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Week Ahead (17 April)

The tenth Recovery and Resilience Dialogue (RRD) takes place today, attended by the members of the Committee on Budgets (BUDG), the Committee on Economic and Monetary Affairs (ECON), Executive Vice-President Valdis Dombrovskis, and Commissioner Paolo Gentiloni. The RRD was launched to ensure greater transparency and accountability in the implementation of the EU Recovery and Resilience Facility (RRF), included in Article 26 of the Regulation establishing the RRF.

The attendees will discuss the state of play of the national recovery plans across the bloc and the Commission’s assessment of their implementation. Furthermore, a key point to be discussed is the impact of the REPowerEU legislative framework, which entered into force on 1 March 2023. It enables member states to include a specific chapter in their national recovery plans with projects aimed at reducing the EU's dependence on Russian fossil fuels and accelerating the green transition through energy reforms and investments. Member states were encouraged to submit revised plans with REPowerEU chapters by 30 April 2023.

So far, 18 countries have submitted requests for payments, with Spain and Italy having submitted three, and Greece, Portugal, Croatia, Slovakia, and Romania having submitted two, while France, Latvia, Cyprus, Bulgaria, Slovenia, the Czech Republic, Lithuania, Denmark, Malta, Austria, and Luxembourg have each submitted one request. The Commission has assessed 23 requests positively and made 20 disbursements, amounting to a total of approximately €96.5 billion, to 13 Member States, including three for Spain and two for Greece, Italy, Portugal, Croatia, and Slovakia, and one each for France, Romania, Latvia, Cyprus, Bulgaria, Czech Republic, and Malta. Since the previous RRD in February, the Commission has issued six new preliminary assessments for payment requests from Spain, Slovakia, Slovenia, Denmark, the Czech Republic, and Lithuania.

Meanwhile, last week, the Italian Minister for EU Affairs, Raffaele Fitto stated that Italy, the largest beneficiary of RRF funds, aims to move some projects under the RRF and REPowerEU - and their subsequent funding – to the cohesion funds. Unlike the recovery funds, whose deadline is in 2026, cohesion funds can be spent until the end of 2029. Prime Minister Meloni and her largely Eurosceptic right-wing coalition have promised to reform parts of the national recovery plan, initially fueling fears it could jeopardise the progress made by Italy on its National Recovery and Resilience Plan (NRRP). However, the Italian government has so far only sought minor changes to the RRF.

Wednesday, 19 April – UK inflation figures for March to be published

On Wednesday, the Office for National Statistics (ONS) will release the UK consumer price monthly inflation figures for March.

The release follows yesterday’s announcement that UK GDP is estimated to have grown by 0.5% in February 2023, beating economists’ expectations for a second consecutive month, despite fears that the UK economy is heading toward a recession in the first half of 2023. The UK narrowly avoided a technical recession in Q4 2022, following a contraction of 0.2% in Q3 2023. Last month’s release for January demonstrated a return to growth with 0.3%, following a contraction of 0.5% in December. Data suggested that this return to growth was largely driven by the services sector and an economic rebounding of education, transport, human health, activities, and entertainment, following the disruption caused by widespread industrial action and strikes in December.

According to the latest official forecasts, the UK would avoid a technical recession in 2023, with inflation forecast to be halved. However, last month, the ONS announced that inflation in February increased by an annual rate of 10.4%, above the 9.9% forecasts, ending three months of consecutive declines. This prompted the BoE’s eleventh consecutive rate hike, raising interest rates by 25 basis points to 4.25% in an attempt to curb inflation which is still more than five times higher than the bank’s declared target rate of 2%. This week’s release of inflation data for March will indicate whether BoE’s latest rate hike will mark a return to the downward trend of the previous months.

On Thursday, the ECB will release the minutes from its 16 March 2023 meeting, where the Governing Council decided on a 50 basis point rate increase. The minutes of the February meeting showed a very hawkish sentiment among ECB Governing Council members, with a clear intention from the GC to continue hiking rates beyond the March meeting. The March meeting is likely to have shown more disagreement around the need for a 50bp hike due to falling energy prices and consequent drops in headline inflation. Furthermore, the upheaval in the banking sector at the time is likely to have encouraged dovish GC members to urge caution.

However, as core inflation remains elevated, the GC ultimately decided in March on a 50bp hike and market observers will be keen to observe the extent to which disagreement on this course of action is reflected in the minutes.

Anonymous briefing in the aftermath of the meeting suggests that hawkish members of the GC feel “vindicated” in pushing for 50bp in March as the Eurozone economy has been able to withstand the financial turmoil. Nevertheless, after six consecutive 50bp rate hikes, which have yet to work their way through the economy, the GC is likely to be more cautious at the 4 May meeting with a 25bp hike more likely on this occasion.

On Thursday, the European Parliament’s plenary will hold its final vote on the Markets in Crypto Assets (MiCA) regulation. According to the agenda, a debate will take place on Wednesday, followed by the final vote on Thursday.

MiCA regulation aims to put in place a regulatory framework for the crypto market across Europe. It sets industry standards and investor safeguards for crypto-assets and their service providers, rendering them liable for the products and services they offer. It also includes a series of measures aiming to tackle market manipulation, money laundering activities, and terrorist financing. The European Council approved the MiCA regulation in October 2022, following aprovisional agreement with the European Parliament on 30 June. The law is expected to come into force in July of this year after its final approval by the European Parliament. Some of the crucial provisions are likely to take effect 12 to 18 months later. Despite being finalised last July, the implementation of the MiCA law has been delayed due to extensive discussions related to the legal text, which must be translated into all of the EU's more than 20 official languages.

The crypto industry has cautiously welcomed the agreement, hailed as the world’s first major regulation setting standards for digital assets, claiming that the rules could offer at least a minimum level of regulatory certainty to the industry and more confidence to investors.

Also on Thursday, the plenary will vote on the regulation on ‘’Information accompanying transfers of funds and certain crypto-assets'’, one of the four elements of the proposed AML package, following a separate debate the previous day. It is a proposed revision of the 2015 Regulation on Transfers of Fund to trace transfers of crypto assets, introducing requirements for crypto-asset transfers between crypto-asset service providers and un-hosted wallets. The remaining three elements of the AML package will likely be voted on at the plenary session commencing on 8 May.

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