Summary

Gergely defined four major risks in Europe. These were the Presidential elections in Italy, Russia and Ukraine, the French elections and fiscal policy in Europe. In terms of timing, the immediate risk is Italy - even though Draghi’s chances are increasing somewhat, he is unlikely to become President. If he remains PM his position is weakened and if he becomes President, against the odds, the PM will be weakened. Overall, there is a low probability the government fails. On Russia, there is a French led diplomatic effort to allow Russia to deescalate tensions with Ukraine. These look unlikely to work. Gergely is watching Brussels to see if there is the political appetite for a credible sanction plan.

Regarding the French elections, Forefronts base case is Zemmour will get the 500 signatures required to stay in the race resulting in one of Zemmour, Le Pen or Pecresse making the second round and one more period of volatility in France.

Hugo tackled inflation and identified the energy crises as accountable for half the inflation levels in Europe, however consumers are not yet feeling the pinch as governments are absorbing much of the cost themselves through national budgets. A consequence being the possibility of introducing windfall taxes on energy producers.

Hugo believes government policy will contribute to entrenched inflation and gave public sector pay increases as an example. At the same time, high levels of post pandemic public spending are expected. In addition, coordination between fiscal and monetary policies is expected to come under strain together with the drive to address inequality and gender pay gaps will add to inflationary forces and are both inflationary.  Potentially reform in the fiscal rules will add to inflationary pressures also.

James base case on the Grey report is it will trigger a vote of no confidence which Johnson wills lose. Forefront estimate there are already the 34 letters. The threshold to trigger a vote is 54. Unsettled policy issues include the Northern Ireland protocol, National Insurance increase, and the energy cap., Johnson’s project, which is socially to the right and economically to the left, ends with his demise. In its place will be more akin to traditional Tory perspective i.e. fiscally more hawkish and economically less interventionist. A by-product of which is likely serious questions over the pace to achieve net zero. Regarding the NI protocol, there is every possibility that article 16 could be triggered.

James finished by outlining some aspects pertaining to central bank digital currencies. The UK and Europe will introduce legislation on Crypto with the first target being stable coins as they act as the bridge between fiat and Crypto. Stable coins can threaten central banks’ monopoly over currency and different conclusions and regulations on crypto will be introduced around the world. There is also the possibility the EU will ban any stable coins that are not pegged to the Euro. Stable coin regulations could be highly divergent around the world.

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