukraine?European banks, brewers and car manufacturers with exposure to Russia and Ukraine are among the companies to have tumbled in value since Moscow invaded its neighbouring country.Shares in Renault, which owns Russia’s biggest car company Avtovaz, have dropped by more than a quarter since the close of trade on February 23.Meanwhile, Austrian bank Raiffeisen — whose Russian business has €22.9bn of assets — has shed more than two-fifths of its market value over the same timeframe. France’s Société Générale, another bank with substantial operations in Russia, has fallen by a third. In the brewing sector, Denmark’s Carlsberg, which this week halted production at its three Ukrainian breweries and whose Baltika brand accounts for roughly a quarter of Russia’s beer market, has slumped 15.5 per cent.Declines have also extended to the energy sector. Shares of the Finnish state-owned group Fortum — which said it would stop all new investment projects in Russia — have fallen more than a quarter since Russian President Vladimir Putin ordered the full-scale invasion of Ukraine. European equities have dropped broadly in recent days, but their declines have proved less severe in relative terms. An MSCI gauge tracking European stocks, priced in dollars, is down by a tenth since February 23. George Steer More

Russian-issued Mastercard and Visa cards would be accepted within Russia until their expiry, the bank said,The overseas ban also applies to cards issued by local subsidiaries of foreign banks, the bank said. Its announcement came after U.S. payments firms Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA) said they were suspending operations in Russia, joining the list of companies that are severing business links with Russia..The central bank added that many Russian banks plan to issue cards using UnionPay, a system it said was enabled in 180 countries. While several Russian banks already use UnionPay, others including Sberbank and Tinkoff could start issuing cards co-badging Russia’s domestic Mir payments system with UnionPay, it added. Thousands of Russians, including holidaymakers, are stranded abroad after many countries closed off their airspace to Russian aircraft while Russia has retaliated with flight bans for many foreign airlines. The central bank advised citizens currently overseas, to withdraw cash before the ban came into force. More

CORFU, Greece (Reuters) – It took one electricity bill to crush Dimitris Diavatis’ hopes that his Greek summer resort could bounce back to its pre-pandemic health this year, even with bookings pouring in.The amount was more than double what he paid this time last year when the hotel was not even open. After two sluggish summers, the irony was not lost on him: “We won’t make a profit in a good year,” he said. “It’ll be eaten up by inflation.”Greece – like the other tourism-dependent economies on the euro zone’s Mediterranean fringe – is seeing signs of a much-needed recovery in visitor numbers in 2022 after two largely lost years. As in Spain, Portugal and Italy, the sector is a huge employer and contributor to state revenues.But across the region, the pandemic has changed the face of tourism. Hotels were already grappling with higher fuel bills and inflation which a further energy price surge in the wake of Russia’s invasion of Ukraine will only make worse.The dislocation of labour markets caused by COVID-19 has left entrenched staffing shortages, while Italian tourist officials concede that pandemic-era holidaying – with its emphasis on hygiene, cleanliness and space – is a big challenge for its ageing infrastructure.Meanwhile, a market for more modest, small-scale vacations is opening up: In Spain and Portugal, a reluctance among many tourists to travel far is accentuating the trend for stays in rural areas in tents, campers or motorhomes.Industry and government officials in Greece are forecasting revenues will reach 80-90% of the record seen in 2019, when 33 million tourists brought in 18 billion euros in revenues, worth a fifth of national output.Yet a bumper season is unlikely to offer much relief to struggling businesses which emerged from a decade-long financial crisis in 2018 only to have the pandemic bring global travel to a halt two years later.So acute is the problem of soaring heating oil, gas and electricity prices that the president of the Greek tourism confederation SETE, Yiannis Retsos, wrote to ministers in January urging them to provide financial support, saying it was “objectively impossible” for year-round hotels to the cover their costs, especially after the quieter winter months.The highly indebted countries of Europe’s south were also bracing for the European Central Bank to remove the stimulus that has kept their borrowing costs down.Although the Ukraine war has left the interest rate outlook uncertain, the southern fringe still badly needs its tourism sectors to get back to work given the economic hit the conflict is set to deliver.Speaking a day after the invasion, which Russia calls a “special operation”, Greece’s Retsos said it was too early to gauge its impact on the tourism sector.More than a week into the conflict, there has been no noticeable increase in cancellations across the region.Russian tourists only make up a very small proportion of the sector in southern Europe – 2% of revenues in Greece in 2019 and around 1% of nightly hotel bookings in Portugal. Turkey – outside the European Union – is a more popular destination.But with European gas prices already at record highs, and this likely to feed into inflation globally, the concern in countries like Greece is the conflict will only worsen an already bleak outlook, further crimping guests’ spending power and increasing providers’ costs.NO END TO COSTSEven hotels that were shut during winter worry they will not be able to shoulder the extra burden, having already agreed prices with tour operators last summer, said Babbis Voulgaris, head of the Corfu hoteliers’ association.Resort owner Diavatis, who also owns a year-round boutique hotel and a waterpark complex on the island, agreed.”This will be a real crisis for us,” he said. “I won’t say it’s worse than the pandemic because at least we’re open. But we didn’t lose money then. Now we’re heading towards losing money.”The Greek government has spent over 42 billion euros in pandemic support measures since 2020 to keep businesses and households afloat and about 2 billion euros since September to subsidise power bills through March. For hoteliers, the support does not go far enough.”In the summer, with the air-conditioners working, the refrigerators, the kitchen, everything – I don’t how when this will end,” said Costas Merianos, who owns a small family-run hotel on Corfu’s Ionian coast.Across the sea in Italy, lockdowns and energy prices have forced many hotels to shut for good, said Marina Lalli, president of the Federturismo industry association.And while Lalli was hopeful tourism could inch closer to 2019 levels this year, Italy faces the additional problem of being “a mature tourist destination with mature hotel structures that need to be renewed,” she said.”In the post-COVID era, tourists are even more attentive to quality, they want a guarantee of cleanliness and want to feel safe.”SOMETHING DIFFERENTGreece said it was opening its tourism season as early as March 1 this year to meet demand but, like in Italy, Spain and Portugal, the season will not begin in earnest until the Easter break in April, a litmus test before the vital summer months.Both Greece and Italy are racing to fill job shortages as the pandemic forced workers abroad for better paying jobs or into different sectors with less uncertain prospects.In Greece, the tourism minister even appealed to refugees fleeing Ukraine, offering them residence and work permits to fill 50,000 job gaps in hospitality.Demand for Spanish holidays was looking very strong this year, according to the vice-president of industry association Exceltur, Jose Luis Zoreda, thanks to Spain’s high vaccination rates and the easing of pandemic restrictions in its big markets, the UK and Germany.”There is a strong, accumulated travel appetite in Europe,” Zoreda said, forecasting an “explosion” of tourism from Easter onwards, but also lower profit margins due to inflation and energy prices.Exceltur, however, also found tourists were seeking a different experience. In 2021, campsite rentals were up 19.2%, flat rentals were up by 16%, rural homes by 11%. Hotel usage fell by 8%, a decline also driven by fewer business trips.In January, new motorhomes and camper vans sales were up 34.1% on an annual basis, according to the Spanish Association of the Caravanning Industry and Trade (ASEICAR).”The ‘all-in-one’ holiday model has been left behind,” Yescapa, an online motorhomes and camper vans rental company, told Reuters.Nico Aro, who rents out a camper van on the island of Tenerife, says he has not been able to enjoy it himself since he bought it last March because requests keep coming in from Italy, France and Belgium. His biggest problem is that he cannot find another one to buy because they are in great demand.”I have benefited from the pandemic,” he said.The appetite for “slower” tourism has also grown in Portugal, where the sector played a crucial role in its recovery from the 2010 debt crisis. Tourism stood at about 15% of GDP in 2019 but fell to 8% in 2020.”There’s an increasing number of people looking for places with fewer people,” said Helder Martins, president of Algarve’s main hotel association. “I don’t believe that they will return to just wanting the sun and the beach.” The centuries-old “schist villages”, built from the stone of a mountainous region clad in pine trees, are roaring back to life after being abandoned over the years by young Portuguese seeking work elsewhere.”This summer is filling up fast,” said Sonia Cortes, who owns a small five-room hotel in the Janeiro de Cima schist village, where construction workers are rebuilding traditional houses.”The beginning of the pandemic was really difficult for those who lived off tourism,” she said. “(But then) those in bigger cities looked for villages like this one where they could feel safe.”There was a 30% increase in the number of night stays at schist villages from 2019 to 2020-21, said Bruno Ramos, who works for an agency promoting tourism there.Still, back in Greece, Merianos, the Corfu hotel owner, has a more sober view of the months ahead.”I’ll be happy if at the end of the season I don’t owe my staff, I don’t owe the state, I don’t owe the energy provider – even if I’m left with 10 euros in my wallet,” he said. More