NUNZIUM

News That Matters

28/11/2023 ---- 30/11/2023

On a brisk December morning in Brussels, amidst the cacophony of a traffic jam, a significant shift is underway. The European Union (EU) is preparing to enforce new pollution regulations for combustion engine vehicles, a journey proving more complex than initially anticipated.

The proposed "Euro 7" law, aimed at tightening pollutant limits for combustion engine cars, was initially touted by the European Commission as a significant health benefit outweighing its costs. However, on November 9, legislators voted to soften and postpone some of these regulations. While the proposed restrictions on nitrous oxides, particulate matter, and carbon monoxide for cars were preserved, the rules for trucks were relaxed and their implementation delayed by three years.

This decision has ignited a passionate debate. Green lawmakers argue that this is a missed opportunity to curb the approximately 70,000 premature deaths per year in Europe due to vehicular pollution. Conversely, car manufacturers and nations such as Italy and the Czech Republic contend that the original Euro 7 regulations were too expensive. They propose a more prudent investment would be in the production of electric vehicles (EVs), particularly in light of the EU's 2035 deadline to cease sales of new CO2-emitting cars.

Across the Atlantic, the EV transition is gathering pace. Despite resistance in some states like Connecticut to plans to stop the sale of new gas-powered cars by 2035, others, such as California and Washington, have established target dates for majority zero-emissions vehicle sales. In 2023, U.S. EV sales are projected to reach a record 9% of all passenger vehicles, with over a million EVs expected to be sold in a single year for the first time. However, this growth is overshadowed by countries such as China, Germany, and Norway, where EVs accounted for 33%, 35%, and a remarkable 90% of sales, respectively, in the first half of 2023.

The path to extensive EV adoption, however, is not without obstacles. A recent U.S. survey revealed that new EVs had 79% more issues than gasoline-powered cars, primarily due to charging and battery problems. High initial costs and unreliable or inaccessible public charging infrastructure remain substantial hurdles for potential EV purchasers.

In Europe, the European Commission is urging major eurozone nations to roll back energy tax reductions implemented following the Ukraine war. These measures, including decreasing value-added tax on domestic gas supplies and reducing electricity taxes, were designed to mitigate the rising cost of living. However, the Commission recommends these be temporary, cautioning that prolonged support could result in reckless expenditure and potential fines.

In conclusion, the transition from combustion engines to cleaner alternatives is a complex journey filled with intricate negotiations, economic considerations, and technological challenges. Despite these hurdles, the end goal—a world with cleaner air, fewer pollution-related premature deaths, and a more sustainable future—is unquestionably worth the effort. As the traffic in Brussels begins to thin, the hope is that the route to greener transport will similarly become less obstructed.

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Europe's largest economy, Germany, is currently in the throes of a financial crisis that threatens to destabilize its economic stability and growth trajectory. This crisis has been triggered by a recent ruling by Germany's top court blocking the reallocation of approximately €60 billion of unused Covid-19 pandemic debt to climate and transformation projects. This decision has resulted in a spending freeze on new expenditures, particularly those related to green initiatives, throwing the country's budget into disarray.

The root of this financial predicament is Germany's debt brake policy, established in 2009. This policy caps the country's structural budget deficit at roughly 0.35% of its gross domestic product (GDP). While the debt brake can be temporarily lifted during times of exceptional need, its inflexibility has been criticized for hindering Germany's ability to borrow enough to invest in key industries when most needed. This constraint could potentially dampen Germany's competitiveness in the global market, especially considering its sluggish growth and weak demand.

The recent court ruling not only disrupts Germany's progress towards its 2030 emissions and 2045 net-zero targets but also poses a risk to the stability of the current three-way coalition government. The ruling has delayed the 2024 budget announcement plans of Chancellor Olaf Scholz’s coalition government, with the effects possibly extending to financial plans until 2027 due to the €60 billion cut.

Germany's economy is showing signs of strain, as evidenced by the contraction of GDP on 24 November and the shrinking manufacturing sector. The Purchasing Managers’ Index (PMI) for Germany stood at 47.1 in November, marking the fifth consecutive month of contraction. The construction sector, which contributes 6% to Germany’s GDP, is also facing challenges with falling orders and declining affordability.

The Organisation for Economic Co-operation and Development (OECD) raised a red flag on 23 November, warning that Germany's budget crisis could hinder the European economy in the coming years. The German Council of Economic Experts forecasts a mild recovery in 2024, but future economic conditions remain contingent on changes in central bank policies or global economic sentiment.

In response to the court ruling, the German government has temporarily suspended the "debt brake" for this year's budget. This suspension, coupled with the cancellation of 60 billion euros of fiscal spending, is expected to have a long-term negative impact on the economy due to austerity measures, prolonged uncertainty, and potentially reduced public investment.

To regain control of the budget, the government is considering measures such as increased taxes on carbon and inheritance, and cuts to subsidies. These measures, however, could affect growth next year and create uncertainty for businesses regarding public aid for the energy crisis and climate transition, potentially leading to lower private investment.

Despite these challenges, Germany remains committed to green initiatives and industry support. The coalition is exploring solutions to preserve as many spending pledges as possible and make them legally compliant. These include drafting a supplementary budget for 2023 and temporarily suspending Germany's self-imposed debt brake before reinstating it next year.

In essence, Germany's current budget crisis is a multifaceted issue that demands careful navigation. The decisions made now will have far-reaching impacts on the country's future economic stability and growth trajectory. As Germany steers through this financial storm, the world watches with cautious optimism, hopeful that Europe's largest economy can weather the storm and emerge stronger on the other side.

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