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EU-China trade talks and interest rates to remain unchanged

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This is a watershed moment for Europe’s relations with China – if the European Trade Commissioner is to be believed.

Valdis Dombrovskis ventured into the lion’s den this week, telling his Chinese counterparts that the bloc had had enough of its lawless capitalism.

Both sides can now choose a path toward mutually beneficial relations or a path that slowly drives them further apart, he said.

Highlighting a staggering trade deficit of almost 400 billion euros with China, Dombrovskis did not mince his words.

“We also have real concerns about market access and other challenges,” the trade commission said this week in Beijing.

“The business environment has become more political and less predictable. We have asked our Chinese partners to engage with us on these challenges. Specifically, we want to see more transparency, predictability and reciprocity.”

Economic relations between China and the EU were thrust into the spotlight earlier this month after the European Commission launched an investigation into Chinese subsidies to its electric car industry.

By distorting the market of one of Europe’s industrial jewels, China has crossed a line – this is what Brussels wanted to make Beijing understand.

A serious slowdown in the European automotive sector could trigger a domino effect that Europe cannot afford.

All this in the face of a European economy that remains sluggish and an inflation rate that remains stubbornly high.

Interest rates are unlikely to move soon

And it is this last point that the European Central Bank (ECB) is most worried about.

At a hearing in Brussels this week, ECB President Christine Lagarde made clear that interest rates will remain high until the fight against inflation is won.

“We remain committed to ensuring that inflation returns to our 2% medium-term target on time. Inflation continues to fall, but is likely to remain too high for too long,” the bank chief said. French.

“In any event, our future decisions will ensure that the ECB’s key interest rates remain set at sufficiently restrictive levels for as long as necessary.”

But as long as interest rates in the Eurozone remain at historically high levels, economic growth will be difficult, which is already starting to affect the rest of Europe, as the latest forecasts suggest.

Beata Javorcik, chief economist of the European Bank for Reconstruction and Development, said in an interview that all is not doom and gloom for the continent’s economy.

“Inflation has eroded household budgets and led to a slowdown in consumption growth, and uncertainty is detrimental to investment,” Javorcik told Euronews.

“But there is a positive point, and that is tourism. Some economies in the Western Balkans and southern Europe are seeing record numbers of arrivals.”

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