eco TV Week

Let's talk about climate change, often


Climate change and the energy transition are high on the European agenda. Last year, 'Fit for 55' was presented, a plan to deliver the EU's 2030 climate target on the way to climate neutrality and to reduce greenhouse gas emissions by at least 55% by 2030. Following the war in Ukraine, REPowerEU was launched, with the ambition to rapidly reduce dependence on Russian fossil fuels and fast forward the green transition. These initiatives imply that millions of households and businesses will need to make  investments in order to save energy and use alternative energy sources.


TRANSCRIPT // Let's talk about climate change, often : June 2022

Carbon pricing, regulation and incentives will influence their decisions but enhancing the awareness of the necessity to act also plays an important role. Research shows that by making households more aware of climate change, their willingness to change their behaviour increases.

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On the Same Theme

ECB: Into a new era 7/24/2022
The ECB Governing Council has surprised markets by a 50 bp rate hike and by dropping its forward guidance and moving to a data-dependent tightening cycle. This may reflect unease about how quickly the euro area economy might react to the policy moves and about the consequences of uncertainty about gas supply during the winter months. Another key decision was the introduction of the Transmission Protection Instrument (TPI), a tool to address unwarranted spread widening that would weigh on the effectiveness of monetary policy transmission. The data dependency of further rate hikes and the vagueness about the triggers for using the TPI may lead to an increase of the volatility in interest rates and sovereign spreads whereby investors try to understand the ECB’s reaction function. 
ECB: addressing unwarranted spread widening 7/17/2022
Next Thursday’s meeting of the ECB Governing Council is eagerly awaited. The rate hike decision has been pre-announced so the more important question is whether the new tool to address unwarranted sovereign spread widening will be unveiled. The rationale for such an instrument is well understood but its design and use raise several questions. One is easy to answer. To avoid a conflict with the monetary policy stance, bond purchases by the central bank would need to sterilized. The others are more challenging. Where is the threshold to call a spread widening ‘unwarranted’? Should the ECB be clear or ambiguous on this threshold and on its reaction when it would be reached? The final question concerns moral hazard and, hence, conditionality. When the ECB intervenes to address unwarranted spread widening, what are governments supposed to do in return in terms of fiscal policy?
The euro at parity versus the dollar: causes, consequences and outlook 7/15/2022
The prospect of several rate hikes by the Federal Reserve, as well as the risk of disruption of gas supply in Europe and its negative impact on growth, are the main factors that have recently caused a depreciation of the euro versus the dollar, leading to a parity between the two currencies. The economic consequences are significant for the euro area and predominantly negative, the only positive one being a gain in competitiveness. In the short term, a change in direction is unlikely but in the medium term the euro should strengthen against the dollar.
Euro area: Corporation overdrafts returning to pre-pandemic levels 7/12/2022
Outstanding amounts[1] of overdrafts, revolving loans, convenience and extended credits granted by banks to Non-Financial Corporations (NFCs)[2] in the euro area stood at EUR 535 bn as of May 2022 after five months of consecutive increases, a level comparable to May 2020. From their low point of EUR 452 bn in August 2021, NFCs' overdrafts have increased by 18.3%, following a fall of 35.6% which began in February 2015. The fall in the outstanding amounts of NFC overdrafts became more marked in 2020, probably as a result of public support measures implemented in response to the emergence of the COVID-19 pandemic. More specifically, loans subject to public guarantee schemes allowed NFCs to access resources at exceptionally attractive conditions, reducing their recourse to overdrafts – as demonstrated by the significant increase in the outstanding amounts of loans excluding overdrafts from March 2020. The gradual lifting of public support measures (especially moratoria on loan repayments and loan public guarantee schemes), as well as the marked deterioration of the macroeconomic and geopolitical environment, seem to have contributed to the increase in the outstanding amounts of NFC overdrafts since the beginning of 2022. Moreover, the increases in the prices of commodities and other inputs also contributed to the increase in working capital needs. Regarding households[3], overdrafts remained, in May 2022, 7.9% below their level of December 2019. However, they had increased by 5.5% from their low point of May 2021, suggesting that financial constraints have tightened for some households due to the resurgence of inflation.   [1]The outstanding amounts coincide with new production, meaning the amounts borrowed are repaid in full from one period to the next. [2]Monetary Financial Institutions (MFIs) excluding the European System of Central Banks (ESCB). [3]These include sole entrepreneurs and non-profit institutions serving households.
Off-colour 7/4/2022
On the economic front the eurozone has seen a succession of similar-looking months, with inflation continuing to rise and confidence surveys continuing to fall to different extents. Although there is a clear deterioration in the economic situation and outlook, its scale and duration remain uncertain. A recession is getting more likely but is not (yet) a certainty, first because activity levels remain strong and not all the economic indicators are flashing red (particularly when it comes to the labour market) and secondly because growth has some tailwinds or, at the very least, shock-absorbers.
More inflation than growth 6/29/2022
Until May, Eurozone growth has been relatively resilient to the series of shocks that have swept the region, but its pace should slow more significantly in the months ahead. We cannot rule out the possibility of a recession, even though that is not our base case given the numerous sources of growth: post Covid-19 catch-up potential, surplus savings, investment needs and fiscal support measures. Our scenario appears to signal stagflation (inflation will be much higher than growth in 2022 and 2023), but with the big difference that the unemployment rate is not expected to rise much. The ECB is preparing to begin raising its key policy rates to counter the inflationary shock. We are looking for a cumulative 250bp increase in the deposit rate, bringing it to 2% by fall 2023.
European household account: a turbulent story 6/28/2022
Once protected by the logic of “whatever the cost”, household purchasing power in Europe is now threatened by inflation. After the pandemic, public policies are being solicited once again to help reduce the loss of purchasing power, albeit without really succeeding. In 2022, the real disposable income of Eurozone households is expected to decline by about 2.5%. Consumption is still rising, but only because the household savings rate is declining, a trend that masks extremely diverse situations.
Unwarranted spread widening: measurement issues (part 2) 6/27/2022
A lasting, unwarranted widening of sovereign spreads in the euro area would represent an excessive tightening of financial conditions and weigh on activity and demand. It would run into conflict with the objectives of the ECB in the context of its monetary policy normalisation. Spreads are influenced by various fundamental variables that are directly or indirectly related to debt sustainability issues. These tend to be slow-moving. Sovereign spreads also depend on the level of risk aversion, a variable that fluctuates a lot and which is influenced by global factors. This complicates the assessment of whether an observed spread widening is warranted or not.
Unwarranted spread widening: measurement issues 6/19/2022
In recent weeks, the prospect of several ECB rate hikes has caused an increase in Bund yields and, unexpectedly, several sovereign spreads. Beyond a certain point, higher spreads may become unwarranted. Under such circumstances, the ECB might consider stepping in to avoid that its policy transmission would be impacted. Determining whether sovereign spreads have increased too much is a real challenge. Historically, based on a 20-week moving window, the relationship (beta) between the BTP-Bund spread and Bund yields fluctuates a lot, so this calls for taking a longer perspective. Using data since 2013, the current spread is in line with an estimate based on current Bund yields. Clearly,  other economic variables should be added to the analysis. It shows the complexity of the task should the ECB commit to address unwarranted spread widening.
ECB meeting of 9 June: preparing for lift-off – towards neutrality or beyond? 6/6/2022
At its 10 March meeting, the ECB paved the way for raising its key deposit rate, although the timing of the first rate increase remained uncertain at the time: the odds of a September move had declined compared to a few weeks ago and July was excluded, which left December. The wait-and-see approach still seemed appropriate given the increasing downside risks to growth, aggravated by the current inflationary shock, the war in Ukraine and China’s zero-Covid strategy. Yet economic data reported in the meantime, as well as the hawkish tone of several ECB members, seems to have accelerated the tempo. Concerning data, it is the combination of high inflation, a weak euro and relatively resilient growth that has moved forward the lift-off date.

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