On the sidelines of the Group of 20 summit last month, German Chancellor Angela Merkel warned her likely successor that the coronavirus pandemic might again require tougher curbs. But Olaf Scholz brushed aside the proposal, and Germany’s now suffering for it. Here’s our account of how a lack of leadership in Europe’s largest economy paved the way for another wave of the virus and threatens to cloud the start of Scholz’s tenure. Late last night, Merkel held an emergency meeting with Scholz and other leaders of the potential ruling coalition to discuss next steps, with nothing to show for it so far. In a similar haphazard fashion, leaders across the EU are scrambling to come to grips with the renewed spread of Covid-19. European affairs ministers meeting in Brussels yesterday called for rules as common as possible on booster shots and digital certificates, but stopped short of specifics, an EU diplomat told us. And Germany’s vaccine campaign is rattling back to life, with many snapping up online appointments for shots and others enduring hours of lines in the cold

What’s Happening
Inflation Risks | In interviews with us, the ECB’s markets chief Isabel Schnabel and Dutch National Bank Governor Klaas Knot urged an end to emergency stimulus, highlighting inflation risks while insisting the recovery can weather new pandemic restrictions. Meanwhile, ECB Vice President Luis de Guindos said in a speech in Madrid that the factors stoking inflation are becoming more structural and simultaneously affecting economic growth.

Target Travel | The EU proposed a new legal tool to target travel and transportation companies that help smuggle people into the bloc, in an effort to prevent Belarus and other border countries from using irregular migration as a threat. Transport operators could face suspended licenses, limits on their European operations and a freeze on transiting through the EU.

Tech Rules | The European Parliament’s lead committee for writing new tech rules passed measures that could impact major U.S. and European companies. The draft Digital Markets Act could mean a ban on behavioral targeting of ads to minors, and fines of as much as 20% of a company’s global annual sales for breaches of the law.

Stronger Sanchez | Spanish Prime Minister Pedro Sanchez secured enough votes to pass his budget for next year. It’s a major win that cements political stability as he tries to bolster an economy slowly emerging from the pandemic. 

No Game | There was some plain speaking from German Deputy Foreign Minister Michael Roth on the post-Brexit wrangle over the Northern Ireland Protocol. “Dear friends in London and in Britain, please come to your senses,” Roth said before talks with EU counterparts. He got some backing from Britain’s biggest business lobby group, which urged Boris Johnson’s government to make peace with the EU on the issue.

In Case You Missed It
Buyout Barons | Europe’s biggest telecommunications companies are finally abandoning their deal-making hesitancy. They may be too late to beat the kingpins of private equity. KKR has proposed a 10.8 billion-euro buyout of Telecom Italia in what would be one of the biggest private equity takeovers of a phone company ever.

Ship Sanctioned | The U.S. imposed sanctions on a ship involved in the construction of the Nord Stream 2 gas pipeline as the Biden administration looks to exert more pressure on Russia without antagonizing Germany. In a report sent to Congress, the administration designated Transadria, a Cyprus-based entity believed to be a Russian shell company, over pipeline work done by one of its ships. 

China M&A | Chinese deal-making in Europe fell sharply in the last two years, according to a Commission report. China’s merger and acquisition transactions fell 63% in 2020 from the previous year and made up just 2.5% of all deals, compared with 4% the previous year. While 24 nations either have rules in place or are working on them, three EU states — Bulgaria, Croatia and Cyprus — haven’t announced any legislation to scrutinize outside investments.

Erdogan’s Mantra | The Turkish lira’s freefall shattered records as President Recep Tayyip Erdogan’s intensifying campaign for lower interest rates plunges the country deeper into crisis, triggering an unscheduled meeting between the president and his central bank chief. The latest collapse in the currency came after Erdogan defended his demands for lower borrowing costs that have driven up prices and frustrated investors. 

Chart of the Day

Today’s Agenda
All times CET.

9 a.m. European Parliament plenary session debates COP26 outcome
12 p.m. Belarus opposition figure Sviatlana Tsikhanouskaya addresses European Parliament
1 p.m. Commissioners Valdis Dombrovskis, Paolo Gentiloni and Nicolas Schmit hold a news conference on European Semester autumn package
Health Commissioner Stella Kyriakides holds a video conference with representatives of the EU Scientific Advice Platform on Covid