European Central Bank meets amid concerns about euro depreciation

Good morning and welcome to Europe Express.

We are now two weeks into the war in Ukraine and its implicit effects are being felt around the world – including on the single currency of Europe. With the European Central Bank’s Board of Governors meeting today in Frankfurt, we will examine why Depreciation of the euro It is a matter of concern and what economists expect to happen in terms of monetary policy.

Later in the day, EU leaders will gather in Versailles for a two-day summit that revolves around the bloc’s response to the war, France’s ambitions to protect the EU and how to pay for priorities including energy security. One issue that members of the Center and the East insist on is the issue of Ukraine’s membership in the EU – as Foreign Minister Dmitry Kolba begs in This article from the Financial Times. Kolba will meet his Russian counterpart for the first time since the start of the war, today in Turkey.

Meanwhile as the FT Report firstThe EU added 14 more Russian businessmen with close ties to the Kremlin and 146 lawmakers to its asset freeze and travel ban list and expanded its financial sanctions on Belarus.

With more Financial assistance to Ukraine Undertaking by a number of international financial institutions – we hear from Odil Renault-Basso, President of the European Bank for Reconstruction and Development, about its plans for the country.

And in further signs that the Covid-19 epidemic was pushed back to the pre-war era, we will bring you an emissary from Strasbourg, where European Parliament Returns to normal operation and completes its remote voting system.

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Euro Blues

The euro has become a focus for investors’ anxiety about how the fallout from the war in Ukraine will hurt the European economy, writes Martin Arnold in Frankfurt.

The single currency fell near a five-year low against the US dollar after Russia’s invasion of Ukraine, before returning to the ground in recent days.

The devaluation of the euro will be of concern to the European Central Bank, which convenes today to discuss monetary policy and publish new economic forecasts.

While a weaker euro is a boost for eurozone exporters, what worries the ECB is that it will add to record levels of inflation by raising the cost of imports, especially for oil and gas at the dollar price.

Spiros Andreopoulos, a senior European economist at BNP Paribas, who previously worked on monetary policy at the ECB, said the decline in the value of the single currency “raised the question of whether the ECB could intervene in foreign exchange markets to strengthen it.” Poland, Hungary and others ‘Kia already Intervened Support their currencies.

However, Andreopoulos said the maximum the ECB could have done was verbal intervention. “They can talk about how the exchange rate is a factor that affects the inflation forecast,” he said. “But when it comes to direct intervention in the foreign exchange markets, the continuum is very high, in our opinion.”

The last time the ECB intervened in foreign exchange markets was in 2011 until steady The currency after the Japanese tsunami. It intervened even more when the euro fell below par with the dollar shortly after its launch in 2000, but it was a limited success.

After falling to a 22-month low of just over $ 1.08 earlier this week, the euro has since recovered to $ 1.11 as investors focused on reports that the EU could raise more debt to fund further energy and protection investments by member states.

Despite its recent rise, the single currency remains well below the $ 1.15 levels it reached a month ago. One factor putting downward pressure on the euro is the expectation that Europe will be hit harder than the US by the crisis in Ukraine, mainly because of Europe’s greater reliance on Russian oil and gas imports.

The US Federal Reserve is expected to raise interest rates this month, which could lead to the euro depreciating against the dollar, especially since most analysts think the crisis in Ukraine could delay raising the ECB interest rate for at least next year.

“Market participants also see raising interest rates as a way to limit the devaluation of the euro, which only adds to imported inflation,” said Frederic Dockrozet, a strategist at Pictet Wealth Management, adding: “We doubt the ECB will be able to act alone to support the currency “.

Jurassic chart: Arming Ukraine

The U.S. alone is expected to consider a $ 12 billion spending package for Ukraine this week, with $ 4.8 billion spent on defense spending. In line with inflation, this is roughly equivalent to a $ 400 million package provided by the U.S. to Greece and Turkey in 1947, a move that marked the beginning of policy The US Cold War in Europe, and two years later, the establishment of NATO. (More here)

Financing Ukraine

The director of the European Bank for Rehabilitation and Development warned of a “major shock” resulting from the Ukraine crisis when it announced a € 2 billion support package for the country and others directly surrounding it, writes Sam Fleming in Brussels.

Odile Renault-Basso told Europe Express that the consequences of the crisis are now being felt far beyond Ukraine’s immediate neighborhood and across all the countries the bank serves. The EBRD worker In regions including Central and Eastern Europe, North Africa and Central Asia.

Symptoms of the crisis include a devaluation of the currency and rising credit costs for some emerging markets, the bank president said. Among the main motives for the economic damage are rising energy prices, rising food costs driven by fears of disruptions to grain exports from Russia and Ukraine, and rising costs of other raw materials including metals.

“We can see that this war has a very dramatic and huge impact on Ukraine but it will have wider implications around the world and in particular in our countries of action,” she said. “We will do as much as we need and as much as we can to support the country and the region.”

Renault-Basso spoke after the IMF approved $ 1.4 billion in aid to Ukraine yesterday. “This is an essential step in helping the authorities overcome the destructive effects of this war,” he said. Tweeted on Twitter Principal Cristina Georgiva.

The World Bank also said yes this month Enlist Support of more than $ 700 million to Ukraine, which comes on top of a € 1.2 billion macro-financial assistance package from the European Union and other promises of financial support.

Renault-Basso said there is now a “huge” amount of financial support in place because of the war in Ukraine. “If that’s enough I can not judge at this point,” she said.

The EBRD this month proposed an official suspension of all access to its resources and expertise by Russia and Belarus.

Asked whether discussions had taken place on the removal of the states from the register of its government shareholders, Renault-Basso said there was a broader question facing the international community on how to deal with the membership of the two countries in international institutions.

Business as usual

The European Parliament is the last institution to end the Covid-19 epidemic. Most of its political parties have agreed to end the hybrid plenary sessions from next month and require members to be present to vote, writes Andy Bounds in Strasbourg.

Members of the European Parliament have been able to meet – and vote – almost since the epidemic hit in early 2020. While committees can continue with this method, the Conference of Presidents, made up of political group leaders, has agreed to enforce a physical presence from April.

The Greens voted against, arguing that vulnerable and new mothers who do not want to leave their babies may be denied rights, and that 705 MPs who travel to Strasbourg again will increase the institution’s carbon footprint.

One parliamentary associate also said that there is a significant boost from MPs coming from more distant member states. “They got used to saving time and spending more time with their constituents.”

A spokeswoman for the central Renew Group said it would consider revoking consent in limited cases, but “we need to get back to routine. You can not negotiate on the zoom as much as you can on coffee.”

Veronica Trillette-Lannoir, a Member of Parliament for the En Marche party in France and a medical doctor, said it was time to meet face to face again. “Hence the name Parliament parler And we need to unite to talk again, “she told Europe Express.

Not that the plague has stopped making deals. Indeed, after more than 15 years, parliamentary groups reached an agreement yesterday on the introduction of cross-national MPs. As of the next legislature, 28 seats can be allocated on the basis of a vote of the entire EU population aged 16 and over, provided this is unanimously approved by the member states.

Chances are it could happen – because the Brexit has released 46 seats for the 2024 election, so nation states will not have to sacrifice seats for the European cause. Several national governments, including France and Germany, have already adopted the plan.

What to expect today

  1. The Board of Directors of the European Central Bank convenes in Frankfurt

  2. EU leaders meet in Versailles for a two-day informal summit

  3. Ukrainian Foreign Minister Dmitry Kolba met with Russian Sergei Lavrov in Antalya

  4. Polish President Andrzej Duda welcomes US Vice President Kamala Harris and Canadian Prime Minister Justin Trudeau to Warsaw

Worth noting, quote

  • Debate over fiscal rules: B interview With the FT, the vice president of the committee in charge of financial affairs, Valdis Dombrovskis, expressed caution from ideas from some national capitals that money they borrow to fund green projects or even protection could be exempt from the bloc’s debt reduction rules. He also said that member states should first take advantage of € 200 billion of unutilized loans available under the bloc’s recovery plan before considering more collective loans.

  • Nuclear alarm: Ukraine has Raised the alarm On the impact of Russia’s invasion of nuclear facilities after the fighting near Chernobyl caused a power outage yesterday and the crew of the Zaporizhia nuclear plant, the largest in Europe, has been held at the plant since it was taken over by Russian forces on Friday.

  • A blow of billions: UniCredit has Warned That it faces losses of about 7 billion euros in an “extreme scenario” if all its Russian businesses are wiped out, adding that the exposure outside net borders to companies amounts to 4.5 billion euros, of which about 5% were hit by the West. Sanctions after the invasion of Ukraine.

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