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Week Ahead (6 September)

Monday, 6 September - ECOFIN meeting to discuss latest recovery fund approvals

ECOFIN will hold an informal video conference today to approve the recovery plans of the Czech Republic and Ireland, which have already been approved by the Commission. Once ECOFIN adopts the Czech Republic and Ireland’s plans by written procedure, the Commission will disburse up to 13% of allocated funds to the Czech Republic through pre-financing. Ireland has not requested a front-loading arrangement. Denmark received €201 million in pre-financing from the Commission last week, while €2.25 billion was also disbursed to Germany.

Ten countries have now received pre-financing funds from the Commission (Portugal, Luxembourg, Belgium, Greece, Italy, Spain, Lithuania, France, Germany and Denmark); six have been approved by the Commission and the Council but have not yet received pre-financing funds (Austria, Croatia, Cyprus, Latvia, Slovakia and Slovenia); two have been approved by the Commission but not yet by the Council (the Czech Republic and Ireland); seven are still being considered by the Commission (Poland, Estonia, Finland, Sweden, Romania, Malta and Hungary). Bulgaria and the Netherlands have not yet submitted their plans to the Commission.

The Governing Council of the European Central Bank will meet in Frankfurt on Thursday to discuss monetary policy. Among the topics for discussion will be the eurozone’s inflation rate, which rose to 3% in August, according to the latest Eurostat flash estimate. This is up from 2.2% in July. Core inflation, which strips out items which are prone to fluctuation such as energy, food, alcohol and tobacco, reached 1.6% in August, the highest since 2012. The rise in inflation has prompted Klaas Knot, Governor of the Dutch Central Bank, to state that he expects the Governing Council to put in place the conditions for ending the pandemic emergency purchase programme, PEPP, in March.

ECB officials have repeatedly insisted that a post-pandemic spike in inflation will only be temporary. Knot, however, along with Austrian Central Bank governor Robert Holzmann, have said that a reduction in bond buying is now warranted given the stronger forecasts for economic recovery. As a reminder, in July ECB President, Christine Lagarde, described suggestions that consideration be given to tapering PEPP as "totally premature".

A debate on maintaining the current rate of bond purchases via PEPP is expected at this week's meeting. The Governing Council may also consider its longer-term approach to its regular quantitative easing programme, the Asset Purchase Programme.

Eurogroup, the body composed of eurozone finance ministers, will meet on Friday in Slovenia. Eurogroup President, Irish Finance Minister Pascal Donohoe, last week tweeted a list of issues that Eurogroup will “take stock of” at the meeting, including issues that are impacting the eurozone’s economy and economic strategy, including the EU’s vaccination drive, GDP in the eurozone, and unemployment in the eurozone dropping to 7.6%, the lowest since the start of the pandemic.

A discussion on member state budgetary policy is also likely; following July's meeting, Donohoe said that the group had only preliminarily reflected on how eurozone economies should adjust budgetary policy in the latter stages of the pandemic, but that this would be an important focus for Eurogroup’s meeting in September.

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