Moreover, bond issuance by euro area non-financial corporations had declined markedly, especially in the high-yield segment. Moreover, the recalibration removed disincentives for voluntary early repayment of outstanding TLTRO III funds, which would reduce the Eurosystems balance sheet. Since the last recalibration of TLTRO III in December 2020 the inflation outlook had changed fundamentally, in part owing to the war against Ukraine, which had led to an energy crisis that could not have been foreseen at the time. There were doubts as to whether, in view of the high volatility in the market, these lower gas prices would be sustained and should form the basis of a revised outlook. Finally, Mr Lane reported the results of the October ECB Survey of Monetary Analysts. In this period the contribution to inflation in the Harmonised Index of Consumer Prices (HICP) from demand factors had also increased. While the Governing Councils monetary policy actions were having the desired effect on financial and financing conditions, the current setting of the ECBs key policy rates was judged to be still accommodative, which implied that they should be increased further. We do not make the email address visible on the comment. Allowing the downward pressure on term premia to decline would facilitate more efficient setting of monetary policy, thereby helping to contain inflation. Action by the EU on environmental protection, climate change and clean energy. Accordingly, the weakening of the economy could lead to somewhat higher unemployment in the future. The tight labour market and the prolonged period of high inflation were seen as beginning to have an impact on wage growth. It was recalled that the pass-through had recently been faster and stronger than expected and embedded in standard models. Moreover, price pressures originating from international commodity markets had weakened recently, and the expected economic downturn, together with higher interest rates and tighter financial conditions, would dampen inflation in the medium term. Moreover, global economic activity was growing more slowly, in a context of persistent geopolitical uncertainty especially owing to Russias unjustified war against Ukraine and tighter financing conditions. The Danish Prime Minister, Mette Frederiksen, was absent from the inaugural EPC meeting for domestic political reasons, but joined her colleagues a day later for the informal meeting of the European Council. Regarding commodities, compared with the situation at the time of the September meeting, the prices of oil, metals and foods had not changed significantly. Main message from the President of the European Parliament: Roberta Metsola stressed that only by providing Ukraine with advanced weaponry and military intelligence can the war be stopped and real peace achieved. Automattic is a global company with thousands of servers located in several separate data centres around the world. In this context, it was noted that the findings of the Consumer Expectations Survey suggested that some households were keeping up their spending either by saving less or by liquidating part of their stock of savings. Second, interest rate derivatives were commonly based on the euro interbank offered rate (EURIBOR), limiting the impact of country-specific shocks on margin calls. For the seventh time in a row, the President of Ukraine, Volodymyr Zelenskyy, addressed the European Council, stressing 'terror must lose. Direct access to language menu (press "Enter"), Direct access to search menu (press "Enter"), Outcome of the European Political Community and European Council meetings in Prague on 6-7 October 2022. Bookshelf The European Council welcomed the EU strategy on combating antisemitism and fostering Jewish life, adopted by the Commission on 5 October 2021. Accordingly, the Governing Council had to recalibrate its monetary policy stance, including the terms and conditions of TLTRO III, in order to pursue its price stability mandate. Retaining the existing flexibility in PEPP reinvestments was seen as a prudent approach to countering risks to the monetary policy transmission mechanism related to the pandemic, which still persisted in the current market environment. Banks expected to continue tightening their credit standards in the fourth quarter. At the same time, reference was also made to easing global supply bottlenecks. It was argued that, with actual HICP inflation standing at around 10%, longer-term inflation expectations had remained relatively well anchored. As highlighted by President Michel after the meeting, EU leaders considered ways of addressing the energy challenge on three levels. The point was made that the planned fiscal support appeared to differ across countries. October 7, 2022 admin 2022, Speeches, Volodymyr Zelenskyy. Overall, in the light of prevailing uncertainties, there was broad support for a meeting-by-meeting, data-dependent approach to taking monetary policy decisions. In consideration of all these arguments, the adjustment was therefore judged to be proportionate in the service of the Governing Councils mandate. One such force was exchange rate depreciation, which was negatively affecting the inflation outlook on a broad basis. The speech made by Volodymyr Zelenskyy, the President of Ukraine, on 7 October 2022. By reducing real incomes and pushing up costs for firms, high inflation continued to dampen spending and production. A weakening world economy could be an additional drag on growth in the euro area. Ministerial meetings; International ministerial meetings; Preparatory meetings; Ministerial meetings; International ministerial meetings; Preparatory meetings; Previous month Concern was expressed that, in the face of high energy costs, there was growing pressure on governments to support demand via transfers, which would then fuel inflation, instead of fostering potential growth through targeted public investment. In the euro area, real interest rates had increased across the entire maturity spectrum since the Governing Councils previous monetary policy meeting. The observation was made that long-term contracts could imply long delays, with significant upward pipeline pressures still working their way through. A few members expressed a preference for increasing the key ECB interest rates by 50 basis points, taking into account that the rate hike would be accompanied by a signal on the need for further future rate hikes, by a change in the remuneration of minimum reserves, and by the adjustment of the terms and conditions of TLTRO III, all of which would imply some additional monetary policy tightening. At the same time, it was observed that the ratio of job vacancies to unemployed persons had remained much lower in the euro area than in the United States, pointing to a lesser degree of labour market tightness in the euro area. Turning to the labour market, the unemployment rate had remained at a historical low of 6.6% in August. Rules and policy for safety and quality, information and statistics on products and markets. At the same time, it was argued that, even though growth in negotiated wages and in compensation per employee might be more dynamic, their levels were still moderate compared with inflation and there were no clear signs of a wage-price spiral. While the PMI indicators for services and manufacturing were still above the threshold value, the indicator for construction had moved below it. The European Commissions consumer survey showed that households were increasingly postponing major purchases and reducing their savings in order to maintain their consumption of basic necessities. Regarding the transmission of policy rate adjustments to money markets, after the September rate hike the functioning of euro area repo markets had been impaired, though only temporarily. Since the ECBs policy rates were still accommodative, a large increase would underscore the Governing Councils commitment to taming inflation by reducing support for demand and ensuring inflation expectations remained anchored at the medium-term target. At the same time, it was pointed out that prices for natural gas had fallen. These sectors had generally seen less inflation pressure than sectors more exposed to supply-chain problems. The users that are registered in WordPress.com should consult wordpress.com terms of service. The view was expressed that, for a long period, central bank policy measures had suppressed volatility to a significant extent and that some reversal of this situation could be considered a healthy return to more normal market conditions. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the European Parliament is given prior notice and sent a copy. Turning to the monetary policy proposals, the view was widely shared that the inflation outlook continued to worsen, with inflation far too high and repeatedly above the projected figures. This was making borrowing more expensive for firms and households. When assessing the fiscal stance, it was considered important to include the EU funds. Unable to load your collection due to an error, Unable to load your delegates due to an error. Although side effects were acknowledged, these were seen not to outweigh the benefits from the TLTRO III adjustment, which was required in order to maintain the effectiveness of monetary policy and thereby the Governing Councils ability to attain its medium-term inflation target in a timely manner. Learn about the European Commission's role in instigating and Key priorities of the European Commission for 2019-2024. However, pressures on consumer goods prices continued to increase, reflecting transmission lags. In this respect, it was seen as necessary, following an assessment of the repayments resulting from the adjustment of TLTRO III and their impact on financial conditions, to discuss the reinvestment strategy for the APP portfolio at the Governing Councils December monetary policy meeting. The filling of the backlog of orders still supported activity, while new orders were declining. PMC About the European Commission Learn more about how we use cookies, We are always working to improve this website for our users. Council of Europe. The projection for non-energy industrial goods inflation had been slightly higher than the actual outcome, while the projection for services inflation had been lower. Turning to the monetary and financial analysis, members largely concurred with the assessment provided by Mr Lane in his introduction. inflation excluding energy and food, the decomposition into supply and demand factors showed that until July 2022 supply factors had continued to make a significant contribution, suggesting that the core inflation rate would come down significantly if supply factors eased. Given the high levels of excess liquidity, the marginal cost of reserves was currently anchored at the interest rate on the deposit facility, not the rate on the main refinancing operations. However, in the meantime, other downside risks had materialised. The major risk in the short term was a further rise in retail energy prices. A long-lasting war in Ukraine remained a significant risk. Last but not least, youth is one area where a more integrated vision is needed on a continental scale. It was argued that uncertainty and losses in purchasing power were the main factors behind the deterioration in the outlook, reflecting lower real wages but also lower real financial wealth, given that many households held their savings in low-remunerated deposits and debt securities. In the euro area corporate bond market, the spreads of both high-yielding and investment-grade bonds had increased. However, two mitigating factors were present. Focusing on private consumption, consumer confidence had continued to decline in the period to September, before rising marginally in October. The data collected for this purposes include: number of visits/visitors per page, the country of the user, and aggregate numbers of incoming and outgoing clicks. However, it was recalled that wages were a lagging indicator, and some doubts were expressed as to whether the still comforting picture provided by the experimental ECB wage tracker would hold up. As stressed by President Macron, we share the same space, often the same history, and we have a mission to write the future together. A return of inflation to the ECBs 2% target was deemed unlikely without further decisive monetary policy action. The visitors full IP address is deleted from our logs after a little over a month. Wage growth had continued to increase gradually. Finally, it was noted that a repayment of TLTRO III funds would reduce banks need for collateral, which could flow back to the market and thereby help to alleviate the collateral scarcity that had led to repo market tensions. We are using cookies to give you the best experience on our website. At their 20-21 October 2002 meeting, European Union leaders focused on Russia's military aggression against Ukraine, energy and the economy, as well as on external relations, paying specific attention to China. There was a risk that future wage growth was being underestimated, as also suggested by more timely information on wages from job postings on private digital platforms, which were increasing faster than data on negotiated wages. They clarified that the EPC was intended as a bi-annual informal platform hence the absence of a declaration for dialogue among equals at leaders level. It was therefore necessary to adjust the interest rates applicable to TLTRO III from 23 November 2022 and to offer banks additional voluntary early repayment dates. Survey-based sectoral indicators confirmed a continuing downward trend in manufacturing activity, despite the fact that industrial production had been supported by the filling of order backlogs and by the easing of supply bottlenecks. Longer-term inflation expectations (for 2027) reported in the October ECB Survey of Professional Forecasters had remained basically constant at 2.2% for headline inflation and had decreased from 2.2% to 2.1% for core inflation. Inflation in wage-sensitive HICP items had continued to increase in line with negotiated wage growth, which, however, remained relatively contained overall. European leaders jointly agreed on six work paths, or priority lines for cooperation. Outlook for the European Council meeting on 20 21 October 2022 At a Glance 17-10-2022 Share this page on Facebook Share this page on Twitter Share this page on LinkedIn Members agreed that financial conditions across markets and financing conditions for different types of borrowers had tightened significantly in anticipation of a faster and more substantial monetary policy tightening, both in the euro area and globally. Indicative Leaders' Agenda 2022 included an informal meeting of the European Council on 7 October 2022, preceded a day earlier by the inaugural meeting of the European Political For the next two quarters, the current assessment pointed to a drop in economic activity. However, it was argued that futures prices suggested some reversal of this trend and that, even after their recent decline, gas prices had been very volatile and were still many times higher than in the past. They also considered the global implications of food shortages and confirmed their willingness to support partners under strain around the world. It was observed that an increasing number of economies were expected to enter a recession. At the same time, the labour market had continued to perform well in the third quarter, with the unemployment rate remaining at the historically low level of 6.6% in August. FOIA A long-lasting war in Ukraine was still a significant risk. Annual calendar 2023, Congress of Local and Regional Authorities, Deputy Level: Supervision of execution of ECHR judgments (DH), GR-C - Education, Culture, Sport, Youth and Environment, GR-PBA - Programme, Budget and Administration, GT-CHARTE - Improving the European Social Charter system, GT-SOM4 - 4th Summit of Heads of State and Government, Intergovernmental structures and other bodies, Forthcoming Conferences of Specialised Ministers, European Court of Human Rights - Provisional list of scheduledhearings, Summits of Heads of State and Government of the Council of Europe, Council of Europe Exchanges on the religious dimension of intercultural dialogue, Disclaimer - Council of Europe 2022 - Photo credit. Ministerial meetings; International ministerial meetings; Higher inflation, lingering uncertainty and further cuts in the supply of gas from Russia had dampened consumer and business confidence and were expected to curb aggregate demand in the second half of 2022. At the same time, while the difficulty of relying on precise values of these rates was acknowledged, there was agreement that, looking ahead, the Governing Council needed to continue removing accommodation with further interest rate hikes. Turning to fiscal policies, structural balances were not expected to improve in 2022, as the reduction in pandemic-related spending was being compensated by new energy-related spending measures. It was reiterated that the Governing Council had to focus squarely on its primary objective and on bringing inflation back to target in a timely manner. While the direction of monetary policy was clear, prudence was necessary as regards the pace of the adjustment. The EU leaders also discussed means to protect critical infrastructure. In this context, attention was also drawn to the divergence between monetary policy, which was removing accommodation, and fiscal policy, which was becoming more expansionary. Bank lending to firms had remained robust, whereas household borrowing for house purchase had reached a turning point in the summer. Finally, Mr Lane proposed continuing to apply flexibility in reinvesting redemptions falling due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic. The effects of the reopening of the economy that had boosted services over the spring and summer were expected to fade in the autumn and winter months. Economic activity was likely to have slowed significantly in the third quarter of the year and was expected to weaken further in the remainder of 2022 and the beginning of 2023. Moreover, Mr Lane proposed adjusting the remuneration of the minimum reserves held by credit institutions with the Eurosystem, to align it more closely with money market conditions. For more detailed information about the compliance of Automattic products and services with the EU General Data Protection Regulation (GDPR), please see their dedicated page. By contrast, a decline in energy costs and a further weakening of demand would lower price pressures. Deposit rates for households and firms had also seen a significant increase and were expected to rise further in the coming months in the context of monetary policy normalisation. Structural policies should be designed to increase the euro areas growth potential and supply capacity and to boost its resilience, thereby contributing to a reduction in medium-term price pressures. Published by Portland Press Limited on behalf of the European Council for Cardiovascular Research. Show All The European Commission is to present a more detailed proposal in the coming weeks. Inflation could thus decline as a result of both supply and demand factors. It was considered noteworthy that volatility had been especially pronounced in markets that were traditionally considered low-risk, such as the money markets and the sovereign bond markets, with higher volatility in these markets since the beginning of the year than in the equity market. In the Corporate Telephone Survey, a large majority of respondents had expected wage increases to be above 4% in 2023. As regards Ukraine, the European Commission President, Ursula von der Leyen, stressed that, with the successive packages of sanctions, including the agreed oil price cap, the EU was depriving Putin's regime of the ability to wage war in Ukraine and that Team Europe (EU and the Member States) had pledged 19 billion to Ukraine (military aid excepted). Turning to the size of the rate increase, Mr Lanes proposal to raise the key ECB interest rates by 75 basis points was supported by a very large majority of members. That timeframe is how long the data is needed in order to allow us to calculate your stats on a monthly basis and no longer. Since early 2022 bank bond yields had risen by more than 300 basis points. Research funding, partners, results and EU action to promote innovation. government site. It was argued that a shallow or technical recession was unlikely to keep inflation in check given its recent momentum and the risk that price increases would be difficult to reverse. Second, the progressive setting-up of platforms for joint purchasing of energy at EU level, notably gas, to ensure security of supply. While the direct spillovers from the financial market turmoil in the United Kingdom had been limited, euro area financial markets had not been entirely immune. In particular, the very large increase in private consumption had made a larger contribution to inflation. For Dutch Prime Minister Mark Rutte, the leaders sent a clear message to the energy market that they were completely aligned and have the joint ambition to come up with measures to bring down the gas prices. The proposed recalibration was proportionate. The ECB now needed to show equal determination when inflation was above the target, countering far too high inflation and preventing it from becoming entrenched, irrespective of a deteriorating outlook for economic activity. With respect to energy, EU leaders discussed ways of jointly addressing the energy price and security of supply challenges, and notably considered joint purchasing of gas at EU level. As regards Ukraine, the European Commission President, Ursula von der Leyen, stressed that, with the successive packages of sanctions, including the agreed oil price cap, the EU was depriving Putins regime of the ability to wage war in Ukraine and that Team Europe (EU and the Member States) had pledged 19 billion to Ukraine (military aid excepted). As stressed by the Czech Prime Minister, Petr Fiala, in his opening remarks, there is, for the moment, no intention to formalise meetings or to transform the EPC into an organisation of its own. The production of chemicals, which had a high energy content, had become very expensive in Europe, reducing the competitiveness of these products and their exports. However, the latest data showed that manufacturing firms had largely worked through the backlogs accumulated over the last year, suggesting that this channel would provide less support to the economy in the future. The Commission's work is steered by a College of Commissioners, and led by its President. In her address to the European Council, the European Parliament's President, Roberta Metsola, emphasised that war and high energy prices had led to high inflation rates, reaching 10 % in the euro area. In this context, reference was made to analysis that pointed to substantially higher inflation rates for lower income households, since energy and food items made up a greater proportion of their consumption. Summits; European Council President's schedule; Ministerial and other meetings. Nevertheless, on request, we can delete your comments. Hence, concern was expressed that this strength could be undermined if wages were overstretched in such a delicate adjustment period. The September monetary data also confirmed a drop in loan flows to non-financial corporations and, in particular, to households, providing further evidence that the tightening of financial conditions was being transmitted to the real economy. With respect to the December monetary policy meeting, it was noted that the Governing Council would have more information available, which was seen as especially valuable in the light of the high market volatility and uncertainty that characterised the current environment. For goods prices, the most recent data showed that pipeline pressures on intermediate goods prices had started to ease, although these remained very elevated. These developments indicated an increasing risk that inflation might become entrenched and that second-round effects and a wage-price spiral could emerge. The future rate path should be based on the evolving outlook for inflation and the economy, following a meeting-by-meeting approach. While bank lending to firms had remained robust, as they needed to finance high production costs and build up inventories, demand for loans to finance investment had continued to decline. The Prime Minister of Iceland, Katrn Jakobsdttir, stressed that Europe stands in solidarity against the Russian invasion in Ukraine, while Prime Minister Petr Fiala stressed that we all know in our hearts that Ukraine will win because the truth is on their side. Moreover, it was argued that an overly aggressive pace of tightening could have repercussions for financial stability, economic activity and ultimately inflation. Supply bottlenecks were gradually easing, although their lagged impact was still contributing to inflation. The EPC aims to boost cooperation on issues of continental concern and not to be a substitute for EU policies, in particular enlargement. A statement was published after the meeting, confirming Azerbaijans and Armenias commitment to the UN Charter and the 1991 Alma Ata Declaration, in which both countries recognise each others territorial integrity and sovereignty. Dear EU leaders' meetings. At the same time, cash bond markets had continued to function smoothly. The impact of pent-up demand, while weakening, was still driving up prices in the services sector. At the same time, investors had gradually shifted their attention towards the side effects of the sharp global rate hiking cycle, amid tighter funding conditions for lower-rated entities, low market liquidity and heightened volatility in repo markets. In the United States, however, core inflation was stronger than in the euro area, and it was very closely correlated with wage inflation. First, measures to reduce energy consumption and demand. On 6 October 2022, the Czech Presidency of the Council of the EU hosted the first meeting of the EPC. and transmitted securely. Although the economic outlook had deteriorated considerably, it was widely judged that the expected weakening in economic activity would not suffice to curb inflation to a significant extent and would not in itself bring projected inflation back to the target. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful. It was pointed out that risks and their direction needed to be reassessed in the December Eurosystem staff projections. At the same time, it was cautioned that, so far, the hard evidence was consistent with a mild recession rather than suggesting a hard landing for the economy or a protracted downturn. As a further tangible sign of this commitment, it should be communicated that the Governing Council expected to raise rates further. 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