Brussels Edition: Tremors From Thuringia

(Bloomberg) -- Welcome to the Brussels Edition, Bloomberg’s daily briefing on what matters most in the heart of the European Union.

A week after the EU waved goodbye to Britain, its biggest and most enthusiastic member is in trouble. The far right is on the ascent, the governing coalition in perpetual disarray, Angela Merkel’s heir-apparent is failing to inspire confidence, and the economy is mired in the doldrums. The timing couldn’t be worse for Brussels. The bloc is looking to Berlin for leadership in order to agree on its next trillion-euro budget, and Germany will have to manage the real Brexit, possibly without a deal, when it holds the rotating presidency of the EU in the second half of this year. And if Germany’s climate policy is any guide, the throne of leadership may be empty. 

What’s Happening

No Room | Christine Lagarde told European lawmakers that they shouldn’t count on the ECB to carry any more water, as the scope for central banks to ease monetary policy in a downturn has diminished. Lagarde reiterated her call to governments (read: Germany) to loosen their purse strings, another message which has fallen on deaf ears in Berlin. 

Week Ahead | Lagarde will be speaking at the European Parliament in Strasbourg again on Tuesday, while on Thursday we expect the official estimate of where the economy stands when the EU Commission releases its quarterly economic forecasts. NATO defense ministers gather in Brussels before they head to Munich for the annual Security Conference, but the highlight of the week may be the hearing at the EU Court in Luxembourg in Google’s appeal against its record antitrust fines

Gently Left | As Ireland heads to elections tomorrow, the sweeping tides of change may herald the beginning of the end for the civil war politics that shaped the nation’s two dominant tribes, separated by little except where they stood on the division of Ireland almost a century ago. The change voters are longing for, however, may not come just yet.

Pollution Cost | The cost of spewing greenhouse gases into the atmosphere is likely to rise close to a record this year in Europe as policy makers step up efforts to curb the pollution causing climate change. Higher carbon costs have already pushed electricity generators to switch off coal plants and use natural gas more of the time. 

In Case You Missed It

EWG Chief | Finnish Finance Ministry official Tuomas Saarenheimo was elected new president of the EWG, a powerful body of mandarins that prepare decisions for euro-area finance ministers. Unlike the glory days when Thomas Wieser ruled these lands as head of the EWG, the currency bloc appears unable to make any decisions to speak of these days. 

Russian Warning | Russian President Vladimir Putin’s top adviser on climate change warned big businesses that they need to start preparing for harsher carbon regulations from the EU. The bloc’s proposal to introduce border levies on products arriving from countries with looser environmental rules could come into force within the next two years. 

Cambodian Tariffs | The EU is poised to make good on a threat to impose trade sanctions against Cambodia as a result of alleged human-rights violations. We’re told the European Commission intends to decide on Wednesday to suspend a policy that lets Cambodia export all goods except weapons duty-free and quota-free to the bloc.

Balkan Aspirations | The EU urged Balkan nations that are trying to win membership to stay on track even as the bloc reconfigures the conditions they must meet before joining. French President Emmanuel Macron has roiled politics in the six countries with his resistance to further enlargement and insistence that the EU change the way it brings in new members.

Valentine’s Proposals | If you haven’t yet lifted a finger for your significant other this Valentine’s Day, there’s still time. And since it falls on a Friday this year, we have the perfect suggestions for weekend escapes, whether you’re reading us here in Europe or from Asia or the U.S.

Chart of the Day

Brussels Edition: Tremors From Thuringia

The ECB will leave no stone unturned in its quest to explain the stubborn weakness of inflation — all that pebble flipping will take about a year. Until the results of its far-reaching strategic review are published, the ECB will remain focused on its preferred gauges of underlying cost pressure. Bloomberg Economics has replicated four of them and sees signs of cost pressure building.

Today’s Agenda

All times CET.

  • 10 a.m. Leadership meeting of Germany’s ruling CDU party over Thuringia fallout

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