5. Oktober 2023

2nd Edition: Inflation, Excess Liquidity, Slovakia`s Election and all things Brussels Bubble

Written By Lukas Seelig and Moritz Pohl




coming to you from Polis180’s “European Economic Policy” programme inviting you to subscribe for free by dropping us a line here!


Hello there and welcome back, curious minds and all-around Brussels enthusiasts!


We’re excited to roll out the second edition of our „nEUrds“ newsletter, and we’ve got an intellectual feast lined up for you! In this edition, we’re not only diving headfirst into Monday’s ECON Committee’s Monetary Dialogue with the ECB’s Christine Lagarde, but are also turning the spotlight on the upcoming national election in Slovakia, and current personnel movements in the Brussels-Sphere. These are topics that have been generating buzz in the corridors of the Berlayment and at Plux, and we’re here to unpack their significance for you.


As always, our commitment remains unwavering – to bridge the gap between the complex world of European finance and economics and your understanding. Whether you’re an avid follower of European affairs or someone looking to expand their knowledge, our newsletter is your backstage pass to the dynamics shaping our continent.
Stay tuned for a deep dive into these critical subjects, brought to you by our team of fellow nEUrds. Your journey into the heart of European economics begins here!


Macro Mastery  Deciphering The Most Recent Monetary Exchange with Christine Lagarde


written by Lukas Seelig


OMG, it was happening! On Monday (September 25, 2023), the President of the European Central Bank, Christine Lagarde, returned to Parliament for her quarterly meeting with MEPs on the Economic and Monetary Affairs Committee. And while – after the ECB’s decision to hike interest rates to a record high 4% – all things inflation were at the forefront of the discussion, another topic caught the attention of Lagarde: high levels of excess bank liquidity.




The convergence of the Brussels legislative branch and the head of the Frankfurt-based ECB unfolds against a backdrop of increasing concern in the global financial landscape. The Bank for International Settlements, an institution owned by member central banks, has recently issued a stark warning that policymakers are entering a challenging new phase in their battle against rising inflation. With these apprehensions in mind, Christine Lagarde staunchly defended the ECB’s latest decision to raise the three key interest rates by 25 basis points. Her comments, preceding Friday’s news that consumer prices in the euro zone rose 4.3% in September (below August’s rate of 5.2%), hinted at the possibility that this adjustment might represent a pause in rate hikes for the foreseeable future. Lagarde also pointed to staff projections, indicating that inflationary pressures are expected to gradually recede from 5.6% in 2023 to 3.2% in 2024 and further down to 2.1% in 2025. These developments underscore the delicate balancing act undertaken by central banks in navigating the currently more than complex economic landscape. 




Lagarde’s remarks hold particular significance amid a landscape of diverse central bank actions. Notably, the Bank of England, on September 21, opted to maintain its rates, marking the first time it did so in nearly two years. This decision concluded a remarkably long streak of consecutive rate hikes, totaling 14, dating back to late 2021. Governor Andrew Bailey, in a written statement accompanying the rate-hold at 5.25%, emphasized the need for vigilance, cautioning that „there is no room for complacency.“ Concurrently, both the Federal Reserve and the Swiss National Bank, in the same week, refrained from raising rates, underscoring that the battle against the persistent surge in prices was far from over. This aligns with the stance of other central banks, including South Africa’s, which chose to keep rates unchanged, while Sweden, Norway, and Turkey, in contrast, embarked on their own rate-hiking trajectories. 


All this is happening in a context which is influenced by a since August negative Bloomberg Global-Aggregate Index (a benchmark index used to track the performance of certain securities from various global markets, i.e. a scoreboard for different types of safe investments from all around the world). This negative outlook – indicating that the prices of the bonds included in the index have fallen while yields have risen – means that existing bonds with lower fixed interest rates become less attractive to investors, compared to newly issued bonds with higher yields. As a result, the value of existing bonds in the market decreases, and bondholders who want to sell their bonds may receive less than they originally paid for them. This – in turn – makes it look like bond investors are about to suffer a third straight year of losses thanks to central bank rate hikes, something that last happened nearly a decade (!) ago.




In another part of what was in wide parts a thoughtful deliberation, the ECON-Committee also extended its focus to examine another topic of pivotal importance – the issue of excess liquidity. To demystify this concept: It refers to the surplus of funds over minimum reserves, with these excess funds often held as overnight deposits within the Eurosystem, remunerated at the deposit facility rate. 


Currently, they surpass the required minimum reserves, set at 1% of specific liabilities, primarily customer deposits, and these reserves are now remunerated at 0%. The timeline of excess liquidity is a story in itself. It reached its zenith during the autumn of 2022, has fallen by more than €1 trillion since and currently stands at €3.6 trillion.


This transformation can be attributed to various factors, including the repayments associated with the third series of targeted longer-term refinancing operations (TLTRO III). Long term, brief explainer: Through TLTROs, the ECB offers longer-term loans to banks at favourable costs and encourages them to lend to businesses and consumers in the euro area. With the third TLTRO programme having consisted of ten operations and each having (had) a maturity of three years, the last operation was conducted in December 2021.


Additionally, as Lagarde highlighted, the reduction of securities held under the asset purchase program (APP), with reinvestments fully discontinued as of July this year, plays a pivotal role in the evolution of the current state of excess liquidity.


These measures (repayments of TLTRO III, reduction of securities held under APP) not only influence the liquidity landscape but are also set to shrink the ECB’s balance sheet over the coming years, further diminishing excess liquidity. This fascinating development raises essential questions about the optimal long-term size and composition of the ECB’s balance sheet, as well as the ideal level of excess liquidity.


As another noteworthy announcement, Lagarde revealed that the ECB is currently conducting a comprehensive review of the operational framework for steering short-term interest rates. This assessment aims to evaluate the costs and benefits of alternative regimes and is projected to conclude by spring 2024.


It’s Election Day!


written by Moritz Pohl


As we are gearing up for the weekend, Slovakia, the second-smallest member state of the EU by GDP per capita according to EuroStat, is getting ready for its election day this Saturday, September 30th. The outcome of this election promises to shed light on the EU and the upcoming EU elections next year. Join us on this journey through politics and economics!


 Political roller coaster 


A member of both NATO and the EU since 2004, Slovakia finds itself economically intertwined with its neighboring countries while navigating a turbulent domestic political landscape. It’s been a rollercoaster ride, with crises such as the 2018 journalist murder and widespread corruption leaving their marks.


 Who to vote for?


The current frontrunners in Slovakian politics are leaning toward the center-right, including the „social democratic“ SMER-SD party, which embraces a somewhat nationalist and right-leaning worldview. Their top candidate, former Prime Minister Robert Fico, takes an anti-western stance and is cozy with Hungarian President Orban. Meanwhile, the incumbent liberal President Zuzana Čaputová has opted not to seek re-election, citing personal reasons


 The not so popular EU 


When it comes to the EU, Slovakia boasts the dubious honor of having the lowest voter turnout of all member states in the 2019 EU elections, with just 22.7 percent of eligible voters making their voices heard. Nevertheless, a surprising twist saw a pro-European alliance of liberal forces emerge victorious. Slovakia tends to keep its focus on domestic matters (where we are today), and this election campaign has been marred by (Russian) disinformation, all while being scrutinized in the light of the EU’s Digital Services Act.


 Economic turbulences 


Economically speaking, Slovakia’s convergence process with the EU, which started off positively after its 2004 EU accession, has hit some speed bumps. As Regina Wippler writes, according to Eurostat, the GDP per capita in purchasing power parity dropped to 68% of the EU average in 2022. This places Slovakia behind its Visegrád counterparts, namely the Czech Republic, Poland, and Hungary. Adding to that, there’s a notable west-east divide, impacting infrastructure, living standards, and employment in the country according to GTAI.


 Numbers for nEUrds


And just to spice things up: Let’s throw in some numbers: In 2022, Slovakia received a hefty €3,177 million in EU subsidies, offset by €1,031.6 million in contributions. What a difference! The GDP for the same period amounted to $113.53 billion USD, with a projected increase to $127.53 billion USD this year, as per Statista.


 The Importance for the EU


But it’s not all smooth sailing. Slovakia is grappling with the challenge of efficiently utilizing EU funds, with only 74 percent of the allocated funds for the 2014-2020 period having been utilized by mid-2023. There’s a looming risk of a substantial sum going to waste. Moreover, EU funds in Slovakia tend to replace public investments from domestic sources rather than providing additional stimuli, as pointed out by the Slovak National Bank, according to GTAI. The economic landscape highlights the importance of the industry, wholesale and retail trade, transport, accommodation, and the public sector. The intra-European trade accounts for a whopping 79% of Slovakia’s exports, with Germany leading the pack at 22 percent. As for non-EU exports, 4% each go to the USA and the UK, respectively, and 3 percent to China. On the import side, 80% of Slovakia’s imports come from EU countries, with Germany holding a 20% share, while South Korea and China each contribute 4%, and Russia comes in at 3%.


This week’s reshuffle


This week’s ECON-Committee hearing came not only at an economically but also politically tense time: Just two weeks ago, the very same committee narrowly (with 29 to 23 votes) backed German vice-president of the German central bank, Claudia Buch, for becoming the Chair of the ECB’s Single Supervisory Board. This vote and backing of Buch – who, same as two of your authors, stems from the city with the window of the three hares –  comes after the Committee initially leaned towards Spanish deputy central bank governor Margarita Delgado. 

If you are reading this and are wondering about whether you’ve heard this scenario of a Spaniard vying for a EU top job somewhere else in the previous weeks, you are not alone and mistaken: right now, Deputy Prime Minister and former Deputy Director-General of DG COMP Nadia Calviño is aiming for the job at the helm of the European investment bank, a job which has recently seen a flurry of new (speculative) applications (as per our go-to source for all things Brussels gossip, aka Politico).


Crystal Ball Gazing 


Foreshadowing events that we are either going to attend or that just caught our attention


Page Turners and Screen Burners


  • “Adam’s Fallacy – A Guide to Economic Theology” (by Duncan K. Foley, recommended by Moritz)
  • The REGI-Committee’s Opinion for the Committee on Industry, Research and Energy on the Net Zero Industry Act (can be found here, recommended by Lukas)
  • Monetary-Fiscal Interaction – Achieving the right monetary-fiscal policy mix in the euro area” (by Kerstin Bernoth, Sara Dietz, Rosa Lastra and Marie Rullière, recommended by Lukas)
  • for all the Marvel-Studio-Nerds: the second season of “Loki” is going to hit our screens on October 05th, 2023! (recommended by Lukas)




  • The second episode of our “Brüsseler Bahnhof” podcast will be published next week, including an interview with Cara Bien (Policy Advisor of the German Industry Association / BDI) on the German Hydrogen Strategy. Give it a listen!
  • We recorded the third episode of the “Brüsseler Bahnhof” with Cabinet Member (EC) Ruud Kempener on the European Hydrogen Economy. This episode will be published in October!
  • Seeing that we are on Instagram now: give us a follow for spontaneous analyses, memorable memes and insights into our day-to-day business!


Brussels Meme-oirs

Meme of the Week


Your voice matters! We invite you to share your thoughts, insights, and what’s currently captivating your attention. Let us know what you enjoyed in this edition, what’s moving you right now, and which issues you believe deserve a spotlight. Whether it’s a book, an article, or a topic you’re passionate about, we’re all ears. Your feedback helps us tailor our content to your interests and keep our newsletter engaging. So, drop Lukas, Moritz or Janik a line and let’s keep this conversation going. Your input is invaluable!


Are you a Brussels Bubble Insider? We’re all ears and ready to spill the beans! If you’ve got some juicy gossip, insider leaks, or just something intriguing on your mind, we’d love to hear from you. Let’s share a coffee or a confidential chat and keep the conversation flowing. Your insights are the secret sauce that makes our newsletter sizzle. Drop us a line, and let’s connect


Are you a journalist working or writing for Politico? We know you’re in the know! If you’ve got some tantalizing tidbits, insider scoops, or a Politico-Pro subscription to spare, we’d be thrilled to hear from you. Let’s chat over a Politico-branded coffee (or your beverage of choice) and swap some insider tales. Your insights are the secret sauce that adds flavor to our newsletter. Get in touch, and let’s connect!




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