To achieve its climate goals, the European Union (EU) should cut by 90% its greenhouse gas emissions by 2040 (compared to 1990 levels), according to a recent recommendation by the European Commission. This means rapidly increasing investment in renewable energies, electricity grids, transport infrastructure and thermal renovation of buildings [...]
Recently an agreement has been reached between representatives of the European Council, the European Parliament, and the European Commission on a new economic governance framework. It focuses on risk-based surveillance, differentiation between member states based on their specific situation, the integration of fiscal, reform and investment objectives in a medium-term fiscal plan [...]
In a recent speech, ECB President Christine Lagarde said that when the financing needs of an economic transformation exceed the capacities of fragmented financial markets, developing a capital markets union becomes crucial. This is the point at which the EU has arrived. According to European Commission estimates, financing the energy and digital transition will require more than EUR 700 billion annually [...]
The momentum of private payroll employment has recently slowed in the euro area, as evidenced by job destruction in France and Germany in Q3. This destruction can be partly explained by cyclical sectors, particularly construction. It is a sign that demand constraints are increasingly impacting companies and the labour market [...]
The COVID-19 pandemic and the war in Ukraine have prompted many advanced countries to rethink and relocate their supply chains in order to secure strategic production and to create a framework that will help to promote the energy and environmental transition.
Recently, the word uncertainty has been frequently used by the Federal Reserve and the ECB in their communication. It is something they must take into account when taking policy decisions. Likewise, households, firms and investors face different types of uncertainty [...]
By cutting out Russian hydrocarbons, the EU has accelerated its shift towards renewable energy.
Since 2005, the emission trading system, also called carbon market, is at the heart of the European strategy to reduce greenhouse gas emissions.This device that covers around 45% of carbon emissions is based on the simple principle of "polluter pays".The entities concerned, mainly the most polluting industrial sites, but also the intra-EU airlines, are given emission allowances by public authorities. These are tons of carbon which they can emit into the atmosphere every year [...]
Polluting has never been so expensive. Since mid-February 2023, CO2 permits have been trading at more than €100 per ton in the European Union for the first time since the European Union Emissions Trading System (EU ETS) was created in 2005.
Business bankruptcies in the European Union increased significantly in the fourth quarter 2022, reaching their highest level since 2015 according to figures published by Eurostat on Friday 17 February. The overall dynamics conceal large sectoral differences.
Meeting the European Union’s climate-related and digital ambitions will require a huge additional annual investment effort. In the near term, against a background of slowing growth and the prospect of a recession in 2023, this represents a potential source of resilience. In the medium term, this demand impulse may underpin or even increase inflation, in addition to other factors that could lead to greenflation [...]
According to the latest figures from the European Banking Authority, the ratios of non-performing loans in the Spanish, Italian and Portuguese banking systems reached record lows in the second quarter of 2022. It also appears that their cost of risk remains relatively low following the sharp increase in 2020 [...]
Over the past few weeks, Central Europe has experienced a spike in Government bond yields. Five-year yields have surged respectively by 338 bp in Poland, 331 bp in Hungary, 350 bp in Romania and 216 bp in Czech Republic since January 2022 and are at present similar to 2008 levels. The trend is also the same for 10-year yields [...]
Uncertainty matters greatly for households and businesses when taking decisions. It can have many causes: economic, economic policy, political or even geopolitical. Survey data of the European Commission show that the Covid-19 pandemic has caused a huge jump in uncertainty, followed by a gradual decline. The war in Ukraine has triggered another, albeit more limited, increase [...]
Countries neighbouring Russia and Ukraine are more exposed than those in Western Europe. Among the latter, there are differences, with Germany and Italy being more dependent on Russian gas than France, Spain or Portugal. The countries that import the most from Russia are also the most dependent on Ukrainian imports [...]
Usually close, French and German inflations, measured on a comparable basis by Eurostat’s harmonized index of consumer prices (HICP), have diverged sharply since the beginning of 2021, with inflation on the other side of the Rhine largely exceeding that in France. In November 2021, the gap reached +2.6 percentage points compared with an average of +0.2 pp since 1991 [...]
Euro notes and coins were introduced on 1 January 2022, and the euro is celebrating that 20th anniversary in fairly good shape. However, there are still many plans to improve and strengthen the European project and increase integration. This is shown by the topics on the agenda during the French presidency of the Council of the European Union over the next six months. Priorities will include reforming European fiscal rules, which will be a major topic of debate in 2022 [...]
In most European countries, the structural primary deficit should shrink next year. This reduction represents a negative fiscal impulse, raising concern that it would act as a headwind to growth. However, the level of the primary deficit is such that it still corresponds to an accommodative fiscal stance [...]
The substantial rise in energy costs being seen in European economies undeniably represents a headwind to the economic recovery, notably through its negative impact on household spending. In 2015 – the most recent year for which Eurostat data are available – at the aggregate euro zone level direct energy spending represented between 9% and 10% of total household spending, making it the third largest cost item after food and housing [...]
The European Commission has relaunched a comprehensive review of the economic governance framework of the European Union. This initiative is necessary considering the impact of the Covid-19 pandemic on public finances as well as the investment needs in the context of the green and digital transformation [...]
The fiscal response to the health crisis has been swift, substantial and multi-pronged. Emergency measures, seeking to cushion the recessive shock and facilitate economic recovery, have been joined by recovery packages that support the ongoing upturn and pave the way for future growth. There are, however, disparities between countries as to the sums involved and the distribution of the measures. On our analysis, Italy has made the biggest effort, with a total running at 71% of GDP [...]
The economic shock caused by the Covid-19 pandemic has resulted in a sharp increase in banks’ cost of risk. This has been particularly steep for the Spanish, Italian and Portuguese banking systems, which are notably oriented towards retail banking and have relatively high levels of exposure to the sectors most affected by the pandemic [...]
Growth in Central Europe looks set to accelerate in the 2nd quarter of 2021, after already a good performance in the 2nd half of 2020, as indicated by the capacity utilisation rate in the manufacturing sector. This highlights good resilience despite a shortage of chips in the automotive sector and a fairly severe 3rd wave of Covid in the 1st quarter of 2021 [...]
Limiting global warming will require huge investments, which will partly have to come from the public sector. This could lead to a crowding-out effect. Higher public borrowing requirements could push up interest rates and weigh on private investments. In the near-term such a risk seems remote. On the contrary, there could be a crowding-in effect with a reduction in climate-related risk and positive second-round effects from green public investments stimulating private investments [...]
In the northern European countries, the economic impact of the Covid-19 crisis in 2020 was one of the mildest in the European Union, with GDP contracting only about 3% in Sweden, Denmark and Finland, compared to a Eurozone average of more than 6% [...]