Record Inflation in the Eurozone
Also — Sassoli, Lithuania, Cookies, Ukraine, PFUE
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European Parliament President David Sassoli Dies
David Sassoli, President of the European Parliament, passed away this night in Italy, his spokesman Roberto Cuillo announced on Twitter. He was in hospital since late December.
Eurozone Inflation Reaches New Record at 5%
Euro area annual inflation hit a new record, increasing marginally to 5% in December 2021 from 4.9% in November, according to the latest Eurostat survey.
DELTA • The magnitude of the increase varies considerably within the eurozone — from 2.6% observed in Malta to over 12% observed in Estonia, with Germany at 5.7%, France at 3.4%, Italy at 4.2%, and Spain at 6.7%.
CAUSA • The increase was mainly driven by the surge in energy prices. However, price pressures are expected to subside as one-off factors such as base effects start to abate, energy prices stabilize, and global supply chain bottlenecks ease.
TARGET • In the second half of 2021, the annual change of the price index in the eurozone has been consistently above the 2% inflation target aimed at by the ECB. This has led many economists and policymakers to question whether the ECB should follow the Fed in tightening its monetary policy.
NO TAPER • At the last Governing Council in Frankfurt in December, the ECB announced a gradual slowdown in asset purchases under the Pandemic Emergency Purchase Program (PEPP) in view of bringing them to a halt in March 2022 (Press Release).
The ECB also announced it would increase the pace of asset purchases under its longer-running Asset Purchasing Programme (APP) to 40 billion per month in the first quarter of 2022 and then gradually scale them down to 30 billion in the third quarter and 20 billion in the fourth quarter.
However, unlike the Fed, the ECB is expected to keep its key interest rates unchanged in 2022. For now, the Fed and the ECB seem to face two different situations. In fact, core inflation — excluding volatile energy and food prices — suggests that price pressures may be more broad based in the US than the EU. In the eurozone, core inflation has remained steady at 2.6% in December.
GREENFLATION • What remains a challenge on both sides of the Atlantic is to understand to which extent the green transition is affecting monetary policy. In a recent speech, ECB Governing Council member Isabel Schnabel said that the energy transition could also pose an upside risk to inflation in the medium-term through rising carbon prices and higher tax rates on fossil fuels (FT). This implies that monetary policy should not ignore energy price increases if they prove to be more persistent and pose a risk to medium-term price stability.
China and Lithuania Spat High on Agenda at Council of the EU Meeting
The diplomatic feud between China and Lithuania is on the agenda for the first informal meeting of the foreign ministers due to take place during France’s presidency of the Council of the EU, on 13 and 14 January in Brest, France.
MEETING IN BRITTANY • A “more balanced relationship with China” is the third item listed on the meeting's agenda. “The tone is far from positive”, notes Politico’s Stuart Lau, as EU Member States meet to discuss “China’s attitude towards certain Member States of the Union, which are experiencing certain political, economic and commercial pressures”.
IN CONTEXTO • In May 2021, Lithuania decided to pull out of the "17+1", a cooperation forum for Central and Eastern European countries and China. In August, Vilnius opened a representative office in Taiwan — not Taipei as required by Beijing’s "One China policy".
Since then, trade and diplomatic relationships have been increasingly strained. In addition to recalling its ambassador to Lithuania and ordering the withdrawal of the Lithuanian ambassador in Beijing, China has reduced the level of its diplomatic representation in Vilnius and has recently stopped granting visas.
TRADE WAR • Without admitting it, China has been organizing customs blockades since December. It could not stay a bilateral issue very long. In an interview with Die Welt, EU Trade Commissioner Valdis Dombrovskis said that German, French, and American companies would be affected. "We are receiving more and more reports from other member states about imports being blocked" by China, he said.
TAIWAN CHIPS IN • Taiwan is also doing its part. It announced the creation of a 200 million dollar fund to invest in Lithuania — which could invest in microchips as the EU tries to become less dependent on imports.
OPTIONS • Paris is seeking a common position on boycotting the Winter Olympics in Beijing, but this proposal does not seem to have the full support of the 27. The US and the UK have already announced that they will not send officials to the opening ceremony.
Another option under consideration is the acceleration of negotiations on the adoption of an anti-coercion instrument (ACI) — a new trade defence mechanism designed to slap tariffs on third countries wielding pressure on EU Member States. However, its adoption and entry into force should take several more months.
Google, Facebook Slapped with Fines over ‘Biased’ Cookie Banners by French Privacy Watchdog
The French data protection authority — CNIL — imposed two record fines of 150 million euros and 60 million euros respectively on Google and Facebook Ireland, in the last two days of 2021.
IN CONTEXTO • Ever since the publication of the EU General Data Protection Regulation and ePrivacy Directive, the use of cookies and other tracking devices by websites to exploit user data has been circumscribed.
A cookie is a small file that is sent by a website to the hard drive of the user’s computer. It contains information about the user’s selection of website services. Cookies are primarily used to gather data on the user — so that they can later be targeted by digital marketing strategies. EU law only permits the use of cookies if the user consents to them while accessing a website’s services.
WARNING • In 2021, CNIL — the French watchdog for data privacy — declared that it would clamp down on cookie misuse. This came just after it had fined Google 100 million euros in December 2020 for the latter’s failure to observe French data privacy laws when automatically collecting user data without asking the user whether they would like to share their data (CNIL).
CLICKING TOGETHER • This time, however, CNIL has sanctioned the US giants for the “biased” design of their cookie banners — those little and sometimes seemingly innocuous pop-ups that ask the user whether they would like to accept or refuse the tracking of their data while browsing a website.
Although the websites google.fr, youtube.com, and facebook.com gave users the possibility to object to the use of cookies, their cookie banner interface was designed to make it more complex for the user to reject the use of cookies than to accept them. This is normally done by making acceptance depend on a single click but refusal on several clicks which refer the user to a cobweb of settings and descriptions often displaying the various degrees and purposes for which cookies may be used.
This has prompted numerous complaints. The Austrian non-profit None of Your Business (NOYB) — founded by digital rights and Court of Justice activist Max Schrems — claims to have filed hundreds of them before national regulatory authorities in continuation of its ‘cookie war’ with Big Tech.
NEXT • With its decisions, CNIL has finally laid down a guiding principle, namely, that the complete refusal of cookies should be “just as easy” for users as their complete acceptance. Since cookie banners are now ubiquitous, CNIL’s decisions against Google and Facebook will undoubtedly alert all players and push them to review their cookie banner design accordingly.
However, commentators point out that the regulatory landscape in Europe is uneven when it comes to data privacy since each national regulator has been granted varying powers to inflict sanctions. This means that some regulators can bite harder and quicker than others — making it possible for regulated entities present in certain jurisdictions to enjoy a higher chance of avoiding fines.
As for Google and Facebook, it remains to be seen whether they will contest the fines before the French Conseil d’État.
US, Russia Meet in Geneva to Avoid Military Conflict in Ukraine with EU on Sidelines
Meetings between delegations of Russian and American diplomats in Geneva began yesterday — January 10 — with the aim of avoiding a military conflict in Ukraine. A powerless EU will also discuss the issue in an informal Council meeting in Brest, France this week (Council).
DIPLO • Yesterday, Russia agreed to an extension of talks with the US, but warned it didn’t rule out walking away from the talks if the US didn’t address its demands for “security guarantees”. Russian desiderata include a ban on any further NATO enlargement to Ukraine and Georgia. More than 100,000 Russian troops are massed at Ukraine’s border.
This first day of talks between US deputy of State Wendy Sherman and Russia's deputy foreign minister Sergei Ryabkov saw neither breakthrough nor breakdown (FT). The Russian delegation will go to Brussels on Wednesday — but to address NATO members and not the EU institutions.
OLD STORIES • Russia has long complained about the eastward expansion of the Atlantic Alliance — which soon after the Cold War admitted Poland in 1999 and the Baltic states in 2004, seeing it as an aggressive move into its area of influence.
President Putin regularly refers to the Western commitment given by George H. Bush to Gorbachev not to extend NATO's limits towards the USSR. The American side, for its part, invokes Ukraine's free choice of alliances, and considers Russia's military blackmail unacceptable.
WHERE’S THE EU • The EU is not represented in these talks. As the New York Times puts it, “US and Russia will discuss European security, but without Europeans”. The High Representative for the Common Foreign and Security Policy (HRVP), Josep Borrell, could only make the frustrating observation that Europe was powerless on this issue.
The HRVP’s statement that the EU’s main goal “talking about the security of Europe cannot be done without not only the consultation, but the participation of the Europeans” triggered a damning rebuttal by the Financial Times. The journal’s editorial board opined that “rather than complaining in public about their own irrelevance, European leaders [...] should work harder in private to fix the problems that have pushed the EU to the sidelines of talks”.
The HRVP visited the frontline in the east of Ukraine on January 5th. In a blog post, Borrell stressed that “the whole European security architecture is at stake. The Russian leadership, by deliberately excluding any reference to the EU from the “draft treaties” they presented last December, seems to intend to turn the clock backward to the old times of Cold War logics”. The EU has been pushing for talks to be held under the Trilateral Contact Group (Russia, Ukraine, and OSCE) and in the Normandy format (Russia, Ukraine, France, Germany).
Von der Leyen and Commissioners in Paris for French Presidency of the Council Inauguration Week
The College of 27 EU Commissioners met with the French Government in Paris last Friday (7 January) to mark the occasion, and to comment on the presentation of the programme of activities of the French Presidency.
NEW YEAR, NEW ME • Amidst high expectations, France has begun its six-month term at the presidency of the Council of the European Union. It took over from Slovenia on 1 January 2022.
The priorities of the French presidency, set out during a press conference held at the Elysée on 9 December 2021, centre around three main areas — recovery, strength, sense of belonging — and range from setting up the carbon border adjustment mechanism, revising the EU’s fiscal rulebook, and working towards an EU-wide minimum wage (What’s up EU)
At the press conference, President Macron said that “[Europe needs] to move from being a Europe of cooperation inside of our borders to a powerful Europe in the world, fully sovereign, free to make its choices and master of its destiny” (Verbatim).
EU APPROVES • Responding to the programme of the French Presidency, Von der Leyen highlighted the compatibility of the French agenda with the Commission’s own priorities.
RECOVERY • Von der Leyen reiterated the Commission’s proposal for achieving a 55% reduction in greenhouse emissions by 2030. The Commission is also keen on moving forward with the digital markets and services legislation proposals. Several points on the Commission’s agenda include the development of a competitive European hydrogen sector and a proposal tabled three weeks ago on the taxation of multinationals, which includes the minimum tax rate, as agreed by the OECD and the G20.
STRENGTH • Von der Leyen outlined the Commission’s agenda for border management and bolstering the Schengen Area. This includes proposals for reforms tabled in December dealing with the management of external borders, combating smuggling networks, and progressing on the Pact on Migration and Asylum. In relation to the Defence Union, Von der Leyen highlighted the Commission’s and France’s agreement on priorities using the Strategic Compass, a sort of White Paper on defence which ought to be the subject of further discussion at a summit in March.
AFRICA • Finally, Von der Leyen stressed the EU’s relations with Africa and the need for further support for that continent — in terms both of vaccines and of help with the economic consequences of the continuing effects of the Covid-19 pandemic. This ought to be the prominent issue to be discussed at the European Union and Africa Summit in Brussels in February, as the EU explores ways to deepen the EU-Africa partnership (Commission).
Thanks to those who helped put this edition together: Ghislain Lunven, Briac de Charry, Mark Soler, Filip Filipek, Gabriele Buontempo, Andrei-Bogdan Sterescu, Agnès de Fortanier, Rogier Prins, and Thomas Harbor. See you next week!