A return of inflation to the ECBs 2% target was deemed unlikely without further decisive monetary policy action. This website uses cookies so that we can provide you with the best user experience possible. The observation was made that long-term contracts could imply long delays, with significant upward pipeline pressures still working their way through. Members underlined that the latest inflation outcomes were not at all reassuring. Overall, risks to the inflation outlook were primarily on the upside. Policy measures should provide incentives to lower energy consumption and bolster energy supply. Unlike in the euro area, the forward rate curve in the United States showed a marked inversion, signalling expectations of a reversal of rate hikes in the course of 2023. Global economic growth had seen a sharp reversal from a strong performance at the beginning of the year to a below-trend performance more recently. Price pressures were evident in an increasing number of sectors, in part owing to the impact of high energy costs feeding through to the whole economy. Learn about the European Commission's role in instigating and The format notably enabled a focus on various crises taking place on the continent, including tensions in the eastern Mediterranean, the Armenia-Azerbaijan conflict and the situation in the Western Balkans. Ministerial meetings; International ministerial meetings; The first meeting of the European Political Community (EPC) was held in Prague (Czechia) on 6 October 2022. Informal European Council Meeting October 7, 2022. As highlighted by President Michel after the meeting, EU leaders considered ways of addressing the energy challenge on three levels. It was recalled that what ultimately mattered was not wholesale but consumer energy prices, and that it was thus important to understand the pass-through mechanisms between the two and the corresponding time lags. 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. The latest bank lending survey indicated that credit standards had tightened, with banks becoming more concerned about the deteriorating outlook for the economy and the risks faced by their customers in the current environment. We are always working to improve this website for our users. President Macron stressed that work on protecting critical infrastructure is key in light of the recent attack on Nord Stream and that a common European strategy is needed. Finally, Mr Lane reported the results of the October ECB Survey of Monetary Analysts. EU leaders also discussed the protection of critical infrastructure, which is a key element of work conducted on resilience as part of EU-NATO cooperation. No conclusions were adopted, although exceptionally a draft statement had been circulated ahead of the summit. While both sets of data had suggested an increase in tightness in the period to the second quarter of 2022, the most recent indications from Indeed suggested a stabilisation of the ratio in the third quarter. We do collect anonymised aggregate data for statistical purposes. An upward shift in medium-term inflation expectations had also been seen in the Consumer Expectations Survey. Second, interest rate derivatives were commonly based on the euro interbank offered rate (EURIBOR), limiting the impact of country-specific shocks on margin calls. A 75 basis point increase was judged to be an appropriate response in view of the protracted period of excessively high inflation and the risk that this might add to medium-term price pressures. Following a proposal by Charles Michel, Ms Thrse Blanchet was appointed Secretary-General of the Council. Such action would also underscore the Governing Councils commitment to bringing inflation under control and keeping inflation expectations anchored. EU leaders met on 6 and 7 October 2022 in Prague for the inaugural meeting of the European Political Community (EPC) and an informal meeting of the European Council. The Commission's work is steered by a College of Commissioners, and led by its President. First, measures to reduce energy consumption and demand. 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. 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. In this context, it was highlighted that the Governing Councils interest rate hike in September had not been transmitted smoothly to all segments of the repo markets. Bank lending to firms had remained robust, whereas household borrowing for house purchase had reached a turning point in the summer. Disclaimer, National Library of Medicine Unable to load your collection due to an error, Unable to load your delegates due to an error. Hence, concern was expressed that this strength could be undermined if wages were overstretched in such a delicate adjustment period. A 50 basis point hike was deemed sufficient to adjust the monetary policy stance in a gradual and measured way given that market sentiment was fragile, the risk of a significant slowdown in economic activity was increasing and financing conditions had already tightened significantly since the start of the normalisation process. Considering that the bulk of commodities were denominated in US dollars, such currency developments had exacerbated the energy price shock. The concern was expressed that, with the changes in the economic outlook, the economy was now closer to the downside scenario than to the baseline scenario depicted in the September ECB staff projections. Uncertainty surrounded China and the United States, with global activity being negatively affected by Chinas closure of its economy and by the global fallout from restrictive monetary policy in the United States. We can also see your name and email address if you made a comment to one of our posts. Households had also recorded their largest inflow into time deposits for ten years, but still continued to increase their holdings of overnight deposits. At the same time, it was underlined that, although wage growth was accelerating, it could still be considered moderate and there were no indications of a wage-price spiral at present. Ukraine and all of Europe must win'. A question was raised on the propagation mechanisms that could turn a shallow and short-lived recession into a deep and prolonged slump. By reducing real incomes and pushing up costs for firms, high inflation continued to dampen spending and production. As regards the external environment, the latest data confirmed signals of slowing economic growth across countries and sectors and implied a substantial reversal of the pick-up in global activity recorded earlier in the year. 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. Summits; European Council President's schedule; Ministerial and other meetings. The European Commission is to present a more detailed proposal in the coming weeks. At present, in view of the unexpected and extraordinary rise in inflation, the instrument needed to be recalibrated to ensure that it was consistent with the broader monetary policy normalisation process and to reinforce the transmission of policy rate increases to bank lending conditions. While short-term indicators suggested that jobs were still being created in the third quarter of the year, the weakening of the economy could lead to somewhat higher unemployment in the future. For the next two quarters, the current assessment pointed to a drop in economic activity. EU leaders also discussed the protection of critical infrastructure, which is a key element of work conducted on resilience as part of EU-NATO cooperation. Turning to exchange rate developments, in the past couple of years the euro effective exchange rate and the bilateral exchange rate vis--vis the US dollar had recorded a trend depreciation. This distinction was widely seen as a key issue for the current economic picture and for the medium-term inflation outlook. Forward guidance on interest rates was widely seen as being of little value in view of the high uncertainty currently prevailing. It was also very different from the downside scenario described in the September 2022 ECB staff macroeconomic projections, as energy prices were currently much lower than had been assumed in the downside scenario. The Commission's work is steered by a College of Commissioners, and led by its President. First, the euro area pension fund sector was comparatively small and concentrated, reducing the risk to euro area-wide financial stability. The continued strong short-run momentum was also confirmed by the upward trend in month-on-month increases in core inflation. On 6 October 2022, the Czech Presidency of the Council of the EU hosted the first meeting of the EPC. Food price inflation had also risen further, as high input costs had made food production more expensive. It is addressed to the Members and staff of the EP for their parliamentary work. The European Parliament President, Roberta Metsola, addressed the leaders, noting that Ukraine is defending Europe and that 'real peace can only come with justice with a Tribunal to look into war crimes, perpetrators and restitution'. We collect your email address only if you proactively requested to be notified about the updates on the blog. Official EU statistics, public opinion polls, trends and forecasts. The speech made by Volodymyr Zelenskyy, the President of Ukraine, on 7 October 2022. The goods trade balance had continued to deteriorate, reaching a deficit of around 4% in August. Overall, members agreed that the monetary policy case for adjusting the TLTRO III conditions was strong and that the resulting effects could not be achieved through other measures, as indicated by Mr Lane in his proposal. 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. The adjustment was seen as an essential part of the ongoing monetary policy normalisation process and the recalibration of the Governing Councils toolkit to ensure consistency across all monetary policy instruments. At the same time, it was argued that lockdowns in China had led to declines in the countrys imports of liquified natural gas, with dampening effects on gas prices. It was recalled that the monetary policy stance was still accommodative and argued that a 75 basis point increase constituted a necessary step toward a more neutral level. 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. Before Mr Lane recalled that core inflation was also affected by indirect effects of high energy prices, which were causing many energy-intensive sectors to raise their prices. 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. The European leaders sent a strong signal of unity, condemning Russias war on Ukraine and expressing support for Ukraine. Moreover, the view was expressed that monetary tightening would probably need to continue after the monetary policy stance had been normalised and moved into broadly neutral territory. EU leaders met on 6 and 7 October 2022 in Prague for the inaugural meeting of the European Political Community (EPC) and an informal meeting of the European Council. 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. Find out how the EU's strategy is developed and translated into policies and initiatives by the European Commission. A slowdown was also visible in the PMI data, although employment indices remained on the whole above the threshold indicating growth. Moreover, it was noted that market participants were pricing in an increase of this size. The heightened concerns about inflation had resulted in euro area risk-free yields being much more sensitive to news about inflation in 2022 than had been the case in 2021. 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. 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. The .gov means its official. The content of all documents (and articles) contained in this blog is the sole responsibility of the author and any opinions expressed therein do not necessarily represent the official position of the European Parliament. EU leaders' meetings. 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. In this regard, it was noted that the latest data for the forward-looking PMI survey indicators for manufacturing were down for activity but up for employment. The forward-looking information compiled in the experimental ECB wage tracker for the euro area showed wage agreements concluded in the third quarter of 2022 implying wage growth of 3.7% in 2023. Turning to the ECBs outstanding lending operations, members unanimously agreed with Mr Lanes proposal to change the terms and conditions of TLTRO III. 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. The present website is hosted by WordPress.com, a service by Automattic. It was argued that a technical recession was becoming the baseline scenario and the most likely outcome. Migration, a topic which was initially planned as part of a stand-alone roundtable, was discussed by leaders at bilateral meetings. EU support for job creation, economic growth, business competitiveness, and sustainable development. Research funding, partners, results and EU action to promote innovation. 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. 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. 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. At the same time, there were no clear signs of widespread second-round effects, and longer-term inflation expectations remained broadly aligned with the 2% target. EU leaders' meetings. On 6 October 2022, EU leaders will meet with 17 non-EU European heads of state or government for the first meeting of the European Political Community in Prague. For example, a quadrilateral meeting was held by the President of Azerbaijan, Ilham Aliyev, the Prime Minister of Armenia, Nikol Pashinyan, President Macron and President Michel. The Governing Council stressed the importance of authorities addressing supply-side issues with appropriate structural and macroprudential policies, which would support monetary policy in ensuring price stability. 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. The High Representative of the Union for Foreign Affairs and Security Policy/Vice President (HR/VP) of the European Commission, Josep Borrell, was also in attendance. Energy and food costs could also remain persistently higher than expected. Overall, in the light of prevailing uncertainties, there was broad support for a meeting-by-meeting, data-dependent approach to taking monetary policy decisions. Bank funding costs were increasing in response to rising market interest rates. Confidence could deteriorate further and supply-side constraints could worsen again. It was recalled that the pass-through had recently been faster and stronger than expected and embedded in standard models. Dear friends! Since the weight of food prices in the total HICP was double that of energy prices, understanding their dynamics was very important. Show All Olena Znak/Anadolu Agency via Getty Images, EU actions to enhance global food security. In that period the ECB had granted exceptionally favourable conditions to credit institutions that borrowed via these operations, with the aim of sustaining the supply of bank loans to the real economy at a time when banks were likely to pull back and disengage from credit intermediation. To do this, we use the anonymous data provided by cookies. In addition to further rate normalisation, Mr Lane proposed changing the terms and conditions of the third series of targeted longer-term refinancing operations (TLTRO III). A long-lasting war in Ukraine remained a significant risk. While so far it appeared that spending on the newly announced measures would be reduced in 2024, it was still too early to assess how temporary and targeted the measures would be. Direct access to language menu (press "Enter"), Direct access to search menu (press "Enter"), Outcome of the European Council meeting of 20 21 October 2022. The development of an integrated energy strategy, in particular coordination with non-EU European partners, some of which notably Azerbaijan and Norway are energy producers, is needed to bring energy prices down. While there was a risk that fiscal compensation packages would turn out to be bigger than warranted, also from a price stability perspective, it was also argued that the planned and expected additional fiscal measures were needed in view of the expected recession. While the PMI indicators for services and manufacturing were still above the threshold value, the indicator for construction had moved below it. Severe disruptions in the supply of gas had further worsened the situation, and consumer and business confidence had fallen rapidly, also weighing on the economy. Most countries had contributed to the September forecast error. The view was held that feeding uncertainty as regards the way the Governing Council would react to the inflation outlook could further increase the volatility of risk-free interest rates in the present environment. The point was made that a correction in wholesale energy prices did not automatically imply a corresponding pass-through to HICP inflation. The growth of owner-occupied housing costs had reached 10.1% in the second quarter of 2022. 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 In the euro area, core inflation remained well ahead of wage inflation because the sectors with the highest price increases were not particularly labour-intensive but were relatively energy-intensive. These large energy spending programmes had in part been financed by the large revenue windfalls in 2022. 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. Regarding fiscal policy, it was reiterated that fiscal support measures to shield the economy from the impact of high energy prices should be temporary and targeted at the most vulnerable, in order to limit the risk of fuelling inflation. EU Heads of State or 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. The 25th meeting of the European Council for Cardiovascular Research (ECCR) was onsite in Villa Fiorita, Treviso Italy. 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. Turning to domestic wage pressures, negotiated wages had continued to increase gradually over the last few months, even when the impact of one-off wage payments was excluded. 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. 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. sharing sensitive information, make sure youre on a federal Mr Lane highlighted that global economic activity had continued to slow in October. Action by the EU on environmental protection, climate change and clean energy. It was thus exerting a dampening effect on services prices and on the overall inflation rate. While data on goods trade had shown relatively stable growth rates until July, the Purchasing Managers Index (PMI) for new export orders had in October been significantly below the threshold of 50, indicating a contraction. 8600 Rockville Pike Cyclically adjusted price-earnings ratios had come down markedly from the elevated levels prevailing during the extended period of accommodative monetary policy. Governments had announced further large packages of fiscal measures in their budgetary plans for 2023, which were likely to prevent any further improvement in their deficit-to-GDP ratios. 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 President of Ukraine, Volodymyr Zelensky, addressed the leaders by video-link at both meetings, stressing the importance of supporting Ukraine in defending itself. The increase in interest rates was expected to lead to higher financing costs for governments. The first meeting of the European Political Community takes place on 6 October 2022 in Prague. Similar to past meetings held since the start of Russias war on Ukraine, President Zelensky addressed the European Council, stressing both the need to protect critical infrastructure and Ukraines high expectations from the recovery conference being organised by the Commission and the G7 Presidency in Berlin on 25 October 2022. 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. To stress the Governing Councils commitment to achieving its medium-term inflation target, it was seen as important to indicate that interest rates were expected to be raised further in order to guard against the risk of inflation expectations becoming unanchored. The proposed recalibration was proportionate. Migration Following the A weakening world economy could be an additional drag on growth in the euro area. It was agreed that the next EPC meeting would take place in Chiinu, Moldova. While it was widely felt that, with a 75 basis point increase, the Governing Council would make substantial progress in withdrawing monetary policy accommodation, it was also clear that rates would need to be raised further to reach a level that would deliver on the ECBs 2% medium-term target, although decisions would need to be based on incoming data and the evolving outlook for inflation and the economy. Looking beyond the configuration of the key ECB interest rates, it was underlined that the Eurosystems large bond portfolios were continuing to provide further significant monetary policy accommodation by compressing term premia. Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings. It is addressed to the Members and staff of the EP for their parliamentary work. In fact, the trade-weighted exchange rate had appreciated slightly since the September meeting. EU promotion of fundamental rights, development and humanitarian aid, current and upcoming projects, partner organisations. Accordingly, the weakening of the economy could lead to somewhat higher unemployment in the future. Inflation could thus decline as a result of both supply and demand factors. This was seen as a reminder that inflation had substantial distributional consequences. The fact that food producer prices were still on a rising path implied that more pipeline pressures should be expected for food consumer prices. This, in turn, supported a smoother and more efficient pass-through of the Governing Councils policy rate increases to secured money market rates. Inflation in wage-sensitive HICP items had continued to increase in line with negotiated wage growth, which, however, remained relatively contained overall. The number of roundtables was reduced to two, one on peace and security (co-facilitated by Slovakia and Moldova) and one on energy, climate and economy (co-facilitated by Greece and Switzerland). ECB staff analysis, which divided goods and services into either energy-intensive or non-energy-intensive items, showed that a disproportionate share of inflation stemmed from the energy-intensive sectors. Last but not least, youth is one area where a more integrated vision is needed on a continental scale. Council of Europe. This site needs JavaScript to work properly. On 6 and 7 October 2022, the EU Heads of State or Government will meet in Prague for an informal meeting of the European Council, preceded by the inaugural meeting Developments in sovereign bond markets had so far been benign. It was observed that an increasing number of economies were expected to enter a recession. Moreover, it was in line with the Governing Councils communication that it stood ready to adjust all of its instruments within its mandate to ensure that inflation returned to its medium-term target. Prior to the summit, President Michel held a preparatory meeting with President Macron, Chancellor Scholz, Petr Fiala and Ursula von der Leyen. 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. If you disable this cookie, we will not be able to save your preferences. While supply-chain bottlenecks were gradually easing, the energy supply shock would continue to weigh on manufacturing activity and trade. This was the case, for example, between President Macron and the Prime Minister of the United Kingdom, Liz Truss, who agreed during their meeting to, inter alia, increase cooperation on migration. Against this background, all members agreed that, in view of the current inflation outlook, it was appropriate to continue normalising monetary policy by withdrawing accommodation to ensure that demand was no longer sustained. 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. It was noted that with the adjustment of the TLTRO III conditions banks would have the incentive and the opportunity for early repayment of their borrowing, which would also contribute to the normalisation of the Eurosystems balance sheet. The idea of an informal intergovernmental gathering, on an equal footing, of heads of state or government on a continental scale was central to the joint press conference held by President Macron, the EPCs initiator, Petr Fiala, representing the host country, and the President of Moldova, Maia Sandu, representing the country which will host the next EPC meeting in the first half of 2023. More information about our Cookie Policy. A weakening world economy could be an additional drag on growth in the euro area. By contrast, a decline in energy costs and a further weakening of demand would lower price pressures. 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. 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. This support was not expected to continue in the future. In this case, you are bound to WordPress.com terms of service. Against this background, the incoming data confirmed that risks to the economic growth outlook were clearly on the downside, especially in the near term. At the informal meeting of the European Council, which aimed to prepare the forthcoming formal meeting on 20-21 October 2022, EU leaders focused on Ukraine and energy. 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. Second, the decomposition of non-energy industrial goods inflation and services inflation showed that the non-energy-intensive components of inflation were also increasing. The concern was expressed that the cumulative impact of the slowdown, also including spillovers from synchronised monetary policy tightening, could even result in a technical recession at the global level. Turning to euro area developments, economic activity in the euro area was likely to have slowed significantly in the third quarter of 2022, with the weakening expected to continue during the remainder of the year and into early 2023. In addition, price pressures had become more broad-based, with a rising trend in core inflation and other measures of underlying inflation. The major risk in the short term was a further rise in retail energy prices. Worsening terms of trade were weighing on incomes in the euro area. The forecast error in the September projections amounted to 0.5 percentage points and was primarily related to the energy and food components. It also helped to dissipate scepticism by emphasising that the EPC was not intended as an alternative to enlargement and that those European countries wishing and meeting the criteria would continue on their EU integration path. The EPC aims to boost cooperation on issues of continental concern and not to be a substitute for EU policies, in particular enlargement. EU leaders met on 6 and 7 October 2022 in Prague for the inaugural meeting of the European Political Community (EPC) and an informal meeting of the European Council. At the same time, governments should pursue fiscal policies that showed they were committed to gradually bringing down high public debt ratios. 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. However, in the meantime, other downside risks had materialised. References were made to various decompositions of inflation into underlying factors. It was argued that falling short of these market expectations would imply an unwelcome loosening impulse, potentially undermining confidence in the Governing Councils commitment to price stability. The investment outlook had darkened significantly. 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. Looking at the determinants of the euros depreciation versus the US dollar in 2022, the differences in the expected paths of policy rates had played a big role. However, the latest data had started to signal a return towards more normal levels. On 7 October 2022, EU Heads of State or Government met in Prague for an informal European Council meeting at which they discussed Ukraine and energy. To do this, we use the anonymous data provided by cookies. As confirmed by Charles Michel, EU leaders reiterated their financial, humanitarian, political and military support to Ukraine and strengthened sanctions to increase pressure on the Russian regime. Against the background of persistent inflation surprises, investors had sharply revised up their expectations regarding central banks terminal policy rate (the level at which market participants expected the current interest rate cycle to peak) as embedded in risk-free rates, for all major advanced economies, albeit to different degrees. The nomination of Spain indicates that EPC meetings are likely to be organised back-to-back with informal European Council meetings in the country holding the six-monthly EU Council presidency, which could result in a revival of its role in foreign policy. Six Focusing on core inflation, i.e. In her address to the European Council, the European Parliaments President, Roberta Metsola, emphasised that war and high energy prices had led to high inflation rates, reaching 10% in the euro area. However, other prices related to housing had increased strongly. EU leaders' meetings. The European Council Oversight Unit within the European Parliamentary Research Service (EPRS)monitors and analyses the delivery of the European Council in respect of the commitments made in the conclusions of its meetings, as well as its various responsibilities either in law or on the basis of intergovernmental agreements. In line with these developments, available indicators and short-term estimates pointed to marginal downside risks for the third quarter of 2022 and to clear downside risks for both the fourth quarter of the year and the first quarter of 2023, compared with the September 2022 projections. 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. The members of the Governing Council subsequently finalised the monetary policy statement, which the President and the Vice-President would, as usual, deliver at the press conference following the Governing Council meeting. Bethesda, MD 20894, Web Policies This represented an acceleration compared with 2022 but was still a relatively moderate pace of growth. In addition to bilateral meetings, other formats were explored with different levels of success. During their exchange on external relations, EU leaders held a strategic discussion on relations with China, without adopting conclusions; discussed the preparation of the EU-ASEAN Commemorative Summit; took stock of the preparation of the upcoming United Nations-led summits on climate change and biodiversity; and condemned Iran's human rights breaches. Summits; European Council President's schedule; Ministerial and other meetings. Energy price inflation had exceeded 40%, which was due to one-off effects but also reflected the ongoing pass-through of wholesale prices to retail prices. The EPC aims to boost cooperation on issues of continental concern and not to be a substitute for EU policies, in particular enlargement. This new record had been driven mainly by the rapidly rising import bill for energy. 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. You can always contact us to remove your email address from our records or unsubscribe from the notification service. Second, the proposed recalibration was more efficient than seeking to achieve the same objective through a shorter full-reinvestment period for the Eurosystems bond holdings or through more aggressive interest rate hikes. Energy and food costs could also remain persistently higher than expected. Your European Commission. Such a decrease in the size of the balance sheet was judged to be necessary and a helpful first step before considering a reduction of the asset purchase programme (APP) portfolio. However, it was also argued that the quicker and stronger the pass-through, the faster the overall price adjustment would be completed and the earlier inflation rates could normalise. Lower potential output would imply higher inflationary pressures and could reconcile the difference between estimates of the unemployment and output gaps. Getting Ukrainian children safely to school. It was pointed out that risks and their direction needed to be reassessed in the December Eurosystem staff projections. At the EPC meeting, hosted by the current Czech Presidency of the Council of the EU, over 40 European heads of state or government expressed unity in the face of the common challenge posed by the brutal return of war on European soil, affirmed their support to Ukraine and committed to strengthening energy cooperation. Reference was made to the latest forward-looking survey indicators for economic activity, which had posted strong declines and were signalling a contraction. President Michel stressed that European leaders listened to each other, which was the main objective and achievement of the first EPC meeting. Use of the Eurosystem facility for securities lending against cash had reached its second highest level ever after the September interest rate decision took effect. Banks expected to continue tightening their credit standards in the fourth quarter. The major risk in the short term was a further rise in retail energy prices. Household borrowing for house purchase had reached a turning point in the summer. First, it would contribute to the normalisation of bank funding costs. Inflation remained far too high and would stay above target for an extended period. However, they were still deeply negative at short maturities and remained below the levels prevailing in previous tightening cycles, such as in December 2006, when inflationary pressures had been far less intense. Some pages embed content from third parties. In the euro area, real interest rates had increased across the entire maturity spectrum since the Governing Councils previous monetary policy meeting. The reappraisal of monetary policy expectations had led to a broad-based tightening of financial conditions beyond risk-free rates. 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. 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. Measures of underlying inflation were at elevated levels. At the same time, reference was also made to easing global supply bottlenecks. The 25th meeting of the European Council for Cardiovascular Research (ECCR) was onsite in Villa Fiorita, Treviso Italy. However, since the Governing Councils last monetary policy meeting little movement had been seen in the effective exchange rate, owing to the fact that the Japanese yen had depreciated. High energy prices were not only increasing import costs, but were also affecting chemical exports. MeSH So far this year the euro had weakened by 13% vis--vis the US dollar. 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. EU leaders met on 6 and 7 October 2022 in Prague for the inaugural meeting of the European Political Community (EPC) and an informal meeting of the European Council. As announced by President Macron, EPC meetings will be held bi-annually. The earlier surges in energy prices had led to ever-faster impacts on inflation, and it remained to be seen how this would evolve when the commodity price surges were reversed. Moreover, bond issuance by euro area non-financial corporations had declined markedly, especially in the high-yield segment. Changing the remuneration from the main refinancing operations rate to the deposit facility rate would thus restore the neutrality of the minimum reserves system. Automattic is a global company with thousands of servers located in several separate data centres around the world. With regard to price developments, members generally agreed with the assessment presented by MrLane in his introduction. As flagged in the EPRS outlook, the meeting saw a mix of plenary sessions and roundtables. Rates on lending to firms and households had also increased and credit standards had tightened markedly. The Indicative Leaders Agenda 2022 included an informal meeting of the European Council on 7October2022, preceded a day earlier by the inaugural meeting of the European Political Community. However, a note of caution was voiced against equating the current outlook to the downside scenario. She stressed that aspiring countries must stay the course on EU membership. First, it was noted that the rise in both headline and core inflation had come with an increase in demand-driven factors. These sectors had generally seen less inflation pressure than sectors more exposed to supply-chain problems. Members also agreed with the proposal to continue applying flexibility in reinvesting redemptions falling due in the PEPP portfolio. A long-lasting war in Ukraine was still a significant risk. Dear Release of the next monetary policy account foreseen on 19 January 2023. However, there was still a high degree of uncertainty about the extent of the policy adjustment needed to rein in inflation. Moreover, survey expectations had likely been measured at a cut-off date prior to the recent fall in gas prices and, if this fall were to persist, these expectations might see some downward adjustment. The President of Ukraine, Volodymyr Zelensky, addressed the leaders by video-link at both meetings, stressing the importance of supporting Ukraine in defending itself. Another issue was what a recession would imply for the resilience of the labour market. On the back of repeated upward inflation surprises and heightened uncertainty about the path of monetary policy required to tame inflation, market-based measures of longer-term inflation compensation in the euro area had trended upwards in recent weeks. Reproduction is permitted provided that the source is acknowledged. Supply bottlenecks were gradually easing, although their lagged impact was still contributing to inflation. Most of the responses continued to lie between 2% and 2.4%. It was also argued that, when the persistence of high inflation was uncertain, optimal policy called for a forceful response to reduce the risk of inflation remaining high for too long. For goods prices, the most recent data showed that pipeline pressures on intermediate goods prices had started to ease, although these remained very elevated. While the ECBs latest Corporate Telephone Survey showed that employment growth remained in positive territory, firms had become more pessimistic about employment, which was in line with their sentiment about economic activity. When assessing the fiscal stance, it was considered important to include the EU funds. In contrast, the relationship between risk-free yields and news about growth had remained rather weak, suggesting that market participants expected central banks to focus primarily on inflation. Next month, Annual calendar 2022 They now stood above the levels observed at the time of the Governing Councils previous monetary policy meeting, despite the sharp reappraisal of monetary policy expectations. Would you like email updates of new search results. Additional inflationary pressure could emanate from the ongoing depreciation of the euro. This deposit reconfiguration was in line with the increase in opportunity costs of holding overnight deposits since the beginning of monetary policy normalisation. Since early 2022 bank bond yields had risen by more than 300 basis points. Inflation had increased again in September, to 9.9%. EU law and judgments, how EU law is applied, public consultations, data protection, infringements, fraud, serious crime. 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. However, respondents had significantly revised up their inflation expectations for 2024 to 2.4%. Advice on living, working or travelling in the EU, on visas and immigration for non-EU citizens, European culture. So far, the labour market had continued to be a source of resilience for the economy but, since it generally reacted with a delay to economic activity, it was likely to lose momentum. Regional cooperation and security in the Black, Baltic and North Seas is yet another aspect in need of a common European vision. The meeting followed on from the proposal formulated on Europe Day 2022 by the President of France, Emmanuel Macron, to establish a platform allowing EU and non-EU European countries to come together to discuss issues of common interest in a wide range of policy areas, including security, the economy and energy. More than 70 participants, including trainees, early career researchers and established investigators from several European countries (Austria, Bulgaria, Canada, China, Denmark, France, Germany, Italy, Lebanon, The Netherlands, Portugal, Slovakia, Slovenia, Spain, Switzerland, Turkey, UK) and the USA met face-to-face to enjoy three days of outstanding research presentations. The absence of a chair is yet another element of flexibility and informality in the organisation of the EPC. In the euro area, compared with expectations at the time of the Governing Councils previous monetary policy meeting, market pricing and survey evidence now pointed to expectations of a faster pace of policy rate hikes and a markedly higher terminal rate. Nevertheless, on request, we can delete your comments. Indicators of non-construction investment had also moved into contractionary territory in the third quarter. 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. 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. Key priorities of the European Commission for 2019-2024. This had been triggered predominantly by concerns about additional cash flows into the repo market from the non-monetary policy deposits held with the Eurosystem. Changes and non-linearities in the speed and strength of the pass-through, depending on the size and persistence of the energy price shock, were typically not embedded in the models used for forecasting. Market interest rates had risen and broader financial conditions had tightened significantly amid expectations of faster and more substantial monetary policy tightening, both in the euro area and globally. It was also expected to facilitate the release of securities currently being used as collateral with the Eurosystem, thereby alleviating collateral scarcity and improving the money market intermediation capacity of banks by reducing their balance sheets. 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. 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. Members widely concurred with Mr Lane that monetary policy should continue to be data-dependent and not follow a pre-set path, in accordance with a meeting-by-meeting approach to setting interest rates. All rights reserved. The inaugural EPC meeting was attended by over 40 heads of state or government, as well as President Michel and the Commission President, Ursula von der Leyen. If actual inflation was not brought down in a timely manner, expectations would increasingly react to actual inflation and would, in turn, push it higher. * Members not holding a voting right in October 2022 under Article 10.2 of the ESCB Statute. On energy, EU leaders agreed that the Council and the European Commission will 'urgently submit concrete decisions' on energy-related measures, including a gas price cap, an issue that still divides the Member States. The meeting covered several topics of cardiovascular research: from vascular, cardiac, and metabolic aspects to Covid-19, and from basic to clinical research. One such force was exchange rate depreciation, which was negatively affecting the inflation outlook on a broad basis. Federal government websites often end in .gov or .mil. 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. Inflation had risen to 9.9% in September, reflecting further increases in all components. The latest monetary data for September showed large shifts from overnight to time deposits, mainly on the part of firms and other financial intermediaries (OFIs). That said, recent indicators were starting to suggest some weakening in the labour market. Upcoming events organised by the European Commission. October 7, 2022 admin 2022, Speeches, Volodymyr Zelenskyy. Other Council of Europe meetings; Forthcoming Conferences of Specialised Ministers; Current Council of Europe events; European Court of Turning to monetary and financial developments, bank funding costs had been gradually increasing, which reflected the changes in risk-free rates. The spreads had been relatively insensitive to shifts in monetary policy expectations, which probably reflected support from the Transmission Protection Instrument and communication on flexible reinvestments under the PEPP. This site is managed by the Directorate-General for Communication, Follow the European Commission on social media, EU and Chile strengthen a comprehensive political and trade partnership, Press statement by President von der Leyen on the ninth package of sanctions against Russia, Capital Markets Union: new proposals on clearing, corporate insolvency and company listing to make EU capital markets more attractive, Aid, Development cooperation, Fundamental rights. Briefing 25-10-2022. The users that are registered in WordPress.com should consult wordpress.com terms of service. 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. 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. While the direction of monetary policy was clear, prudence was necessary as regards the pace of the adjustment. 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. Focusing on private consumption, consumer confidence had continued to decline in the period to September, before rising marginally in October. A stabilisation of energy prices would thus have important implications for core inflation. But it was also noted that the latest developments cautioned against simply extrapolating the very large impact that had been included in the September projections. 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. Copyright European Union, 2014-2022. This means that every time you visit this website you will need to enable or disable cookies again. A calendar was drawn up with Moldova to host the next EPC meeting in spring 2023, followed by Spain in autumn 2023 and the UK in early 2024. At the informal meeting of the European Council, which aimed to prepare the forthcoming formal meeting on 20-21 October 2022, EU leaders focused on Ukraine and energy. This is the EPC. Thus, the EPC brought together EU Member States, countries aspiring to become members of the EU (the Western Balkan countries, Georgia, Moldova, Ukraine and Turkey), countries which have left the bloc (the United Kingdom) and countries which do not wish to join (Iceland, Norway, Liechtenstein and Switzerland). It was argued that, in many respects, the outlook was more benign than the September downside scenario. 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. For a comprehensive description of our cookie and data protection policies, please visit, Outcome of the European Political Community and European Council meetings in Prague on 6-7 October 2022. While it was argued that the euro area labour market was clearly a source of strength and resilience, it was cautioned that labour markets were still undergoing normalisation in the wake of the pandemic-related crisis, also with respect to the associated swings in productivity and sectoral reallocations. 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. 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. In particular, the very large increase in private consumption had made a larger contribution to inflation. Moreover, the recalibration removed disincentives for voluntary early repayment of outstanding TLTRO III funds, which would reduce the Eurosystems balance sheet. Turning to the euro area, GDP growth in the second quarter of 2022 had been boosted by a strong increase in private consumption as a result of the reopening of contact-intensive services. However, the decomposition also showed a steady increase in the contribution from demand factors. It was remarked that financial market volatility had increased since the September Governing Council meeting, as evidenced by the bond market turbulence that was triggered by the announcement of the initial UK budget plans for 2023. At the EPC It was considered unwise to assume that workers would simply accept the hit to real wages without a stronger response of nominal wages. The European Council welcomed the EU strategy on combating antisemitism and fostering Jewish life, adopted by the Commission on 5 October 2021. While Automattic takes care of the security of the platform, we, the European Parliamentary Research Service, own the content of the blog. In this period the contribution to inflation in the Harmonised Index of Consumer Prices (HICP) from demand factors had also increased. 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