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Week Ahead (12 June)

Wednesday, 14 June –Trilogues on the AI Act to kick off, following plenary vote

Interinstitutional negotiations between the European Commission, the Parliament, and the Council are set to kick off on 14 June, immediately after the European Parliament’s plenary vote on the compromise text adopted by the IMCO and LIBE Committees on 11 May.

The EU’s proposed AI Act, unveiled by the Commission in April 2021, is the world’s first AI rulebook, comprising a set of proposed regulations, laying out uses of AI that are prohibited, as well as guidelines for the use of AI that are considered ‘high-risk’. The AI Act is seen as a crucial step in ensuring that AI is developed and used in a way that respects EU values and protects citizens' rights. With trilogue negotiations ready to commence on 14 June, there is growing optimism that an interinstitutional agreement could be reached by the end of 2023.

Meanwhile, last month, the European Commissioner for the Ιnternal Μarket Thierry Breton, and Sundar Pichai, CEO of Google (Alphabet) agreed to collaborate on a voluntary AI pact involving European and non-European companies, aiming to establish voluntary regulations for artificial intelligence (AI) before formal legislation is implemented. Breton emphasised the need to work with major players to achieve regulation voluntarily, rather than waiting for binding laws, urging EU countries and lawmakers to finalise the proposed AI rules by the end of 2023.

Wednesday, 14 June– ONS GDP monthly estimate for April in the UK

On Wednesday, the Office of National Statistics (ONS) will release its GDP monthly estimates for April. Last month’s release for March demonstrated a worse-than-expected economic performance, contracting by 0.3%. Overall, the UK economy expanded in Q1 2023 by 0.1%, despite earlier fears of contraction.

Despite the sluggish growth in the past quarter, the UK’s economy is projected to perform better in Q3 and Q4 2023. On 23 May, the International Monetary Fund (IMF) revised its forecast for the UK economy this year, stating that it now expects the country to avoid a recession. Earlier this year, it forecasted a contraction of 0.3% in 2023 but it has now upgraded its growth forecast to 0.4%. IMF attributed this positive outlook to ‘’resilient demand’’ and the decline in energy prices. Despite the improved growth prospects, the IMF noted that inflation remains stubbornly high, emphasising the necessity of maintaining higher interest rates to bring it down.

The IMF’s revised forecast positions the UK ahead of Germany, which is expected to shrink by 0.1%, the only G7 economy expected to shrink in 2023. This week’s release could indicate whether this renewed sense of moderate optimism around the UK economy is justified.

Thursday, 15 June – ECB Governing Council to hold monetary policy meeting in Frankfurt

On Thursday, the ECB Governing Council meets (GC) to decide where next for Eurozone interest rates.

The meeting comes two weeks after Eurostat released its May flash inflation estimate, with revealing that inflation dropped more than expected to 6.1% from 7% in April. Moreover, core inflation, a key area of concern for the ECB eased to 5.3% from 5.6%. Furthermore, the Eurozone entered a technical recession in Q1 2023, following a 4.6% GDP contraction in Ireland – without which a recession in the Eurozone would have been avoided. The ECB is unlikely to take this into account this week, given the distortive effects Ireland’s GDP, which is impacted by the outsized presence of multinationals, has on the Eurozone overall.

On 4 May, the ECB announced a 25bp hike, following six consecutive 50bp hikes which have yet to work their way through the economy. While the minutes of the March meeting indicated a potential shift towards a less hawkish approach, the minutes of May showed continuous disagreement among GC members, with a number of members expressing their preference for a 50-basis point hike.

In a speech in Hanover, following the release of the flash estimate on inflation, ECB’s President Christine Lagarde warned that inflation was still ‘’too high’’ and ‘’set to remain so for too long’’. Furthermore, appearing before the European Parliament on 5 June, Lagarde once again reaffirmed that rates would need to be increased again ‘’to levels sufficiently restrictive’’ to curb inflation and that they ‘’will be kept at those levels for as long as necessary’’. Also last week, Lagarde’s German peer, Joachim Nagel warned that the ECB may need to continue raising interest rates beyond summer, despite Germany, the Eurozone’s largest economy, experiencing a technical recession in Q1 2023.

Thus, another 25 basis points increase seems to be priced in for this week, with another rate hike expected in July.

Thursday, 15 June – Eurogroup to discuss updates on digital euro and CBDCs

On Thursday, Eurozone finance ministers will meet to discuss updates on the digital euro project. According to the agenda, discussions will centre around the review of the digital euro’s overall ’’high-level design’’, including a possible compensation model.

The meeting will take place only two weeks before the European Commission publishes its legal framework for the digital euro, as well as a separate bill on legal tender, which would cover the question of a central bank digital currency (CBDC), on 28 June. The Eurogroup has already had several discussions on the topic. In its previous meeting on 15 May, it exchanged views on the international aspects of CBDCs, including potential operational challenges that may arise from cross-border payments involving CBDCs.

Nevertheless, there is growing scepticism among some ministers who need to convince their citizens about the benefits of the project, whereas bankers are concerned about potential competition and the impact on their business models. However, the European Central Bank (ECB) sees the digital euro as an insurance policy to prevent Big Tech from launching private currencies and to maintain eurozone sovereignty.

Hence, much of the ECB internal debate so far this year has been focused on how to persuade a reluctant public to back the introduction of a digital euro. From a technical perspective, ECB staff are confident a version of the digital euro could be rolled out by 2027 after two years of internal experimentation. Fabio Panetta has defended the project both in the European Parliament and in parliamentary committees across the Eurozone and will continue to do so in the coming months. A draft of the upcoming proposal for a digital euro suggests that the European Commission is considering requiring Eurozone shopkeepers to accept virtual euro banknotes and coins as a form of payment.

Friday, 16 June – UK CMA’s deadline to assess Amazon’s acquisition of iRobot

On Friday, the UK Competition and Markets Authority (CMA) will have to determine whether to greenlight Amazon's $1.7bn acquisition of iRobot, an automated vacuum maker, or proceed with a further investigation.

In April, the CMA launched a formal probe into the deal. Responding to the announcement of the probe, Amazon’s Senior UK Policy Communications Manager stated that the company is working closely with the regulators during the merger review process. CMA has been assessing whether the proposed acquisition could give Amazon dominance in the smart home market, where home appliances and services can be controlled digitally.

The $1.7 billion deal, announced last August, has drawn broader criticism on both sides of the Atlantic. Approval from the European Union is required for the deal to go ahead, with a provisional deadline of 6 July. Various stakeholders in Europe have called for the deal to be blocked, with civil society groups warning that the merger could result in a loss of horizontal competition, data protection risks, and illegal tying practices by Amazon. In the U.S, more than 20 civil rights and data privacy organisations sent a letter to the Federal Trade Commission in September, calling the potential acquisition ‘’a privacy and competition threat’’. More specifically, they claimed that it could provide Amazon with access to a vast amount of ‘’incredibly detailed consumer data’’, including the room layouts and the number of rooms in customers’ houses.

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