• Eurozone inflation edged down to 8.5% year-on-year in February from 8.6% in the previous month, preliminary figures from Eurostat showed on Thursday. However, a surge in the so-called core inflation –which excludes volatile food and energy prices– to a record-high reading of 5.6% from 5.3% in January reinforced suggestions that price growth could be more sticky than feared and bolstering bets for more oversized ECB rate hikes this spring.

^{via FT}

• Zoom in: Nearly all the drop in the headline measure came from lower energy costs, while prices for most other items –including food, services, and durable goods– climbed again.

• ECB President Christine Lagarde said on Thursday that interest-rate increases may need to persist beyond a planned half-point move in their next meeting. The comment confirmed expectations that policymakers have already flagged a 50-basis-point hike on March 16 and quashed market chatter about a bigger rise, shifting the focus to the ECB's subsequent meeting in May.

• The quote: "At this point in time, it’s possible that we continue on that path," Lagarde told a Spanish television show on Thursday. "By which amount in each and every meeting is impossible to say at this point."
• The minutes: Markets are already pricing in another 50 basis point hike on May 4, and the accounts of the ECB's Feb. 1-2 meeting, published on Thursday, did little to challenge those bets. There was "only limited evidence of a stabilization so far," the ECB’s minutes said, adding that further hikes were needed to enter restrictive territory.

• Italian consumer prices, harmonized to compare with other EU countries, eased to 9.9% in February from 10.7% in the previous month on lower energy prices but still came in above expectations of a drop to 9.4%, data from ISTAT revealed on Thursday. Core inflation –which excludes fresh food and energy prices– was running at 7.1% year-on-year, up from 6.6% the month before.

^ISTAT

• The backstory: Italy, which is highly dependent on energy imports, has seen inflation rise faster than many of its euro area partners as international gas prices have soared. With energy costs slowing to a rise of 28.2% year-on-year from 42.8% in January, Europe’s third-largest economy is seeing a steeper drop in inflation compared to most of the eurozone.

• The eurozone seasonally-adjusted unemployment rate stood at 6.7% in January, stable compared with the previous month and down from 6.9% a year prior. Unemployment in the EU also remained unchanged from December at 6.1%, according to figures from Eurostat released on Thursday. Compared with January 2022, the number of jobless people decreased by 318,000 in the EU and by 220,000 in the euro area.

• Italy: The unemployment rate in Italy rose slightly to 7.9% in January from an unrevised 7.8% the month before and slightly above expectations of 7.8%, according to ISTAT figures released on Thursday. In January, the youth unemployment rate increased to 22.9% from an upwardly revised 22.2% the month prior.
• Spain: The number of people registering as jobless in Spain rose by 0.1% in February from a month earlier, or by 2,618 people, leaving a total of 2.91 million people out of work, data from the Labor Ministry showed on Thursday, reflecting "a trend of stability in the labor market."

• Tesla Investor Day failed to impress investors as CEO Elon Musk and his team’s four-hour presentation wrapped up without unveiling a new car model. The team addressed calculations of what the sustainable energy transition will require and boasted about manufacturing and engineering efficiencies.

^{via Reuters}

• By the numbers: Tesla shares fell 7.7% –the biggest drop since Jan. 3– to $187.08 on Thursday. Anticipation of the event contributed to a surge in the stock that added more than $300 billion in market value in two months.
• Highlights: Tesla engineers said at the event that the company will cut assembly costs by half in future generations of cars.

• Salesforce gave an optimistic full-year profit forecast and doubled its share repurchase program, leading the shares to rise as much as 14% on Thursday. The cloud-based software provider’s forecast and plans also alleviated pressures from activist investors for increases in share buybacks and margin growth, while raising concerns about its recent pricey acquisitions.

• Eli Lilly announced a series of price cuts that would lower the price of the most commonly used forms of its insulin by 70%. The US pharmaceutical giant will also automatically cap out-of-pocket insulin costs at $35 for people who have private insurance and expand its Insulin Value Program, which caps out-of-pocket costs at $35 or less per month for uninsured people.

• Why it matters: Although insulin is relatively inexpensive to manufacture, the cost has been a problem for many Americans for years.

• Stellantis agreed to sell its distribution business in Turkey to its local partner Tofas for €400 million. Tofas, a carmaker equally owned by Stellantis and Turkey’s Koc Holding, will buy all shares of Stellantis’ Turkey branch, which sells brands including Fiat, Jeep, and Peugeot. The deal will help bundle vehicle sales and services in the country.

• Russian officials on Thursday accused Ukrainian saboteurs of crossing into western Russia and firing on villagers. Ukraine denied the claim and warned that Moscow could use the allegations to justify stepping up its own attacks in the ongoing war.

^{via CNN}

• On the ground: Russian forces are advancing within Bakhmut as intense fighting continues, according to the Ukrainian military and analysis from the Institute for the Study of War (ISW). Despite Russian advances, the Ukrainian military says it is not planning to withdraw from Bakhmut and is still holding its ground in the city.
• The quote: Head of Russia's mercenary Wagner group, Yevgeny Prigozhin, said that Ukrainian forces are fighting "fiercely" in Bakhmut, while his mercenaries are spearheading Russia's efforts to take over the eastern city, CNN reported.

• US Secretary of State Antony Blinken met with Russia's Foreign Minister Sergey Lavrov on the sidelines of G20 in New Delhi, the first meeting between the two counterparts since the war in Ukraine began and as high-level engagements with both countries became very rare amid heightened tensions. The meeting was said to be unplanned, and Blinken urged Moscow to reverse its decision to withdraw from the key nuclear deal, START.

^{via Reuters}

• The French Senate started debating President Emmanuel Macron’s contested pension plan Thursday after Macron's government vowed to go ahead with the bill despite nationwide protests, strikes and opinion polls repeatedly showing loud public opposition. The centrist government aims to compromise with the upper house's conservatives to push through the bill that aims to raise the country's retirement age from 62 to 64, as worker unions and organizations scheduled to hold their next protest on March 7.

• Demonstrators in Greece poured into the streets amid Tuesday's train crash, now said to be caused by a man-made mistake, that killed at least 46 people dead and left scored injured.

• EU antitrust chief Margrethe Vestager said her team already started to look into potential competition abuses in Metaverse and AI. Officials are investigating how language AI models such as ChatGPT change the equation, and "what healthy competition would look like in the Metaverse," said Vestager.

• Backstory: Vestager has long scrutinized big tech, fined giants such as Google billions of euros, and has overseen a raft of new legislation aimed at heading off antitrust abuses before they can take hold.

• OpenAI, the company behind ChatGPT and DALL-E 2, is launching developer APIs for ChatGPT and the Whisper speech-transcription model. The company also changed its terms of service to let developers opt out of using their data for improvements while adding a 30-day data retention policy.

^{via Engadget}

• Bottom line: The new ChatGPT API will allow developers to add either unchanged or flavored versions of ChatGPT to their apps.

• China has a "stunning lead" in 37 out of 44 critical and emerging technologies, a security think tank study showed. The Australian Strategic Policy Institute tracked defense, space, energy, and biotechnology, funded by the US State Department. The results showed found the US was often second-ranked as Western democracies lose the global competition for research output.

• SpaceX launched four astronauts to the International Space Station for NASA on Thursday from the Kennedy Space Center. The six-month mission of the Dragon capsule includes astronauts from the US, Russia, and the UAE.

^{via Reuters}

• Highlight: Astronaut Sultan al-Neyadi is the first person from the Arab world to go up for an extended monthslong stay, and the second Emirati to fly to space.

^{via Project Syndicate}

A Brexit Reset?

Philippe Legrain

Former British Prime Minister Boris Johnson won the December 2019 general election on the promise that he had an “oven-ready deal” to “get Brexit done.” But while the United Kingdom did leave the European Union in January 2020, Johnson’s deal included a deeply contentious protocol governing the special trade status of Northern Ireland. British Prime Minister Rishi Sunak’s successful negotiation of an amended deal with European Commission President Ursula von der Leyen is thus a welcome development – one that could mark a turning point in UK-EU relations.

Brexit was an irresponsible act of self-sabotage that not only wrecked the UK’s economic and political relations with the EU, but also threatened the fragile peace in Northern Ireland. It was only in 1998 that – thanks to the US-brokered Good Friday Agreement – Northern Ireland escaped a violent three-decade-long conflict between Protestant “unionists,” who mostly wish to remain in the UK, and Catholic “nationalists,” who mostly want to join the Republic of Ireland.

Johnson’s decision that the UK would leave the EU single market and customs union and adopt its own trade rules, import tariffs, and product regulations required the erection of customs barriers between the UK and the EU. But there was broad agreement that imposing a land border between Northern Ireland and the Republic of Ireland would undermine the Good Friday Agreement.

Johnson’s “solution” was to allow Northern Ireland to remain in the EU single market for goods and bound by EU customs rules, while denying that this would result in any trade barriers within the UK – that is, between Great Britain (England, Scotland, and Wales) and Northern Ireland. But that was not true: the Northern Ireland Protocol required inspections and document checks at British ports on all goods shipped from Britain to Northern Ireland.

The economic disruption has been considerable, with political consequences to match. Many unionists and Brexiteers were furious that Northern Ireland had been separated from the rest of the UK and remained subject to EU law. Johnson’s response was as ill-advised as his original plan: shortly before his forced resignation last year, he introduced legislation to unilaterally override the Northern Ireland Protocol that he himself had negotiated, threatening a trade war with the EU.

Sunak’s revised deal – the “Windsor Framework”– does not eliminate all these tensions, but it goes a long way toward easing them. While there will still be customs checks on goods sent to Northern Ireland from Britain that are destined for Ireland and the rest of the EU, trusted traders, such as UK supermarket chains, will be able to ship produce to their Northern Ireland stores without any checks. Medicines licensed in the UK but not yet approved in the EU will be available in Northern Ireland. Mail parcels and pets will be able to cross the Irish Sea unimpeded.

This is a coup for Sunak. With patient diplomacy, honest dealing, and technocratic attention to detail, he secured a much better deal than Johnson did, and restored a modicum of trust between the UK and the EU. Already, the EU has invited the UK to rejoin its €95 billion ($101 billion) Horizon Europe program, which funds research and innovation, and France is promising closer cooperation with the UK to stem an influx of migrants in flimsy boats crossing the English Channel.

Within the UK, however, political conflicts are likely to persist. Extremists in Northern Ireland’s Democratic Unionist Party may reject the deal and continue to boycott the province’s power-sharing government, thereby leaving it suspended. Some Brexit hardliners within Sunak’s Conservative Party might also oppose it, because the deal leaves Northern Ireland under the partial jurisdiction of the EU. The opportunistic Johnson, who is still agitating for a return as prime minister, will undoubtedly attempt to foment opposition.

To be sure, the Windsor Framework still seems set to be approved by the UK Parliament. But if votes from opposition Labour MPs are what clinches that outcome, Sunak’s standing in the Conservative Party would be diminished. Renewed civil war among the Tories would hurt their already disastrously low poll ratings, increasing the chances that jittery Conservative MPs will ditch Sunak before the next general election, due by January 2025.

If, however, Sunak succeeds in overcoming opposition to his deal, his political standing could be greatly enhanced, with the public viewing him as a bold leader willing to face down his party’s extremists in order to advance the national interest. His chances of pulling off a shock victory in the next election, though still slim, would rise.

For the EU, the new deal on Northern Ireland is less important, but still significant. Following the Brexit referendum in 2016, the EU was gripped by fears that a populist wave would lead to more “exits,” and possibly even the Union’s eventual collapse. But most Europeans have come to view Brexit as a disaster. Not even far-right populists like France’s Marine Le Pen advocate following in the UK’s footsteps today.

The economic threat that a post-Brexit UK could undermine the EU single market by cutting taxes and slashing regulation has also receded. When Sunak’s predecessor Liz Truss announced huge unfunded tax cuts last autumn, interest rates spiked and the pound plunged, forcing her resignation. Given this, the EU can afford to take a more flexible and accommodating approach toward the UK. (To its credit, that is precisely what it has been doing.)

While Europe has more urgent matters to attend to than the outstanding details of Brexit, not least the Ukraine war and accompanying energy crisis, the EU and the UK need to collaborate more closely on these challenges, where possible.

This makes the Northern Ireland deal all the more valuable. After seven long years of blowing up bridges with the EU, the UK may finally have begun the long work of rebuilding them.

Philippe Legrain, a former economic adviser to the president of the European Commission, is Visiting Senior Fellow at the London School of Economics’ European Institute and the author of Them and Us: How Immigrants and Locals Can Thrive Together (Oneworld, 2020).

© Project Syndicate 1995–2023