European Central Bank to press ahead with digital currency

Good morning and welcome to Europe Express.

Today, the European Commission is set to start tabling parts of its green policy package dubbed ‘Fit for 55’ (a reference to the bloc’s goal of reducing greenhouse gas emissions 55 per cent by 2030, not some middle-aged exercise regime). Further pieces of the puzzle will be unveiled tomorrow, Friday and next week.

Senior EU officials were holed up in last-ditch talks over details, including convincing sceptical commissioners of the need to phase out diesel and petrol cars by 2035. The target is sealed but will be fought over by member states and MEPs. (Here is a primer on what to expect.)

Over in the capital of eurozone finance, plans for a digital euro are likely to be set in motion today. We will explore what they entail and which questions remain unanswered.

After a “good exchange” with Poland’s prime minister Mateusz Morawiecki last night, European Commission president Ursula von der Leyen is preparing legal proceedings against both Poland and Hungary over their anti-LGBTI+ legislation. We got ahold of the charge sheet and will unpack its arguments.

Last but not least, we will have a closer read of Emmanuel Macron’s speech, which was not only about getting French care workers vaccinated — it was also his first statement in the unofficial campaign for next year’s presidential election, which has definitely started.

Digital euro

Today is D-Day for the European Central Bank: decision day on the digital euro for the Frankfurt-based institution, which is almost certain to announce it will press ahead with plans to launch a digital currency, writes Martin Arnold.

The Bahamas is the only country whose central bank has issued a fully functioning digital version of its currency — the sand dollar. The ECB said it expected to spend the next two years designing and testing a digital euro, which would then take three years to launch.

But despite the long wait before the project is expected to produce tangible results, it has already managed to stir up strong opinions among proponents and critics. Here are some big questions the ECB still needs to answer:

1. What is the point of a digital euro?

   When the Financial Times put this question to Fabio Panetta, ECB executive in charge of the digital euro, he said it was a response to the rise of online payments, which has been accelerated by the Covid-19 pandemic, and a corresponding drop in the use of cash — the only means of payment directly issued by the central bank.

   Because big companies such as Facebook and countries such as China are testing digital currencies of their own, the ECB believes a digital euro could protect its monetary sovereignty by limiting use of rival means of payment. “Of course there is the potential threat that could come from others issuing a digital means of payment,” Panetta said.

2. Will it be a digital version of cash?

   That is the idea. But a digital euro will almost certainly not share all the features of cash. For instance, Panetta said the ECB was likely to cap the amount of digital euros anyone can have at about €3,000 to avoid the risk of massive transfers out of commercial bank deposits, which could destabilise the financial system in the next crisis.

   It was also unclear if users would be able to make payments anonymously — one of the distinguishing qualities of cash. Panetta said the ECB had tested offline transfers of digital euros between mobile devices using a Bluetooth connection. But he said it was not clear if it would allow such anonymous payments, even if they were capped at, say, €100, because of concerns about money laundering, terrorism finance and tax evasion.

3. Is it going to replace cash? 

   In some countries where cash is still widely used, the digital euro is viewed with suspicion. More than half of German households surveyed recently by the Bundesbank expressed scepticism about a digital euro. Frequent cash users were the most dubious. But the ECB insisted it had no plans to replace cash and in countries where online or mobile payments are becoming the norm, most people may wonder what difference a digital euro will make.

4. Will it make cross-border payments easier?

   The ECB certainly thinks so. Almost 90 per cent of the world’s central banks are working on potential digital currencies. The hope is that they can come up with a way for digital currencies to be quickly and cheaply converted. As Heike Mai, analyst at Deutsche Bank, said in a report this week: “The digital euro could be used for remittances, provided an international infrastructure for transferring digital central bank money will exist.” But the ECB is yet to decide how much access to the digital euro to allow outside the 19-country single currency bloc, which could limit its role in international payments.

Chart du jour: Big might not be better

The number of European companies represented on the list of the world’s top 20 asset managers has fallen from eight to five in the 10 years to 2019. But there may be some solace in the argument that size is not necessarily what they should be aiming for anyway. Rather, they should focus on smaller strategic deals into high-growth markets. (Read more here)

Electioneering, Macron-style

Emmanuel Macron did not just order health workers to be vaccinated against Covid-19 vaccines and put pressure on the rest of France to do the same in his pre-Bastille Day address to the nation this week.

The French president also made the first big speech of his 2022 re-election campaign, writes Victor Mallet in Paris.

The hot news from his declaration on Monday night was that carers must be vaccinated by mid-September, and that from August no adult can go to a bar or restaurant or take a flight without a “health passport”. (No surprise that Doctolib, the medical appointment booking site, was taking a record 20,000 vaccination bookings a minute immediately after Macron spoke. In a few hours, 1.3m signed up.)

But the rest of the speech was not really about the pandemic. It was about Macron’s achievements and what he plans to do next if he wins the presidential election in April next year.

With the Eiffel Tower behind him, Macron laid out his political stall. And as one might expect from the candidate who won the Elysée Palace in 2017 by being “neither right nor left”, he had something for everyone. 

In France, one should always earn a better living by working than by staying at home, which is not always the case today

For the right, he promised law and order and fiscal discipline — and no new taxes. He said he would continue economic reforms to encourage investment and reward hard work, including a delayed tightening up of the country’s generous unemployment insurance system.

For the left, Macron had appetisers too: big investments in “reshoring” industrial production to reduce dependence on imports, including a €7bn programme for the healthcare sector, as well as a further drive to train the young and retrain the long-term unemployed.

The challenge, he said, was to scale up innovation and high-tech business “to once again became a great nation of research, innovation, agriculture and industry; to reindustrialise and reconcile growth and the environment”. 

To understand how carefully Macron steered a middle path, one needs only look at what he said on the vexed matter of updating the pension system, a reform regarded by the centre-right as financially necessary and long overdue and by many on the left as an outrageous assault on the hard-earned privileges of rail workers and others with special retirement schemes. 

Macron repeated some hard truths — that the system was unfair and unsustainable and the French would have to work longer — but he softened the blow by saying that he would not launch the reform until the pandemic was under control and economic recovery assured. 

It was masterfully non-committal and presented no easy targets for his political enemies. The French election campaign is gathering pace. 

LGBTI+ discrimination

The European Commission is preparing to launch legal challenges over discriminatory policies in Hungary and Poland, two countries already at loggerheads with Brussels on multiple fronts, writes Sam Fleming in the EU capital.

According to a draft document seen by Europe Express, the commission is set to start an infringement action against Hungary over the government’s bill to ban content depicting or promoting LGBTI+ people in schools and the media. It will also take action connected to Poland’s so-called LGBT-ideology-free zones.

The actions, expected tomorrow, will open up a front in the battles between the EU and the two member states, which are accused of flouting the rule of law, media freedom and minority rights.

The move against Hungary comes at a charged moment for diplomatic relations after Prime Minister Viktor Orban was upbraided at a summit last month over the anti-LGBTI+ bill. Budapest’s recovery plan is set to be delayed for weeks as the commission pushes for tougher rule of law provisions.

The EU’s infringement action is set to warn that the bill violates the right to freedom of expression and information as well as non-discrimination. A second infringement action relates to a disclaimer imposed on a children’s book with LGBTI+ content.

The disciplinary measure against Poland relates to resolutions adopted by dozens of municipalities declaring themselves free from “LGBT ideology”. The commission’s infringement action is expected to relate to Poland’s refusal to respond fully to information requests as Brussels assessed the compatibility of the zones with anti-discrimination laws.

What to watch today

1. The European Commission starts tabling the ‘Fit for 55’ package of green policies

2. The EU’s General Court rules on whether the Netherlands’ sweetheart tax deal with Nike and Converse constituted illegal state aid. Separately, the court will rule on another Ryanair challenge on state aid received by an Austrian airline

3. Poland’s Constitutional Tribunal holds a hearing on whether the EU’s top court can order a rollback of the country’s judicial reforms (the verdict could be delayed until later this week)

Notable, Quotable

In Italy, we have a motto, taken from the Romans, that is: justice delayed is a denial of justice

• Speeding up justice: One of the hardest reforms for Italy’s prime minister Mario Draghi to tackle is improving Italy’s legal process, which is among the slowest in Europe. The average Italian civil law case takes more than 500 days to be resolved in the first instance, vs an average of about 200 days in Germany.

• Yes to Yellen: US Treasury secretary Janet Yellen said that holdouts to the international agreement on corporate taxation “want to find a way to get to yes” after meeting her European counterparts in Brussels.

• Merkel to DC: As Angela Merkel gears up for what is likely to be her last trip to the US as Germany’s chancellor, one of the main issues of contention between Berlin and Washington is the Nord Stream 2 pipeline. Insiders hope Merkel and Biden can hammer out a package to address concerns raised by Ukraine.

• US lead on Xinjiang: The US government yesterday published an updated guidance laying out the legal risks for businesses with suppliers in China’s Xinjiang region. The US legislation to ban imports resulting from forced labour in China could serve as a model for measures for European companies, said Reinhard Bütikofer, the European parliament’s point-man on China relations. (More from the FT here.)

Recommended newsletters for you