Germany goes to the polls on Sunday to say goodbye to Angela Merkel after 16 years at the helm of Europe’s biggest economy. The EU will have to adjust to her not being there to broker compromises, but who gets to be her successor is the wrong question, according to the Centre for European Policy Studies. A three-party coalition will weaken the role of the chancellor as parties face pressure from members and interest groups, the think tank found. A victory by the Social Democrats could see Germany become more open to a European easing of tight budget rules during the post-pandemic recovery. Green involvement in government could shift Germany’s — and the EU’s —  take on climate policies. Foreign policy could be the toughest test. Neither the SPD nor the Greens are keen on extra defense spending, even as European distrust of the U.S. is mounting. Even so, in the final election debate, the candidates insisted they wanted to make the EU more assertive internationally.

— Aoife White

What’s Happening
TTC on Track | The EU will move ahead with its first meeting of a new trade and technology council with the U.S. in Pittsburgh next week. France had been pushing for a delay, in protest of the new defense pact Washington sealed with Australia and the U.K., but President Joe Biden’s apology helped keep the planned meeting on track. “Strategic alliances are about shaping common approaches and also overcoming difficulties,” Trade Commissioner Valdis Dombrovskis tweeted late yesterday.

Gas Crunch | Russia is unlikely to send extra natural gas to the EU until November, analysts say. Gazprom’s extra output is staying at home to refill storage sites that were severely depleted by a long and cold winter, while Europe faces record-breaking prices with no relief in the immediate future. 

Solo Path | The European Central Bank is looking increasingly lonely. Central banks from Washington to London this week are signaling more alarm over faster inflation, but the ECB is maintaining its ultra-stimulative path. 

Apple Unplugged | Commissioner Thierry Breton says he doesn’t think Apple is worried about draft rules that would force iPhones to add a USB-C charging port. The EU’s industry chief told reporters that Apple Chief Executive Officer Tim Cook hasn’t mentioned it. Breton also said the EU wasn’t working against innovation but for consumers in response to U.S. Secretary of Commerce Gina Raimondo’s concerns that new EU rules to curb digital companies would harm innovation.

In Case You Missed It
Italy Offset | Italy plans to spend more than 3 billion euros to offset higher energy costs for consumers and businesses, Prime Minister Mario Draghi said yesterday. Italy wants to use revenue from the EU’s emissions trading system and avoid tax increases that could derail a fragile economic recovery. Policymakers are walking a tightrope to stoke growth and avoid inflation spikes as energy prices skyrocket. Hungary’s central bank chief labeled soaring inflation a “public enemy” that must be fought.

Fertilizer Cut | Soaring gas prices are forcing another fertilizer producer, Austria’s Borealis AG, to curtail production of ammonia in Europe. High prices for a key agricultural input risk boosting costs to make agricultural commodities and could add to global food inflation.

Poland Blinks | Parts of Poland that declared themselves LGBTQ-free zones in defiance of EU diversity policies began reversing their stance after Brussels halted as much as 126 million euros of pandemic aid. The eastern Swietokrzyskie region voted this week to revoke a 2019 declaration targeting LGBTQ “ideology.”

EIB Slammed | The EU’s in-house investment bank was criticized by EU lawmakers over its inadequate responses to questions about alleged harassment. Nineteen out of 24 alleged harassers named in complaints still work at the bank, while almost half of the alleged victims have left, the European Investment Bank told members of the European Parliament.

Chart of the Day

In Germany, the Social Democrats, the Greens and the Left Party have proposed tax hikes targeting higher-income households, as well as a continuation of the solidarity surcharge and a new wealth tax. The CDU/CSU alliance and the liberal Free Democrats are pushing tax cuts for corporations and higher earners. These calculations by Bloomberg Economics look at the likely fiscal stances of various potential coalitions.

Today’s Agenda
All times CET.

• 5 p.m. European Council President Charles Michel addresses the U.N. General Assembly in New York
• EU Vice President Frans Timmermans in Washington, meets with White House climate adviser Gina McCarthy