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Week Ahead (20 July)

Monday, 20 July – EU Summit talks resume with aim of negotiating Covid-19 recovery fund

The first face-to-face EU leaders’ summit since the Covid-19 pandemic will resume in Brussels this afternoon. Leaders meet in a new attempt to find agreement on the new multiannual financial framework (MFF), and to finalise a €750bn recovery fund to help the bloc through the current economic crisis.

Talks resume after a weekend of fraught negotiations to appease the “frugal” member states of the Netherlands, Denmark, Sweden and Austria (and now Finland). This new coalition advocated for a reduction in the €500bn grant portion of the package, while also calling for a veto on economic plans proposed by Southern European Member States such as Italy and Spain. These insistences prompted criticism from Italian Prime Minister Giuseppe Conte, and French President Emmanuel Macron also threatened to walk away from talks.

Today, however, European Council President Charles Michel is set to propose a compromise, with a deal of €390bn in grants and lower rebates for the “Frugals” and Germany. After positive reactions were received from the Netherlands and Austria, it is hoped that this deal will be agreed today and that attention can turn to the €1 trillion-plus MFF for 2021-2027. The European Parliament will also have to give its consent to the MFF and a statement from EP President David Sassoli suggests this should not be considered a foregone conclusion. Nevertheless, market optimism is reflected by the euro rising to a 4 month high.

W/C Monday, 20 July – Brexit talks to continue, with concerns rising over Northern Ireland

The next scheduled round of talks on a post-Brexit trade deal between the UK and the EU begin in London today. Expectations for a breakthrough are not high; the German Chancellor, Angela Merkel, last week stated that the EU should begin preparations for an abrupt break between the two sides in January. Speaking at the European Parliament, Merkel stated that while Germany would continue to work towards an agreement with the UK, "We should also prepare for a possibility of a no-deal scenario."

A new report on the Ireland protocol, a significant feature of the negotiations, was discussed at the Northern Ireland Affairs Committee at Westminster last week. MPs on the committee expressed frustration with the lack of clarity for Northern Irish businesses on the future arrangements for the area. The report criticised the British Government's approach and questioned whether companies based in Northern Ireland would be able to freely access the UK market from January. The chairman of the committee, Simon Hoare MP, stated that failing to provide clarity in a timely fashion, "Would put Northern Ireland at a competitive disadvantage compared with the rest of the UK and would damage business confidence at a time when it has seldom been lower".

Concerns have also been raised about the logistics and tracking of VAT on traded goods from Northern Ireland after the transition period comes to an end.

Friday, 24 July - Eurozone flash composite PMI to be released

The Eurozone flash composite PMI for July is scheduled for release on Friday. It is likely to reflect a further improvement on activity seen in June, when a four-month high was recorded. June's data showed a sharp improvement compared to the previous month, rising from 31.9 to 48.5, an increase of almost 17 points. All member states recorded their highest PMI reading since February, with France the best performing Eurozone country in June. However, the results are still below 50, demonstrating that difficult economic conditions persist.

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