Week Ahead (18 October)
Monday, 18 October – FDP to sign off on formal government formation talks
After productive exploratory talks, the Social Democrats, the Free Democrats (FDP) and the Green Party look set to enter formal government formation negotiations, provided the FDP leadership signs off on this today.
On Friday Olaf Scholz, the SPD's Chancellorship candidate, announced that a framework had been agreed and that formal discussions would begin. At a party Congress yesterday, 67 members of the Green Party voted in favour of formal negotiations with 2 votes against and one abstention. Although talks have proceeded quicker than expected, it should be noted that in the aftermath of the 2017 election exploratory talks between the CDU, FDP and Greens lasted for over two months before the FDP decided to walk away from the process.
Tuesday, 19 October – European Commission work programme for 2022
The European Commission will announce its work programme for 2022 on Tuesday. Leaked drafts of the planned programme show a focus on economic, social and digital themes.
The Commission will implement the OECD taxation agreement by way of two new directives. A directive on the minimum tax rate of 15% of profits is targeted for February, which will include an obligation for large corporations to declare their effective tax rate. The second directive will focus on the "digital tax" proposals, which will force large corporations to pay tax on their profits in the countries in which those profits are earned. The proposal for this directive is likely to be adopted in Q3 2022.
Other notable initiatives include proposals for on instant payments which will be launched in March 2022, aimed at ensuring that European payments providers can compete with international competitors, and a proposal to harmonise aspects of insolvency law across the bloc in June 2022.
Tuesday, 19 October - Commission to relaunch consultation on deficit rules
The European Commissioner for the Economy, Paolo, Gentiloni, has announced that the Commission will reopen its review of deficit rules on Tuesday. The review had been due to take place last year but was put on hold to allow member states to borrow heavily in order to protect their economies in the teeth of the pandemic. Gentiloni told a recent Ecofin meeting of finance ministers that the consultation process on a new regime governing member state deficits would be accompanied by a policy communication detailing the impact of the pandemic on the bloc's economy.
While a permanent loosening of the rules would assist southern European member states such as Spain, Greece and Italy which have high levels of existing public debt, eight members of the bloc have already stated that they would oppose the idea. Achieving consensus on the issue is likely to prove difficult, but the Commission hopes to have the new rulebook in place by January 2023.
Friday, 22 October - Eurozone flash composite PMI to be released
The latest Eurozone flash composite PMI will be released on Friday, showing trading conditions in Europe during October. Growth in the countries included in the index slowed again in September as European economies reckoned with supply chain constraints. The index recorded a score of 56.2, marginally higher than the earlier flash reading but down from the 59 recorded in August.
The services sector grew at a faster rate than the manufacturing sector for the first time since the beginning of the pandemic in March 2020, reflecting the impact of supply-related issues in the manufacturing sector. The report noted the likelihood of supply shortages lasting into 2022, and suggests that growth in services rather than manufacturing will sustain economic growth in the coming months.