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Week Ahead (26 June)

W/C Monday, 26 June – New Democracy to form new government, following landslide victory in snap elections

Yesterday, Greece held snap parliamentary elections, a month after New Democracy’s (ND) landslide victory in the elections of 21 May. Yesterday’s results confirmed ND’s dominance, winning 40.5% of the vote and securing another term in power.

The centre-right party ND capitalised on a generally positive macro-economic outlook and the divided left-wing opposition, despite an increase in cost-of-living, a wiretapping scandal, and a recent train crash prompting wide rallies. Overall, Mitsotakis' ND has widened its lead over its main rival, left-wing Syriza, and gained 158 seats out of 300 in parliament, due to a bonus of seats granted to the first party on a staggered basis under a new electoral law. Syriza suffered a serious setback with only 17.8% and 47 seats, leading to speculation about whether its position as the primary opposition could be challenged by centre-left PASOK which won 11.9% of the votes.

The election result is widely seen as favorable by financial markets and sets Greece on a solid path to regain an investment-grade rating by the year's end. Prime Minister Kyriakos Mitsotakis has made commitments to prioritise specific bills, including further reforms of the public administration and the economy. Additionally, he has pledged to implement significant changes in the judicial, health, and education sectors.

However, the new eight-party parliament indicates a re-emergence of the Greek far-right and a broader conservative turn in Greek politics, mirroring similar trends in recent European elections. Notably, a little-known party called "Spartans,", endorsed by a former MP of the neo-Nazi Golden Dawn party, managed to secure 4.7% of the vote. The largely eurosceptic, anti-migrant, and ultra-conservative parties ‘’Niki’’ and ‘’Greek Solution’’ also entered the parliament with 3.7% and 4.5%, respectively. On the left side of the political spectrum, the populist Course of Freedom, led by a former Syriza member, received 3.1% of the vote (8 seats).

W/C Monday, 26 June – European Parliament's ECON committee to vote on the instant payments bill

The Parliament's ECON committee is scheduled to vote on its version of the instant payments bill this week. According to the draft compromises, recent amendments proposed by MEPs would allow fintech companies to access the European Central Bank's payment infrastructure, promoting competition in the market.

Unveiled by the European Commission last October, the proposal aims to force banks to offer instant payments in euros at no extra cost. This would allow consumers to transfer money at any time of the day or any day of the week, within less than 10 seconds, in contrast with the traditional model of card payments or credit transfers which can take up to three business days for intra-EU transactions. Banks inside the eurozone will have to act first, by setting up their systems so that they can accept instant payments in euro within a year of the bill coming into force, while banks in the wider EU will be granted a deadline of 36 months.

On 22 May, the EU finance ministers reached an agreement adopting the Council’s own position on the instant payments proposal. The Council's current position is to await the legislative update to EU rules for payment services, which is expected this week, in order to introduce fintech access to the ECB's infrastructure. Interinstitutional negotiations on the bill are scheduled to begin on 20 July under the Spanish EU presidency.

Wednesday, 28 June – European Commission to publish legal framework for digital euro

On Wednesday, the European Commission is expected to publish its legal framework for the digital euro. Last week, a leaked Commission work programme suggested it had been delayed until after summer, due to concerns regarding privacy-related language in the proposal. However, attending a fintech event last Wednesday, Commissioner McGuiness confirmed that the proposal will be presented this week, as originally planned.

On 15 June, the Eurogroup once again discussed progress on the digital euro project. Discussions were centred around the review of the digital euro’s overall ’’high-level design’’, including a possible compensation model. Furthermore, the ECB presented an update to the Eurogroup on the digital euro project to the Eurogroup, emphasising the concept of digital financial inclusion. The focus has expanded beyond the unbanked population to include individuals with low digital or financial skills. The ECB is considering measures to facilitate access to the digital euro for vulnerable groups. These measures may include in-person support, physical-digital euro payment cards, and the ability to (de)fund the digital currency using cash at ATMs.

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. 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. 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.

Thursday, 29 – Friday, 30 June – European Council to discuss support for Ukraine and EU’s industrial policy

The two-day summit in Brussels will bring together EU leaders to discuss Russia’s war against Ukraine and the EU’s continued support for Ukraine, along with the economy, security and defence, migration and external relations.

The upcoming council meeting comes after the European Commission and the High Representative published its Economic Security Strategy on 20 June. The purpose of the strategy is to provide a common framework for economic security with emphasises on reducing risks to certain economic flows amid geopolitical tension. Four key areas have been outlined: energy security (supply chain), physical and cyber security of critical infrastructure, technology security, and economic coercion. EU leaders will likely follow up on past conclusions regarding the EU’s industrial policy, which aims to strengthen the competitiveness of EU industry and to promote a more sustainable, resilient and digitalised economy.

Friday, 30 June – Eurostat flash inflation estimate for the Euro area 

On Friday, Eurostat will publish flash inflation data for the Euro area.  In May, Eurozone inflation eased to 6.1%, dropping from April’s 7% inflation rate last month. While inflation has been coming down, it is projected to remain too high for too long. According to the June macroeconomic projections by Eurosystem, inflation over the next few years is expected to remain at an average of 5.4% in 2023, 3.0% in 2024, and 2.2% in 2025. Although this would be modest progress, it would still miss its 2% medium-term target.

On 15 June, the ECB announced another 25bp hike, following last month’s hike of 25bp. ECB’s President Christine Lagarde reinforced her commitment to fighting inflation by remaining open to more interest rate hikes in the future. It should be expected that we will see further hikes in July. This is in contrast to the U.S. Federal Reserve’s decision to pause its own hikes on 20 June. When asked about a potential pause, Christine Lagarde responded by saying, “in terms of having to pause or having to skip - as I said, number one - we have not discussed it at all and we have not begun thinking about it because we have work to do.”

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