Monday, 19 September – European Commission Vice President to present Commission Single Market Emergency Instrument
Today, the European Commission is scheduled to adopt a Single Market Emergency Instrument (SMEI) aimed at mitigating harmful impacts on the Single Market, safeguard the free movement of persons, goods and services as well as maximising their availability for an adequate crisis management. Negotiations on the SMEI have been controversial which may explain the delays on its formal presentation, which has been scheduled for “before summer”.
An initial draft of the SMEI suggest that the Commission will require EU Member States to report to Brussels on stocks of goods deemed strategic or critically important with fines for those that violate the rules. The Chips Act, recently introduced by the Commission, contains some of these elements, including a monitoring mechanism for the semiconductor supply chain. Unions have expressed concern that the new SMEI will impede the right to strike while a group of 9 Member States have expressed concern that it amounts to too much interference in the commercial decisions of private companies. EU governments will discuss the SMEI in detail on 29 September at the competitiveness council.
W/C Monday, 19 September - Coalition talks resume in Sweden, following last week’s elections and the resignation of Prime Minister
Coalition talks will resume this week in Sweden, following the resignation of the leader of the Social Democrats Magdalena Andersson as Prime Minister last Thursday, a day after the announcement of the final results of parliamentary elections. The right-wing coalition of parties supporting the centre-right Moderates secured 176 seats against 173 won by the left-wing bloc. However, the far-right Sweden Democrats managed to finish second with 20.5% of the vote, outperforming the Moderates.
This means that the Moderates leading the right-wing bloc will most likely need the support of the Sweden Democrats who finished second, either as a supporting party in a minority government or with a ministry in a broader coalition. Therefore, the Moderates’ leader, Ulf Kristersson, will have to strike a balance to accommodate a series of demands of the Sweden Democrats, without alienating the more moderate elements within his own party and his potential junior coalition partners, the Christian Democrats and the Liberals.
Given the thin majority of the right-wing bloc in the Swedish parliament, a coalition excluding the Sweden Democrats would be particularly fragile, as the country faces an economic slowdown. On the other hand, were the Moderates to decide to invite the Sweden Democrats to join their governmental coalition, the Liberals could switch their allegiance, supporting a centre-left coalition led by the Social Democrats, who still have the most seats in Parliament.
W/C Monday, 19 September - Final week of campaigning for Italian elections to begin
The final week of campaigning for the Italian elections, scheduled for 25 September, begins today. Currently, polling at 28.5%, Fratelli d’Italia is poised to head a right-wing coalition with fellow anti-immigration right-wing party Lega and Silvio Berlusconi’s centre-right Forza Italia as junior partners, forecasting to get a total of 46%.
The cost-of-living crisis and the sustainability of Italy’s public debt have dominated the political debate. On an economic level, Italy battles soaring inflation and an energy crisis, and Meloni’s critics have argued that a Eurosceptic government could jeopardise the progress made by Italy on its National Recovery and Resilience Plan (NRRP). Nevertheless, there are increasing signs that Meloni may opt for a more pragmatic approach, abandoning anti-EU elements of the party’s agenda, choosing to renegotiate elements of Draghi’s recovery plan for Italy, rather than rejecting it.
This growing shift towards pragmatism will be welcomed by investors, European political leaders, and officials in Brussels and could provide them with a minimum degree of assurance. Much will depend on the extent to which a Meloni-led coalition will look to revise Italy’s recovery plan, as no specific details have been issued at this stage. Although the leader of the centre-left Democratic Party surprisingly admitted defeat last week, there is still a margin for a surprise on Sunday with 20% of eligible voters remaining undecided.
Wednesday, 21 September – ECB’s non-monetary policy meeting to be held against the backdrop of all-time high inflation in the Eurozone
The European Central Bank's governing council will hold a non-monetary policy meeting on Wednesday. The meeting will take place against the backdrop of the latest EU inflation figures that saw the Eurozone hitting another record high of 9.1% in August. During the weekend, ECB’s chief economist Philip Lane and the Bundesbank President Joachim Nagel stated that several rate hikes are expected in the coming months. Despite not overruling the prospect of a mild recession, Nagel downplayed fears of a ‘’hard recession’’.
Earlier in September, the ECB announced an unprecedented rate hike of 75 basis points raising interest rates to their highest level since 2011, despite increasing fears of a looming recession. According to ECB’s updated forecast, inflation is expected to average 8.1% in 2022, 5.5% in 2023, and 2.3% in 2024. The next monetary policy meeting of the ECB’s governing council is scheduled for 27 October.
Thursday, 22 September – Bank of England to decide on interest rates
The Bank of England Monetary Policy Committee of the Bank of England (BoE) will meet on Thursday, with expectations high that it will increase interest rates for in succession for the seventh meeting in succession.
BoE’s interest rates are currently at 1.75% after the BoE raised interest rates by a 50-basis point in August, the biggest rate hike in 27 years. Forecasts for interest rates are elevated, since the announcement of a multibillion billion fiscal support package for consumers and businesses earlier this month, aiming to prevent a recession, including a 2-year cap on energy bills. It remains uncertain whether the Bank will stick to a 50-basis point increase or opt for the even hawkish option of 75 basis points increase.
Inflation in the UK in August slightly dropped to 9.9%, after reaching a 40-year high in July with 10.1%, the first drop since September 2021. This figure is still nearly five times higher than the declared target rate of 2%. Hence, rising interest rates are expected to continue, with analysts estimating that BoE rates could peak between 4% and 4.5% in Q2 2023.