'Qatargate' sends shockwaves throughout Europe

President of the European Parliament Roberta Metsola promised to introduce new ethical rules after a corruption case involving one of her vice presidents was uncovered. New searches took place in Brussels on Monday.

By Virginie Malingre (Brussels, Europe bureau), Jean-Pierre Stroobants (Brussels, Europe bureau) and Philippe Jacqué (Brussels (Belgium) correpondent)

Published on December 13, 2022

President of the European Parliament, Roberta Metsola, during her speech at the opening of the parliamentary session, in Strasbourg, on December 12, 2022. FREDERICK FLORIN / AFP

As the European Parliament's plenary opened in Strasbourg on Monday, December 12, Belgian police continued to search the institution's Brussels offices. They seized data from the computers of a dozen assistants to Italian MEPs from the Social Democratic Group (S&D).

Since December 9, the legislative body has been living with "Qatargate," a scandal that has seen some of its members suspected of defending the interests of Qatar in return for cash. On that day, Belgian police sealed three offices belonging to the vice president Eva Kaili and the MEP's Marc Tarabella and Marie Arena, who claimed these were the offices of their assistants.

In total, the investigating judge Michel Claise conducted some 20 operations during which six people were arrested, four of whom were imprisoned. Eva Kaili and her husband, the parliamentary assistant Francesco Giorgi, former MEP Pier Antonio Panzeri, and Niccolo Figa-Talamanca, the head of the NGO No Peace Without Justice, will appear before a Brussels court on December 14 to decide whether they should remain in detention.

his investigation that began in the summer of 2022. Some €600,000 were found at the Brussels home of Mr. Panzeri, and €150,000 euros at the home of Eva Kaili, where numerous gifts bearing the Qatar logo were also found. The father of the Greek MEP was hiding €600,000 euros in a briefcase when the police apprehended him at his hotel in the European district.

Consternation

In Strasbourg, on Monday, consternation reigned. "European democracy is under attack," said Roberta Metsola, president of the European Parliament, after evoking "her fury, her anger, her sorrow." "There will be no impunity (...) nothing will be swept under the carpet (...) There will be no business as usual (...) We are going to shake up this Parliament," added the Maltese member of the European People's Party (EPP, conservative), which has made the fight against corruption a central part of its political identity.

To deal with the emergency, she proposed to MEPs that Eva Kaili be stripped of her title of vice president and that the vote scheduled for Tuesday on visa exemptions for Qatari nationals be postponed. On Thursday, MEPs are also expected to vote on a resolution on "Qatar's suspected corruption and the wider need for transparency and accountability in European institutions."

In rare unanimity, every one of the European parliament's party presidents deplored the scandal, from Manfred Weber (EPP) to Manon Aubry, his counterpart from The Left, who said that "you don't buy MEPs like you buy football clubs."

The Socialists & Democrats (S&D) group, the first to be affected by the scandal, also made things clear quickly. "S&D MEPs who employ parliamentary assistants who are subject to the judicial investigation, should, awaiting the outcome of the proceedings, step down from any responsibility and refrain from any activity within the European Parliament," it declared.

In the meantime, Belgian Socialist MEP Marc Tarabella stepped back from his role, his colleague Marie Arena has stopped chairing the Human Rights sub-committee, Italian MEP Pietro Bartolo has withdrawn from his position as spokesperson for the resolution on visa liberalization for Qatar in the European Parliament's Civil Liberties Committee, and Italian MEP Andrea Cozzolino, Francesco Giorgi's employer, is no longer the coordinator for his party.

'We will launch a reform process'

"We will launch a reform process to see who has access to our premises, how these organizations, NGOs and people are funded, what links with third countries they have, we will ask for more transparency on meetings with foreign actors and those linked to them," promised Roberta Metsola. It must be said that the institution, which claims to be at the forefront of the fight for the rule of law, does not offer the best standards of ethics and transparency.

Only the chairmen of parliamentary committees and, in some cases, the rapporteurs of legislation must declare their meetings with companies or professional representatives. The others do as they please. On December 5, Transparency International published a study showing that between July 2019 and June 2022, less than half of MEPs had declared at least one meeting with a lobbyist.

There are no rules on contacts with representatives from countries outside of the EU and EFTA states In a March 2021 letter to David Sassoli, then president of the European Parliament, four EPP MEPs, including the chairman of the foreign affairs committee David McAllister and Frenchman Arnaud Danjean, warned: "Hostile foreign actors are making continuous efforts to influence the political agenda of the European Parliament and the EU." The situation is all the more damaging because "MEPs have no obligation to publish their assets," said Green MEP Daniel Freund.

Many elected officials are calling for stricter rules

Many elected representatives have been calling for years for stricter rules, as they repeated on Monday. On September 16, 2021, Renew, the Greens, S&D and The Left massively supported the adoption of a resolution calling for the creation of an independent authority, based on the model of the French High Authority for Transparency in Public Life. Today, they are also hoping for the opening of an inquiry committee into Qatargate. "While we can always look to increase deterrents and transparency, there will always be some for whom a bag of cash is always worth the risk," warned Roberta Metsola.

Qatargate has sent shockwaves beyond the European Parliament. The scandal threatens "the confidence of Europeans in our institutions," declared Ursula von der Leyen, the president of the Commission. Angela Merkel's former minister took up a proposal she has already made several times, but has not yet carried out, to create an independent ethics authority "that would cover all the institutions in a uniform manner."

In addition, the EU Commission said Parliament has initiated a review of meetings of its commissioners and top officials that could be linked to the investigation. "The investigation is currently affecting one political group. But corruption has no party," said Ms. Aubry, for whom, "the repeated praise [of European Commissioner] Margaritis Schinas towards Qatar may raise questions."

The scandal made at least one person happy: Viktor Orban, regularly attacked by the European Parliament for his failures to uphold the rule of law. In a tweet on Monday, the Hungarian prime minister shared a photo ("And then they said, the EP [European Parliament] is seriously concerned about corruption in Hungary") in which men in suits are toasting and laughing. "Good morning to the European Parliament," he added.

November Inflation ReportPrice Gains Slow More Than Expected

Here’s what we know:

Markets shoot higher as a report showed inflation eased last month, the last major economic news ahead of Federal Reserve’s meeting on Wednesday.

• Price Increases Cooled Notably in November as Inflation Began to Ease

• Stocks soar as investors welcome signs of cooling inflation.

• Growth in food prices slowed, but grocery bills remain historically high.

• Rents continued to rise rapidly in November, a sign that inflation remains stubborn in key categories.

• The slowdown in inflation was driven by food, energy and used vehicles.

• Cooling inflation is a welcome sign for President Biden.

Price Increases Cooled Notably in November as Inflation Began to Ease

Year-over-year percentage change in the Consumer Price Index

Source: Bureau of Labor Statistics

Inflation slowed more sharply than expected in November, an encouraging sign for Federal Reserve officials as they gather in Washington this week to discuss the next steps in their policy campaign against rapid price increases.

Fed policymakers are set to release their latest rate decision at 2 p.m. on Wednesday, at the conclusion of their two-day meeting. They are widely expected to raise interest rates by half a percentage point, slowing down after months of rapid three-quarter point moves. They will also release fresh economic projections.

Tuesday’s inflation figures are likely to figure into their discussion about the future policy path. The Consumer Price Index measure climbed 7.1 percent in November compared to a year earlier, less than the 7.3 percent that economists had expected and a slowdown from 7.7 percent in the previous reading. Between October and November, prices also picked up more slowly than forecast.

After stripping out food and fuel prices, which move around a lot, the index climbed by 6 percent. That was less than the 6.1 percent Bloomberg projection.

Overall inflation has been decelerating on year-over-year basis since hitting a peak in June, a sign that price increases are turning a corner after months of unexpected strength.

“Today’s report showed a fairly broad-based slowdown,” Omair Sharif, founder of Inflation Insights, wrote in a research note following the report.

Many economists had expected inflation to slow toward a more normal 2 percent pace this year. Instead, it has remained stubbornly rapid, fueled by rent increases, disruptions from the war in Ukraine, continued fallout from supply chain issues and climbing costs for services like airfares and car insurance. Analysts and policymakers alike are hoping that price increases will cool more markedly in 2023.

Fed policy should help that to happen. Central bankers have raised interest rates at the fastest pace in decades this year, moving them from near-zero earlier this year to an expected range of 4.25 to 4.5 percent as of this week. Higher borrowing costs are trickling through the economy, slowing down the housing market and making it more expensive to expand a business or buy a car on credit. That should eventually lead to less demand, more muted hiring and a general economic slowdown.

Weaker demand could combine with healing supply chains and a cooling rental housing market to take the pressure off prices, many economists predict. Economists in a Bloomberg survey expect C.P.I. inflation to come down to 3.1 percent by the final quarter of 2023, about half its current pace.

The Consumer Price Index figures released on Tuesday are closely watched because they are the first major inflation data to come out each month. But the Fed officially targets a more delayed measure, the Personal Consumption Expenditures index, when it sets its 2 percent inflation target.

That measure has been running below the Consumer Price Index rate but is also very elevated, coming in at 5 percent in the year through October after stripping out volatile food and fuel.

For the Fed, the key question going forward is not just whether inflation will slow, but how quickly and how completely it will come down. Central bankers worry that if price increases remain rapid for a long time, consumers could begin to expect that to continue. They might demand heftier wage increases in response, and if they win those raises, their employers may institute more regular and rapid price increases to cover climbing labor bills.

In short, expectations for fast inflation could help make that a reality.

While most measures of inflation expectations have remained fairly stable so far, policymakers do not want to assume that they will stay that way.

The fresh inflation data likely offered policymakers some signs for encouragement but also some reasons for continued concern. Inflation in food moderated and energy costs fell, which helped to pull inflation lower.

But food and energy costs aren’t the sort of inflation that the Fed watches closely, because they are volatile and typically do not closely reflect underlying strength in the economy.

There were other encouraging signs that some goods categories are beginning to drop in price. Used cars and trucks, for instance, were down 3.3 percent from a year earlier, and televisions are swiftly becoming cheaper. Such changes signal that supply-chain healing is finally benefiting consumers.

Under the surface, though, services inflation remains robust. Part of that comes from a rapid increase in rents that is expected to fade at some point in 2023. But some is from a tick-up in other categories, such as garbage collection, dentist visits and tickets to sports games.

Service price increases tend to be tied to rising wages and can be hard to stamp out. Service costs excluding energy are now contributing about 3.9 percentage points of overall inflation and could keep price increases rapid even as other types of inflation fade.

In the 1970s, officials allowed inflation to remain slightly more rapid than usual for years on end, which created what economists since have called an “inflationary psychology.” When oil prices spiked for geopolitical reasons, an already elevated inflation base and high inflation expectations helped price increases to climb into the stratosphere. Fed policymakers ultimately raised rates to nearly 20 percent and pushed unemployment to double digits to bring prices back under control.

Central bankers today want to avoid a rerun of that painful experience, which is why they are trying to promptly bring price increases to heel. For now, they have signaled that they expect to raise interest rates slightly in early 2023, then leave them at high levels to constrain the economy and attempt to squeeze out inflation.

“It is likely that restoring price stability will require holding policy at a restrictive level for some time,” Jerome H. Powell, the Fed chair, said during a speech late last month. “We will stay the course until the job is done.”

— Jeanna Smialek

Stocks soar as investors welcome signs of cooling inflation.

Markets rose on Tuesday after the inflation report for November showed price gains slowed more than economists expected, offering investors clarity on the path of inflation and a sign that the Federal Reserve could slow down its interest rate increases.

The S&P 500 rose 1.6 percent by midday, extending the previous day’s gains. Still, the benchmark index is down about 15 percent for the year.

The report on consumer prices, the last major data release before the Federal Reserve meets on Wednesday to set interest rates, provided a clear sign that inflation is cooling, prompting markets to move higher. For months, Wall Street has been looking for data that could encourage the Fed to moderate its interest rate increases, which the central bank has used to try to temper stubbornly high inflation. Higher interest rates have increased costs for companies and dampened consumer demand.

“That was about as good as investors could have hoped for,” said Rob Temple, global market strategist at Lazard. “The pieces are falling into place for the Fed to pause rate hikes early in 2023.”

Overall inflation was up 7.1 percent from a year ago, compared with economists’ expectations of 7.3 percent and down from 7.7 percent in October. The report is a welcome sign for investors after a mixed bag of economic data in recent weeks have delivered signals that suggest inflation may remain stubbornly high, weighing on markets.

The Consumer Price Index report showed inflation cooling in October, but a gauge of wholesale prices showed inflation rising more than expected last month. The job market also remains resilient, putting pressure on prices: Employers added 263,000 jobs in November — more than economists expected.

The Fed is expected to raise rates half a percentage point on Wednesday, which would represent a slowdown from increases of three-quarters of a point in previous meetings. At the same time, a rise in the markets make the Fed’s job harder because it enriches investors and stimulates the economy, the opposite of what central bankers are trying to do to bring down inflation.

The yield on the U.S. two-year Treasury note, which closely tracks expectations for Fed rate moves, fell on Tuesday, as investors dialed back expectations for how high the Fed will ultimately raise rates. As the Fed has continued its campaign to increase rates to bring down inflation, the yield on the two-year bond has risen well above the 10-year equivalent, a rare but reliable sign of a recession.

The inflation report and the Fed meeting on Wednesday “will undoubtedly set the tone for financial markets as we head into next year,” economists at Deutsche Bank wrote in a research note on Friday.

“This was universally good from an inflation standpoint. It’s moving in the right direction,” said Peter Tchir, head of macro strategy at Academy Securities.

Joe Rennison contributed reporting.

— Isabella Simonetti

Russia rejects Zelenskiy’s peace proposal, says Ukraine must accept new ‘realities’

BBC

Ukraine must take into account the new territorial “realities” that include Russia’s annexation of four Ukrainian regions, the Kremlin has said in response to Volodymyr Zelenskiy’s three-step proposal for peace.

In a statement to G7 countries yesterday, the Ukrainian leader said Russia could begin to withdraw its troops from the territory of Ukraine to show they are capable of abandoning their aggression.

Zelenskiy told G7 leaders he was offering Moscow an “opportunity to make a real, meaningful step towards diplomatic settlement” of the conflict.

He said:

The holidays are ahead, celebrated by billions of people around the world: Christmas of the Gregorian calendar, New Year, Christmas of the Julian calendar. This is the time when normal people think about peace, not about aggression. I offer Russia the opportunity to at least try to demonstrate that they can abandon the way of aggression. It would be right to start withdrawing Russian troops from internationally recognised borders of Ukraine this Christmas. If Russia withdraws its troops from Ukraine, it will ensure a lasting cessation of hostilities.

Russia does not have full control of any of the four provinces of Ukraine it says it annexed in September, but which most UN member countries have condemned as illegal.

In response, Kremlin spokesperson Dmitry Peskov said Ukraine needed to accept new territorial “realities”, including that the Kherson, Zaporizhzhia, Donetsk and Luhansk provinces of Ukraine were Russia’s “new subjects”.

Asked about the proposed Russian troop withdrawal, Peskov said:

The Ukrainian side needs to take into account the realities that have developed during this time. And these realities indicate that new subjects have appeared in the Russian Federation. They appeared as a result of referendums that took place in these territories. Without taking these new realities into account, no kind of progress is possible.

There could be “no question” of Moscow beginning to pull out its troops by the end of the year, he said.