Brussels Edition: Stagflation menace

Welcome to the Brussels Edition, Bloomberg’s daily briefing on what matters most in the heart of the European Union.

Group of Seven finance chiefs and central bank governors wrap up a meeting near Bonn today, with Ukraine very much front and center. German Finance Minister Christian Lindner, who is chairing talks with his G-7 peers this year, yesterday pledged 1 billion euros in grants to provide short-term liquidity to the government in Kyiv. The war has already had broad economic ramifications, with the threat of stagflation a mounting headache for policy makers. G-7 leaders will gather for a summit in Bavaria, Germany at the end of June, where a bigger aid package for Ukraine will be decided.

— Alessandra Migliaccio and  Kevin Whitelaw

What’s Happening

Fiscal Freeze | The EU will delay restoring rules limiting deficits and debt by another year to allow room for generous spending by member states to address the fallout from the war. That would extend a suspension of the budget rules — enshrined in the Stability and Growth Pact — until the end of 2023.

Gas Deal | EU lawmakers and countries reached a deal to set a minimum natural-gas storage level before winter, to try to avoid an energy crunch resulting from a potential halt in Russian supplies. It sets member states a minimum target of getting facilities 80% full this winter, something the two sides hope will help mitigate the kind of extreme price swings that have hit the pockets of consumers this year.

Battling Brexit | Member states are gearing up to consider suspending the bloc’s trade agreement with the UK if London takes concrete action to override parts of the Brexit deal. After a briefing by chief Brexit negotiator Maros Sefcovic, EU envoys strongly backed the commission’s approach of trying to strike a balance between not provoking the UK while preparing painful consequences if London moves ahead, we’re told.

Muddled Defense | Olaf Scholz urged Europe to coordinate defense policies more closely to shore up the region’s security. The German chancellor said Europe needs greater cross-border cooperation on defense systems and among weapons manufacturers, but stopped short of backing Emmanuel Macron’s call for a European army. At home, Scholz’s landmark defense-spending package has been delayed.

Reforms Needed | While pledging help with rebuilding after the war, Commission President Ursula von der Leyen linked Ukraine’s possible future membership of the EU to progress in areas like rule of law and tackling corruption. “It makes sense to work with Ukraine where we say yes to investment but together with the necessary reforms,” von der Leyen said late yesterday in an interview with German television. “Ukraine wants that too.”

In Case You Missed It

Staffing Banks | The ECB said global lenders who set up units in the euro area after Brexit are still too dependent on operations outside the region, a conclusion that may lead some banks to move more staff into the bloc. The bank found that 21% of 264 trading desks it reviewed “warranted targeted supervisory action,” according to a blog post.

WhatsApp Business | Deutsche Bank is among a number of investment banks included in a sweeping probe by US regulators to find out how much employees rely on private communication channels such as WhatsApp to conduct business. Use of private communication tools has come under increased scrutiny since US regulators in December slapped $200 million in fines on JPMorgan for failing to keep adequate records of staff messages.

Climate Concessions | A group of the world’s richest nations offered South Africa debt guarantees as part of a proposed $8.5 billion deal to cut the nation’s reliance on coal for power generation, potentially resolving one sticking point in the negotiations. The plan is being funded by the US, the UK, Germany, France and the EU and is seen as a model to decarbonize other carbon-intensive middle-income countries.

Defending Nordics | President Joe Biden offered his “strong support” for Finland and Sweden’s bids to join NATO, in the face of opposition from Turkey. “They meet every NATO requirement and then some,” he said, without addressing how the alliance would be able to persuade Turkey to let the accession progress begin.

Chart of the Day

On a Dublin backstreet, behind a Georgian townhouse where the Irish Red Cross is raising funds for Ukraine, a little-known firm quietly helped to keep Russia’s global money engine ticking in recent years. Cafico International set up shell companies for some of the country’s biggest businesses, providing directors and accounts. Its clients were corporations linked to Vladimir Putin’s regime including VTB Bank and Russian Railways, industrial powerhouses tied to oligarchs. But the full-scale invasion of Ukraine upended the business and there’s also a spotlight on Ireland’s role in facilitating it.

Today’s Agenda

  • 11:30 a.m. EU Council President Michel and Albanian President Rama news conference in Tirana
  • 2:30 p.m. EU foreign policy chief Borrell news conference after EU development ministers meeting
  • 3 p.m. German Chancellor Scholz news conference with the Emir of Qatar after talks in Berlin
  • Budget Commissioner Hahn meets Croatia Prime Minister Plenkovic
  • Health Commissioner Kyriakides attends meeting of G-7 health ministers in Berlin

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