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European Central Bank ready to cut rates

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The European Central Bank (ECB) has given a clear signal that it will cut interest rates from their historic highs next week, with its chief economist dismissing concerns that a cut before the US Federal Reserve (Fed) could backfire.

The ECB, which has been criticised for being one of the last to raise interest rates, is now almost certain to be one of the first major central banks to cut.

“Barring any major surprises, what we are seeing now is enough to remove the top layer of constraint,” chief economist Philip Lane told the Financial Times (FT) in an interview ahead of the bank’s key meeting on 6 June.

Investors are betting that the ECB will cut its benchmark deposit rate by a quarter of a percentage point from a record 4 per cent at next week’s meeting, after eurozone inflation moved closer to the bank’s 2 per cent target.

The Swiss, Swedish, Czech and Hungarian central banks have already cut borrowing costs this year in response to falling inflation. But the Fed and the Bank of England are not expected to cut rates before the summer, and the Bank of Japan is more likely to keep raising rates.

“Central bankers aspire to be boring and I hope central bankers aspire to have as little ego as possible,” Lane said when asked if he was proud that the ECB was able to cut rates earlier than others.

He added that an important reason why inflation had fallen faster in the eurozone than in the US was that the region had been hit harder by the energy shock caused by the war in Ukraine.

“Dealing with the war and the energy problem has been costly for Europe. But this first step [of starting to cut interest rates] is a sign that monetary policy is allowing inflation to come down in a timely manner. In that sense, I think we have been successful,” he said.

Lane said ECB policymakers will need to keep interest rates in the restrictive zone this year to ensure inflation continues to fall and does not rise above the bank’s target, warning that this “would be very problematic and probably quite painful to unwind”.

However, he said the pace at which the central bank would cut eurozone borrowing costs this year would be determined by assessing data to decide “whether it is appropriate or safe to move downwards within the range of restrictions”.

Lane, who is responsible for preparing and presenting the proposed rate decision before it is voted on by the 26 members of the Governing Council next week, said: “It will be bumpy and gradual. The best way to frame this year’s discussion is that we still need to be restrictive throughout the year. But we can move down a little bit within the range of restrictiveness,” Mr Lane said.

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Tensions rise again between Serbia and Kosovo

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Serbian President Alexandar Vučić responded in an interview with POLITICO after Kosovo Prime Minister Albin Kurti accused him of ‘irrationality’, ‘desperation’ and leading an ‘aggressive campaign for new conflicts’.

“If irrationality and aggression are going to lead to democratic elections… OK, thank you very much,” Vučić said.

The new war of words follows the Serbian leader’s call this week for new local elections in northern Kosovo to defuse tensions that flared in 2023 when the Serb community largely boycotted the vote.

Ethnic Serbs boycotted the local elections to express their discontent with Pristina. Tensions rose when ethnic Albanian candidates, representing just over 3 per cent of the electorate, won the elections.

The crisis erupted when Kurti encouraged the winners to take office and sent special police units to protect them.

One policeman and three Serbs were killed in armed clashes in the north of the country last September after the conflict broke out. Dozens of NATO troops were also injured in protests as they tried to keep the two sides apart.

The Kosovo government has confiscated hundreds of weapons, including machine guns, mortars and anti-tank grenades, found during police raids in troubled areas.

EU mediation fails

Despite repeated attempts to defuse the conflict, the European Union has failed. This week, EU negotiators tried to bring the parties together for a trilateral meeting in Brussels, attended by the bloc’s special envoy to the conflict, former Slovak foreign minister Miroslav Lajčák, but the parties refused.

European Commission President Ursula von der Leyen invited Balkan leaders to a working dinner in Brussels on Thursday to discuss the EU’s growth agenda and the region’s integration into the European single market. Kurti and Vučić attended the dinner but did not speak.

We have no relationship,” Vučić told POLITICO before the trip.

Kurti closes local Serb institutions with police force

Vučić insisted he was not interested in stoking tensions. I don’t want to be part of an anti-Kurti campaign or a smear campaign against anyone,’ the Serbian leader said, adding that the Kosovo leadership ‘seems to be obsessed with him’.

Serbia continues to provide financial support to Serbs living in Kosovo, particularly in the areas of health and education.

Over the past month, the Kurti government has sent police forces to close down and take over buildings housing local Serb institutions in towns such as North Mitrovica, Zubin Potok and Leposavic, which have a majority Serb population of about 80,000.

Belgrade accused of ‘ethnic cleansing’

Pristina’s latest moves have sparked protests and accusations that the Kosovo government is determined to ‘ethnically cleanse’ Serbs from areas where they are the majority.

Kurti has repeatedly insisted that he is applying Kosovo’s constitution, which gives him authority over the entire territory.

Serbia insists that Kosovo abide by existing agreements, including a commitment in the April 2013 Brussels Agreement to establish the Union of Serb Municipalities, a political body representing Kosovo’s Serb minority.

In response, the Kosovo government demanded the reopening of the Ibar River bridge, which leads to the Serb-majority north of the country and is guarded by NATO.

Vučić: EU and US agree with us

Both sides will meet separately with NATO officials during their visit to Brussels.

Vučić claims that Kosovo is blocking progress in the talks.

“Even if people in Brussels see which side is blocking progress, they would never say so publicly,” he told POLITICO. The EU and the Americans agree with us,” he told POLITICO.

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Meloni vows to fight EU ‘green rules’

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Italian Prime Minister Giorgia Meloni has described the EU’s ban on the sale of new fossil fuel-powered car engines after 2035 as a “self-destructive” policy and vowed to put pressure on Brussels to “correct these decisions”.

Speaking at the Italian industry association Confindustria on Wednesday, the prime minister argued that the ‘forced conversion’ of the entire EU market for new light vehicles to electric within ten years was ‘very unwise as a strategy’.

The green transition cannot mean the destruction of thousands of jobs or the elimination of entire industries that generate wealth and jobs,” Meloni said, criticising the “disastrous effects” of Europe’s Green Deal and its “ideological approach”.

Meloni argued that the EU should follow the principle of technological neutrality, allowing each member state to define its own tactics to reduce CO₂ emissions, rather than mandating a wholesale switch to electric vehicles.

Italian leader warns about raw materials and supply chain

“We want to defend Europe’s industrial capacity,” said Meloni, arguing that when it comes to electric vehicles, the EU does not own the raw materials and does not control the value chain.

“I promise to continue to work vigorously to correct these decisions. We want to follow the path of reducing emissions … with common sense … using all available technologies … saving tens of thousands of jobs,” he said.

Those who are friends of Europe must have the courage to show what does not work,’ Meloni said, reiterating his government’s commitment to ‘fix’ these policies.

“Europe’s ambitious environmental goals must be backed by adequate investment and resources, together with a coherent plan to achieve them,” Meloni said, referring to the recent report on Europe’s competitiveness by former Italian prime minister and former European Central Bank president Mario Draghi.

He was sharply critical after Italy, Germany, and some eastern European countries such as the car parts-producing Czech Republic stepped up calls for an early and urgent review of EU car emissions rules, which would mean a ban on the sale of new internal combustion engines by 2035.

German minister: Europe loses credibility

The rules, agreed for 2023, are among the most controversial parts of the bloc’s ambitious Green Deal climate policy, with carmakers and governments of car-producing countries calling for a delay to the ban or more flexibility in the rules, including allowing the use of carbon-neutral e-fuels.

“Europe is losing credibility because it is setting targets that even it cannot meet,” German Transport Minister Volker Wissing, a member of the liberal Free Democratic Party (FDP), told a transport trade fair this week.

“While recognising that it is necessary to set targets, they must be realistic and ‘feasible in practice’,” Wissing said.

Brussels has the right to review the legislation in 2026, prompting conservative MEPs, including members of Ursula von der Leyen’s European People’s Party (EPP), to call on Brussels to use this opportunity to reconsider the ban.

Italy is even pushing for the review to be postponed until next year, as its own car industry faces a deepening crisis with falling production due to falling consumer demand for electric vehicles.

Sharp drop in car production in Italy

According to the National Automobile Industry Supply Chain Association, which represents Italy’s car and parts manufacturers, only 225,000 passenger cars were produced in Italy in the first seven months of 2024, down 35.5 per cent on the same period last year.

Speaking at a recent business forum, Italian Industry Minister Adolfo Urso said: “The Green Deal as it was conceived has failed. The European car industry is collapsing. Decisions have to be taken; we cannot wait two years,” he said.

Stellantis, Italy’s largest carmaker and the international group that owns the Fiat brand, announced last week that it was suspending production of electric Fiat 500s at its historic Turin plant for four weeks, citing weak demand.

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Wilders rejoices over unlikely Dutch EU migration opt-out request, dubs it ‘mini-Nexit’

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Geert Wilders, leader of the PVV in the Netherlands, has announced his government’s formal request to the European Commission to withdraw from the EU’s migration policy.

Geert Wilders, leader of the PVV, which came first in the recent national elections, spoke about the Dutch request during a debate in the lower house of the Dutch parliament.

“It will probably take a very long time [to be finalised]. But nevertheless it is a sign that a new wind is blowing in the Netherlands,” Wilders said, referring to Brexit and describing the move as ‘a kind of mini-Nexit’.

Wilders’ PVV party dropped calls for a “Nexit” (the Netherlands leaving the EU) in its EU election manifesto, as it did in 2019. In its manifesto for the 2023 national elections, the PVV said it wanted a binding referendum for the Dutch to decide whether to leave the European Union.

On Wednesday, Dutch Minister of Asylum and Immigration Marjolein Faber of the PVV sent an official letter to EU Home Affairs Commissioner Ylva Johansson outlining her government’s intentions.

We must once again be responsible for our own asylum policy,’ the minister wrote on X after sending the letter.

The Dutch withdrawal request had been expected since the new four-party government, led by independent Dick Schoof and including Wilders’ PVV, adopted the toughest migration programme in the country’s history.

“The exit clause from the European asylum and migration policy will be submitted to the European Commission as soon as possible,” the political agreement signed in July states.

The political coalition agreement aims to reduce migration flows, which are seen as putting pressure on the country’s health, education and housing sectors, among others.

However, the announcement of the Dutch withdrawal request surprised Brussels, which was less convinced of its feasibility.

We have of course taken note of the letter,’ a Commission spokesman told the press on Wednesday.

He added that the letter itself ‘recognises that withdrawal is only possible in the context of treaty change’.

But the Commission spokesman added that existing laws ‘remain binding on the Netherlands’ as no immediate changes to EU asylum and migration rules are expected.

This means that the Netherlands will have to work to implement the recently adopted EU Pact on Migration and Asylum, a system of ‘obligatory solidarity’ that member states must comply with within two years.

“We welcome the minister’s statement that he will continue to prioritise the implementation of the (migration) pact, which is clearly a priority for the Commission,” the Commission spokesperson added.

By the end of the year, member states will have to submit implementation plans detailing how they intend to implement the law.

According to the migration pact, EU countries can choose one of three options for asylum seekers: pay 20,000 euros for each rejected asylum seeker, house them or fund operational support.

Earlier this year, the Netherlands announced that it would pay instead of taking in more asylum seekers.

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