The likelihood of a recession in Europe is continuing to rise, something EU finance ministers will discuss next Monday and Tuesday. In the short term, the euro area will experience zero or negative growth with high inflation, a senior EU official admitted yesterday. We’ll learn more about the extent of the slowdown next Friday, when the Commission update its economic forecast for 2023. Against this difficult backdrop, the EU’s executive arm will also put forward proposals next week to give more leeway to member states to cut their public debt but will require stricter enforcement of their fiscal commitments.

— Jorge Valero

What's Happening

Countering Chaos | Chinese President Xi Jinping told German Chancellor Olaf Scholz their nations should unite for peace in a “chaotic” world, a call for closer ties that comes as tensions rise between Brussels and Beijing. The two leaders met in Beijing this morning ahead of their first in-person talks since Scholz took office, the official Xinhua News Agency reported. 

Seizing Assets | The EU is studying the feasibility of using billions of euros worth of Russian central bank assets already frozen by member states to help with Ukraine’s reconstruction efforts, we’re told. The discussions are at an early stage and experts have been recently tasked to look into options. Any EU action would focus on assets held in the bloc although there were discussions with the US Administration.

No Hurry | The bloc is considering once again delaying the release of €3 billion to Ukraine to early next year, EU officials said, a decision that would add to the financial strains of the war-torn country. Disagreements inside the Commission over a new instrument to provide €18 billion to Kyiv in 2023 could postpone its presentation initially scheduled for next week.

Still Waiting | Turkey is unlikely to sign off on Sweden’s bid for NATO membership before the end of the year, and even the chances of this happening before Turkish elections due next year are slim, we’re told. Sweden hasn’t done enough to meet Ankara’s demands and the Turkish parliament’s agenda is full for the rest of the year.

Carbon Certificates | The Commission will propose later this month a certification system to make sure that efforts to remove carbon dioxide from the atmosphere do what they say. The focus is on make sure CO2 is stored for a long time, while also ensuring that they would not have already been taken out by existing forests or technological solutions. You'll have to wait, though, for specifics on what exactly will qualify.

In Case You Missed It

Holding Fire | EU member states will hold off on seeking a compromise on a controversial gas price-cap mechanism until a technical seminar on the issue takes place next week. The Czech presidency has drawn up its first compromise on the latest emergency package covering joint gas purchases and a complementary market benchmark ahead of a targeted agreement later this month, but the price cap remains politically sensitive.

Moving Ahead | ECB President Christine Lagarde warned that a “mild recession” is possible but that it wouldn’t be sufficient in itself to stem soaring prices. While a contraction isn’t her “baseline” scenario, Lagarde’s Latvian colleague, Martins Kazaks, said he expects one in the coming months. Executive Board member Fabio Panetta, meanwhile, warned about the economic risks of rapid rate increases.

Meloni’s visit | EU partners felt reassured by the Italian government’s commitment to play by the rules as new Prime Minister Giorgia Meloni visited Brussels to meet with the presidents of the EU institutions and Commissioner Paolo Gentiloni. She discussed support for Ukraine, where she is fully aligned with her European partners, the energy crisis and Italy’s recovery plan. She was invited to address the European Parliament plenary. 

Bigger Shock | Russia’s attack on Ukraine and the supply-chain turmoil have had a bigger impact on real incomes than the energy crisis of four decades ago, Bank of England Governor Andrew Bailey said yesterday. His remarks underscore why the UK central bank is signaling a more cautious approach toward raising interest rates than the Federal Reserve in the US.

Enemy Next Door | Against a backdrop of half a dozen red-and-white Polish flags, Jaroslaw Kaczynski didn’t take long to rouse supporters against what he said was the gravest threat to their country’s future. But rather than Russia, Poland’s most powerful politician laid into EU ally Germany, the ruling party’s latest convenient enemy. 

Chart of the Day

Europe faces a supply gap next year of as much as 30 billion cubic meters of gas if Russian pipeline flows halt and demand from China rebounds, the IEA said in a report yesterday. The agency repeated its call for measures to bring down gas demand to ease the energy crisis. The outlook echoes industry concerns that next winter will be more challenging than this one because of the longer period with less gas from Russia. 

Today’s Agenda

• Commission President Ursula von der Leyen meets Lithuanian Prime Minister Ingrida Simonyte, International Energy Agency director Fatih Birol
• EU foreign policy chief Josep Borrell participates in G-7 foreign ministers meeting in Berlin