EU, Indonesia strike political agreement to advance free trade deal
"There's a lot of untouched potential in our trade relationship and therefore this agreement comes at the right time because the new agreement will open new markets", von der Leyen said at a press conference with Indonesian President Prabowo Subianto.
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Times
36 minutes ago
- Times
Europe needs faster economic growth, not an unnecessary trade war
Having been in Paris for a few days — not a state visit, although I did see some of the Bastille Day military parade — I thought it was time to write about Europe's economy. Judging by the crowds flocking to see an excellent exhibition by one of our most successful exporters, the artist David Hockney, the entente cordiale is in pretty good shape. Anyway, there are two reasons for writing about Europe's economy. The first is the euro and the eurozone economy, which continue to defy predictions of impending disaster. The second is to counter some high-profile nonsense about the wider European Union economy. It is little more than ten years since the euro went through the darkest hours in its short history: the eurozone crisis that almost resulted in 'Grexit', Greece's departure, with widespread predictions that Italy would also soon follow it out of the door. Marine Le Pen, leader of France's populist National Front, now called National Rally, then favoured 'Frexit' from the euro and the EU, although does not now. • EU has few cards with Donald Trump, and it's bad at playing them The euro survived, has been strong recently, and a few days ago it was announced that on January 1 next year it will add its 21st member, Bulgaria. Founded at the start of 1999 with 11 members — Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain — its most recent new member was Croatia two years ago. It joined other later members, namely Greece, Slovenia, Cyprus, Malta, Slovakia, Estonia, Latvia and Lithuania. It is an academic question now, but I was always strongly against the UK joining the euro, even though it was one of the hottest topics in British politics 20 years ago. The late Eddie George, Lord George, the former Bank of England governor, put it well when he said that we would have been the elephant in the rowing boat, risking capsizing both it and us. Our two previous flirtations with European currency arrangements, the 'snake' in the early 1970s and the European exchange rate mechanism (ERM) in the early 1990s, had both ended in disaster. For countries that joined and stuck with the euro, apart from convenience, membership has brought wider credibility benefits, lowering the cost of government borrowing. Against 10-year UK gilt yields approaching 4.6 per cent, their eurozone equivalents are in a range of 2.69 per cent (Germany) to 3.55 per cent (Italy). New eurozone members have bought into that credibility. Croatian 10-year government bond yields are around 3.15 per cent. Our government would love to be able to borrow that cheaply. • Strength of sterling offers holidaymakers alternatives to America The eurozone is always associated with slow growth and has recently been dragged down by very weak growth in Germany, although that may now be changing. Despite this, the eurozone has comfortably outgrown the UK since the EU referendum in 2016 and formal Brexit on January 31, 2020. It is on this growth point that a corrective is due. A few days ago, Jamie Dimon, chief executive of JP Morgan Chase, one of the most influential men in finance, was blunt, telling a conference in Dublin that the EU's gross domestic product had slumped from 90 per cent of US GDP to just 65 per cent in the past ten to 15 years. 'That's not a good sign. You are losing,' he said. While Dimon had some good points to make in his speech, highlighting the EU's lack of enough global-scale companies and the need to complete the EU's single market in services, particularly financial services, this was a schoolboy error. What he was describing was an exchange rate effect. Fifteen or so years ago, during and after the financial crisis, the euro was a lot stronger against the dollar, reaching a peak of nearly $1.60. Converting the EU's GDP, measured in euros, to dollars thus gave a high figure. The euro's subsequent drop against the dollar — it briefly fell below parity last year and is currently around $1.17 — thus explains most of the fall in EU GDP measured in dollar terms. • EU GDP driven by surge in Irish economy Fortunately, economists have a way of dealing with this obvious distortion, adjusting exchange rates for what is known as purchasing power parity, which takes into account different price levels. On this basis, according to World Bank data, the EU's GDP was 97 per cent of that of America in 2010 and 96 per cent last year. A better measure, GDP in purchasing power parity adjusted also for inflation, probably gives a fairer picture. Measured this way, the EU's GDP was slightly bigger than that of America through the 2010s but a crossover occurred in 2020, when the UK left. Last year, the EU's GDP was 95 per cent of that of the US. Although proper comparisons show the EU in a better light, this leaves no room for complacency. The EU's population is roughly 450 million, compared with 333 million for the US. EU per capita GDP, properly measured, is about 72 per cent of America's, with the UK slightly below the EU average. Within the EU, only Luxembourg and Ireland exceed US per capita GDP, each for special and somewhat distorted reasons, though Denmark and the Netherlands also come close. When it comes to growth, America has done well in recent years, pulling away during Joe Biden's presidency and the pandemic and Russia invasion, growing more than twice as fast as the eurozone and three times as fast as the UK since late 2019. Latest figures suggest that growth is just about holding up in the EU but it faces the potential wrecking ball of Donald Trump's 30 per cent tariffs and is threatening to retaliate, which would harm European consumers. There is no justification, of course, for Trump's tariffs. The EU's overall trade surplus with the US last year, taking account of goods and services, was a modest €50 billion (£43 billion), less than 3 per cent of bilateral trade. Markets think the US president's bark is worse than his bite and that recent experience suggests he will chicken out on tariffs. Political leaders cannot, however, rely on that. Europe needs faster growth, not a growth-sapping trade war. David Smith is Economics Editor of The Sunday Times
The Guardian
37 minutes ago
- The Guardian
Europe gives Iran deadline to contain nuclear programme or see sanctions reinstated
The EU will start the process of reinstating UN sanctions on Iran from 29 August if Tehran has made no progress by then on containing its nuclear programme, the bloc has announced. Speaking at a meeting of his EU counterparts, the French foreign minister, Jean-Noël Barrot, said: 'France and its partners are … justified in reapplying global embargos on arms, banks and nuclear equipment that were lifted 10 years ago. Without a firm, tangible and verifiable commitment from Iran, we will do so by the end of August at the latest.' Europeans have been largely elbowed aside from the Iranian nuclear issue by Donald Trump, who ordered the bombing of Iran's nuclear sites last month, and this intervention can be seen as an attempt to reassert Europe's influence. The end of August deadline starts a process that could see an armoury of sanctions reimposed by 15 October, giving European signatories to the 2015 nuclear deal – the UK, France and Germany – a continuing lever in negotiations with Iran. The European powers want to see the return of the UN nuclear inspectorate to Iran in part to prevent Iran trying to reconfigure its nuclear programme after the damage inflicted by the US strikes in June. The way in which the 2015 nuclear deal was negotiated does not allow the other signatories, China or Russia, to veto the sanctions snapback, but the European states can defer the imposition of snapback beyond October to allow time for further consultation. The US, after leaving the nuclear deal in 2018, also cannot veto the UK or French move. The sanctions snapback would be triggered under chapter V11 of the UN charter, making the reinstatement of six UN resolutions mandatory, including one that requires Iran to suspend all activities related to uranium enrichment and reprocessing, including at the research and development level. Another reimposed resolution would require all UN member states to prevent the transfer of any items, materials or technologies that could serve these activities or Iran's missile programme. Iranian sanctions experts claim the reinstated resolutions would not automatically halt all Iranian oil exports, cut off Iran's access to international financial systems, or cut off general trade communications. But all countries and international financial institutions would have to refrain from providing financial assistance, new commitments, or preferential loans to the Iranian government, except for humanitarian and development purposes. Abbas Araghchi, the Iranian foreign minister, has said recently the activation of snapback 'will mean the end of Europe's role in the Iranian nuclear issue and may be the darkest point in the history of Iran's relations with the three European countries; a point that may never be repaired.' He said: 'It would mark the end of Europe's role as a mediator between Iran and the US.' He told diplomats at the weekend 'One of the big mistakes of the Europeans is that they think that the 'snapback' tool in their hands gives them the power to act on the Iranian nuclear issue; while this is a completely wrong perception. If these countries move towards snapback, they will make the resolution of the Iranian nuclear issue even more complicated and difficult.'
The Guardian
an hour ago
- The Guardian
French PM may scrap two public holidays to reduce country's crippling debt
France's prime minister, François Bayrou, has proposed scrapping two public holidays as part of radical measures aimed at reducing the country's ballooning deficit, boosting its economy and preventing it being 'crushed' by debt. Outlining the 2026 budget on Tuesday, Bayrou suggested Easter Monday and 8 May could become normal workdays – although he said he was open to other options. May 8th is currently when France commemorates Victory Day, marking the end of the second world war. The centrist prime minister said: 'The entire nation has to work more so that the activity of the country as a whole increases, and so that France's situation improves. Everyone will have to contribute to the effort.' France is under pressure to bring its public deficit, running at 5.8% of GDP, under the 3% figure required by EU rules, and to rein in €3.3tn of public debt – on which the annual interest, of €60bn, could soon become its biggest budget outlay. The debt mountain represented a 'mortal danger' for a country 'on a cliff edge' and 'still addicted to public spending', Bayrou said, outlining steps he said would cut €43.8bn from the budget, reducing the deficit to 4.6% next year and 3% by 2029. Other measures would include an across-the-board freeze on government spending except for debt servicing and the defence sector, which President Emmanuel Macron demanded should be increased by €3.5bn next year and more in 2027. The budget squeeze will also entail keeping pensions at their 2025 level, capping welfare spending and reducing healthcare expenditure by €5bn. Civil service and government agency salaries would be frozen and public sector job numbers cut. The move to scrap public holidays is likely to meet strong resistance, although France has previously discussed combining VE Day with Armistice Day on 11 November, creating a single memorial day for the victims of the first and second world wars. 'Cancelling two holidays is a direct attack on our history, our roots and on working France,' said Jordan Bardella of the far-right National Rally (RN), the largest single party in parliament. 'No RN MP will accept a measure that amounts to provocation.' Other party leaders were equally damning. The proposals were 'an organised hold-up', said Fabien Roussel of the French Communist party. Jean-Luc Mélenchon of the radical left LFI said it was 'time to expel Bayrou' and 'end this destruction, these injustices'. A Socialist party MP, Boris Vallaud, condemned it as 'a brutal and unacceptable budget'. He added: 'Asking always more from those who have little, and so little from those who have much, is neither serious, effective, nor just.' Macron's decision to call a snap election last year delivered a hung parliament in which Bayrou does not have enough votes to pass a budget without the support of the left or the right, both of which oppose his proposals for different reasons. Without an agreement, the veteran prime minister could face a no-confidence motion similar to the one that toppled his predecessor, Michel Barnier, as early as October, when his detailed budget bill is due to go before to parliament.
