ECB council to signal plans to reverse negative interest rates
Good morning and welcome to Europe Express.
The European Central Bank’s governing council’s meeting in Amsterdam is expected to take the first steps towards ending its negative interest rate policy and stop its bond purchasing programme. We’ll dive into four things to look out for when Christine Lagarde speaks to the press this afternoon. Meanwhile, the bloc’s climate agenda suffered a setback yesterday when the European parliament voted to weaken some of the draft laws coming up for talks with EU governments and the European Commission (though it maintained a full ban on CO₂-emitting cars as of 2035). We’ll hear from internal market commissioner Thierry Breton, who expressed disappointment at the development. End of an era Christine Lagarde will call time on the eurozone’s era of ultra-cheap money later today when the European Central Bank president is expected to outline plans to stop buying more bonds and to start raising interest rates next month, writes Martin Arnold in Amsterdam. Most of the ECB’s 25 governing council members agree on the need to raise borrowing costs after inflation hit a eurozone record of 8.1 per cent in May — double the previous all-time high and quadruple the central bank’s target. However, deep divisions remain over how fast and how far it should raise rates to bring inflation back under control. As ECB rate-setters meet in Amsterdam this week to discuss its next move, here are four things to watch for:
Industry commissioner Thierry Breton was among the first to respond to the disappointment as the European parliament weakened its own position ahead of forthcoming negotiations on legislation that aims to bring down the bloc’s carbon emissions by 55 per cent by 2030, writes Andy Bounds in Brussels. The main piece of legislation the parliament seeks to water down is on extending a current system that makes heavy industrial polluters pay for their carbon emissions. The European Commission had proposed extending that system to cover commercial and private real estate, in a bid to accelerate efforts to increase energy efficiency in buildings. But given the current pressures from rising inflation and record high energy prices, the parliament yesterday voted to exclude housing from the emission trading system (ETS).
MEPs also failed to reach agreement on the introduction of a carbon border tax — designed to charge importers to the EU for their emissions — and the establishment of a social climate fund intended to minimise the effects of carbon pricing on poorer households. The French commissioner told reporters he also had “some reservations” on the extension of the ETS to housing (remember the gilets jaunes movement sparked by a climate-related fuel tax?). But in the end, Breton said, he supported the commission’s proposal because “the green deal is extremely important”. While the parliament approved a total ban on internal combustion engines from 2035 onwards, Breton hinted at potential compromises down the road, given that 600,000 jobs in the sector were at stake. Also, Breton pointed to the fact that other parts of the world would continue to buy combustion engines. “Europe should continue to produce some key components for thermal engines you will sell outside of Europe. It is extremely important to help the ecosystem to transition in a smooth way,” he said. Breton also repeated his call on Europe to secure the vital minerals to manufacture batteries, solar panels and wind turbines, including by mining them at home. He will produce a proposal after the summer break. “It is more critical than ever.” In some cases, such as magnesium, the EU is almost entirely reliant on China. “We need 15 times as much lithium by 2030,” he said.
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