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13 September 2024, Friday | NIAS Europe Daily Brief #935
By Advik S Mohan, Padmashree Anandhan and Samruddhi Pathak
THE EU
European Central Bank cuts interest rates as inflation lowers
On 12 September, an article in Euronews informed the European Central Bank (ECB) had reduced its interest rates. The ECB issued a statement informing the Governing Council had lowered the deposit facility rate by 25 basis points. According to the ECB, this was the appropriate time to take another step in moderating the degree of monetary policy restriction; taking into account the strength of monetary policy transmission and the Governing Council’s assessment of the inflation outlook plus the dynamics of underlying inflation. The interest rate on the main refinancing facility which banks pay when they borrow money from the ECB for a week was 3.65 per cent. On the deposit facility used by banks for making overnight deposits with the Eurosystem, it was 3.50 per cent. The marginal lending facility which offers overnight credit to banks with the Eurosystem had an interest rate of 3.90 per cent. Sylvain Broyer, the Chief EMEA economist at S&P Global Ratings stated the ECB had implemented the rate cut without any policy guidance. According to Broyer, the Governing Council had no reason to implement more interest rate reductions or increase the pace. This was because wage growth was higher than productivity, and service inflation was increasing. Broyer also stated the upcoming reduction in the repo rate by 35 basis points would not have an impact, since the liquidity needs of the banks were being met fully by the ECB. Grzegorz Drozdz, a market analyst at Invest Conotoxia informed the ECB was compelled to take the decision, owing to inflation levels nearly reaching the target while the economy was at a standstill. Drozdz also stated that the increased volatility of the EUR and USD pairs showcased the impact of the latest decision on the market. Estimates showed consumer price growth in the Eurozone had slowed to 2.2 per cent, the slowest increase since July 2021. However, the eurozone’s gross domestic product (GDP) grew by just 0.2 per cent in the second quarter of 2024. (Angela Barnes, “European Central Bank cuts interest rates again as inflation slows,” Euro News, 12 September 2024)
Approves Hungary and Slovakia energy deal with Russia
On 12 September, Politico reported on the EU’s response to an agreement allowing Hungary and Slovakia to continue importing Russian oil. The oil deal by Hungarian oil company MOL would allow the Government of Hungary to take control of Russian oil supplies when they cross the border. This means Hungary will not be subject to a ban by the Government of Ukraine on supplies by Russian oil company Lukoil. Earlier, the Hungarian government had claimed the ban would damage the Hungarian economy. The Hungarian government and the Government of Slovakia are friendlier with the Government of the Russian Federation, in comparison to the governments of other EU states. Olof Gill, trade spokesperson for the European Commission stated the EU continued to believe there was no threat to Hungary's energy security from the Ukrainian sanctions. Gill also informed Lukoil was the only supplier facing sanctions, and traders could continue operations within Ukrainian territory. Gill had responded to Juraj Blanar, the Minister of Foreign Affairs of Slovakia who stated the European Commission had not helped the citizens of Slovakia and Hungary. Slovakia and Hungary were granted a temporary exemption to the EU-wide ban on Russian oil arriving through pipelines. While they were supposed to seek alternatives, Hungary has increased oil imports via the Ukrainian pipeline by 50 per cent since 2021. MOL has also seen a substantial rise in its profits. Hungary has been accused of profiting from the war by purchasing cheap Russian oil. (Gabriel Gavin, “Hungary energy crisis fears unfounded, EU says,” Politico, 12 September 2024)
FRANCE
Finance Minister steps down warning the government’s choice of fiscal stability over taxes
On 12 September, Bruno Le Maire, France’s Finance Minister announced his resignation. He has held the position for seven years and the timing of his resignation is seen as concerning as France struggles through its budget deficit. In 2023, when France’s public sector broadened beyond the government’s plan the fiscal fell short of 5.5 per cent of economic output. This was 4.9 per cent above the government’s target and occurred due to low growth and less tax revenue. In early 2024, Le Maire said: “State finances must be readjusted ... that will require a great deal of determination, strategy, and composure.” By May, the credit rating agency had downgraded France’s rate due to an increase in deficit making the financial bonds a high risk. Le Marie’s efforts to push back the state finance did not materialise due to the legislative elections. The failure to secure an absolute majority placed France’s political landscape in an uncertain situation. Le Maire in his farewell address said: “Against the waltz of taxes, we have chosen fiscal stability, against the downgrading of the middle classes, we have revalued work, against mass offshoring, we have initiated the reindustrialisation of our regions, against criticism of France, we have made France the most attractive nation in Europe.” (“French Finance Minister Bruno Le Maire steps down,” Euronews, 12 September 2024)
SLOVAKIA
Prime Minister Fico attempt to weaken anti-corruption institutions fails
On 12 September, an article in Politico informed Robert Fico, the Prime Minister of Slovakia had dismantled corruption-fighting institutions in the country. In February, the criminal code was amended with punishments for crimes like corruption and fraud reduced. The Special Prosecutor’s Office in Slovakia was also abolished. The Special Prosecutor had investigated several corruption cases, including against officials from Fico’s Smer party. Additionally, the Government of Slovakia disbanded NAKA, the police force investigating crimes like corruption. Matus Sutaj-Estok, Minister of Interior of Slovakia stated NAKA had become a tool of political revenge. Another prominent case was L'ubomir Danko, the former head of NAKA, and Michal Surek, a prosecutor being charged with abuse of power alongside two former police investigators. Incidentally, all the individuals named in the chargesheet had worked on the "Purgatory" corruption case. In that case, Fico and several high-ranking officials were suspected of corruption and manipulating police investigations. The Slovak government's decision to release criminals from prison also resulted in Dusan Kovacik, the former top special prosecutor and a close ally of Fico being released. This was despite the Specialized Criminal Court handing a verdict stating Kovacik accepted a EUR 500,000 bribe from the mafia. Peter Kosc, a businessman facing an international arrest warrant recently announced he would return to Slovakia. L'udovit Oder, a former Prime Minister of Slovakia and Member of the European Parliament stated the Slovak government was creating the ideal conditions for corruption. According to Oder, the EU knew what was happening in Slovakia and would have to eventually react to it. However, he stated it would have no impact on Fico and his aides, since they had enacted lifetime annuities. (Ketrin Jochecova, “Slovakia loses fight against corruption,” Politico, 12 September 2024)
THE UK
Starmer demands reforms in the National Health Services
On 11 September, Keir Starmer, the Prime Minister of the UK, said that people have every right to be angry over the increasing waiting time in the NHS for treatments. Wes Streeting, the Health Secretary of the UK, said that he would reform the NHS. The statements have come after a report was published by the Government of the UK after a nine-week review of the NHS. Starmer has proposed three key areas that require reform. First, the transition to a digital NHS; second, care from hospitals to communities; and third, focusing efforts on prevention over sickness. The report said that the NHS is still struggling with the aftershocks of the pandemic. The report said the NHS had been weakened due to no amendments in the policies of the 2010s and lack of investment in buildings and technology. The NHS also lacked a way behind the private sector in terms of digital innovations. The staff-to-patient ratio is also a disadvantage and the staff has not expanded compared to the pressure on the hospitals. The waiting list in British hospitals currently stands at 7.6 million. According to the report, long waits are causing around 14,000 deaths a year. While, 2.8 million people are unable to work due to poor health, thus the NHS has a significant impact on the economic productivity of the nation. Starmer said: “Raise taxes on working people or reform to secure its future. We know working people can’t afford to pay more, so it is reform or die.” Matthew Taylor, the head of the NHS Confederation, said that the report is deeply troubling. (Nick Triggle, “NHS must reform or die, PM says after major report,” BBC, 12 September 2024)
UKRAINE
Russia will be challenged to defend if Ukraine is allowed to use long-range missiles to attack inside says opinion in BBC
On 12 September, the BBC published a report on the importance of Storm Shadow missiles for Ukraine. According to the report, it predicts the lifting of restrictions by the US and the UK on Ukraine to use long-range missiles into Russia. Ukraine which was already supplied with such long-range missiles has been demanding permission to use them inside Russia. Storm Shadow is an “Anglo-French cruise missile” with a capacity of 250 kilometres. It is fired from the aircraft which flies close to the terrain and detonates its warhead. The missile is considered the ideal weapon for intercepting bunkers and ammunition depots of Russia. However, each costs USD one million so it is used carefully compared to cheaper drones. One such example is Ukraine’s targeting of Russia’s Black Sea naval headquarters in Sevastopol. The permit to use it inside Russia remains restricted is due to the concern over escalation. The White House fears pushing Russia into retaliation which might invoke Article 5 of NATO. In such an instance, sending Storm Shadow missiles would mean less since Russia is observed to have defenced up its missiles and bombers to counter such attack. However, one of the military analysts warned that Russia would face a challenge in ensuring protection across its vast territory leading to command and logistics problems. (Frank Garner, “What are Storm Shadow missiles and why are they crucial for Ukraine?,” BBC, 12 September 2024)
INTERNATIONAL
NATO chief to head Munich Security Conference
On 12 September, Politico reported Jens Stoltenberg, the Secretary-General of the North Atlantic Treaty Organization (NATO) would become the new chairman of the Munich Security Conference(MSC). Stoltenberg replaced Christoph Heusgen, a German diplomat in charge of the MSC for the past two editions. Wolfgang Ischinger, a former Chairman of the MSC will remain President of the Foundation Council of the MSC Foundation. The MSC is renowned for providing a space for international security policy debates. Several key global politicians; such as Vladimir Putin, the President of Russia, Volodymyr Zelenskyy, the President of Ukraine, and Kamala Harris, the Vice-President of the United States have used the MSC platform to state their views and objectives. For instance, Zelenskyy used the MSC forum to request faster arms supplies to Ukraine, while Putin used the platform to inform others regarding his anti-NATO security doctrine. Stoltenberg will have the task of effectively navigating the MSC at a time of tension over the Ukraine war and the future of NATO. (Gordon Repinski and Nicholas Vinocur, “NATO’s Jens Stoltenberg will be new Munich Security Conference chief,” Politico, 12 September 2024)