Brussels Edition: Brexit Catch 22

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Just as the EU was about to decide how long a Brexit delay to offer the U.K., Boris Johnson’s call for an election on Dec. 12 has upset their deliberations, and created something of a Catch 22. Opposition leader Jeremy Corbyn said he will only agree to elections if the EU first grants a comfortable extension. But the EU side is reluctant to be drawn into U.K. politics and diplomats last night were saying a decision would probably be delayed until more clarity emerges in Westminster. We’re back to who blinks first. 

What’s Happening

NATO Praise | A German idea for an internationally supervised security zone in northeastern Syria got a hearing at NATO, and won praise from the U.S. But Defense Minister Annegret Kramp-Karrenbauer’s proposal, which already provoked a frosty reaction from the German government’s junior coalition partner, faces a potentially bigger obstacle in Ankara.Green Deal | Incoming commission chief Ursula von der Leyen will use her first few weeks in office to try to enshrine climate neutrality into EU law. The initiative isn’t a surprise: zeroing out greenhouse gases  is a top priority for her as voters across Europe grow increasingly concerned about rising temperatures and extreme weather events.

Russia Beckons | Serbia will sign a trade pact with the Eurasian Economic Union — Russia’s answer to the EU — doubling down on a strategy of dual East-West allegiances as Brussels  drags its feet on expanding into the Balkans. The agreement with the Russia-backed bloc has raised alarm in the EU, and is a reminder that Western inaction leaves the door open for Russian and Chinese influence.

German Dilemma | They’re co-governing Europe’s largest nation and even control its purse strings. Nonetheless, Germany’s Social Democrats aren’t very happy. The result of a leadership race, due to be announced late Saturday, will determine the direction and even the survival of Angela Merkel’s coalition.

Week Ahead | Belgian schools are on a break next week, so not much is happening in the EU capital, apart from efforts to fill the blanks in the new Commission. On Thursday, Eurostat will release a flash estimate of third-quarter growth in the euro area, and on Friday Christine Lagarde takes over for Mario Draghi at the ECB, just as the bank starts its new bond-buying bonanza.

In Case You Missed It

Farewell Draghi | The ECB kept monetary stimulus unchanged in the final meeting of Draghi’s presidency, an eight-year period in which he managed to prevent a catastrophic breakup of the euro-zone but failed in the more basic task of meeting his inflation goal. Lagarde now faces the twin challenges of a gloomy economic outlook and a divided governing council. 

Economic Malaise | Germany’s manufacturing slump is taking a harsher toll on the jobs market, adding pressure on the government to respond with fiscal stimulus. The euro-area economy meanwhile remained on the brink of contraction as manufacturing shrank for a ninth month. That’s a worry for the ECB.Known Unknowns | As we head towards the end of 2019, it’s time to take a look at the places that may hold surprises for us next year. Here’s a list of the countries that could hold snap elections in 2020.

Budget Letters | Italy and France responded yesterday to the commission’s concerns that their 2020 spending plans risk breaking EU rules. Rome said its budget estimates are prudent while Paris credited the revision of its structural effort to “exceptional circumstances.” Even so, it’s unlikely that this year’s budget tussles with Brussels will remotely resemble the fireworks of the past.

Debt Demand | Italy has one more reason to be sanguine. According to the head of its debt agency, the country is attracting foreign investors to buy its bonds as the new government’s more conciliatory stance toward the EU should reduce risk premium further. The successful sale of inflation-linked bonds this week is further evidence of investor confidence. 

Chart of the Day

Brent crude has fallen by a fifth since April. Bloomberg Economics estimates that weak demand — linked to the impact of the trade war — accounts for 70% of the decline.

Today’s Agenda

All times CET.

10 a.m. EU diplomats meet to discuss the U.K.’s Brexit extension request EU antitrust chief Margrethe Vestager in Athens participates in the ALDE party congress in Athens NATO defense ministers continue their meeting in Brussels

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–With assistance from Michael Winfrey.

To contact the authors of this story: Viktoria Dendrinou in Brussels at [email protected] Chrysoloras in Brussels at [email protected]

To contact the editor responsible for this story: Emma Ross-Thomas at [email protected], Chad Thomas

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