EconomyLe Pen seeks to turn the tide in Macron...

Le Pen seeks to turn the tide in Macron rematch

Good morning and welcome to Europe Express.

Debate day is upon us. Marine Le Pen is facing off against Emmanuel Macron later, ahead of Sunday’s final round of presidential elections. We’ll analyse the significance of this event as the two candidates ramp up their electioneering in the final leg of the campaign.

On the Ukraine front, Russia has said it has begun a new phase of hostilities in the Donbas region, with more grim details emerging, including the targeting of another hospital in the besieged city of Mariupol. In Brussels, officials are working on the bloc’s sanctions package number six (targeting oil and, as European Commission President Ursula von der Leyen recently suggested, Russia’s largest bank, Sberbank). A handful of European leaders, including von der Leyen, discussed further restrictive measures and weapons deliveries yesterday during a call with the US president and the prime ministers of Canada and Japan.

The IMF yesterday slashed its global growth outlook to 3.6 per cent because of the war. With the IMF and the World Bank holding their spring meetings this week, we’ll explore what options are being considered to alleviate the impact of the conflict on food prices. One proposal is reorienting crops away from fuel production such as ethanol. We’ll also look at what the IMF had to say about the impact of a full Russian oil and gas embargo on the eurozone economy.

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French rematch

With only four days to go before French presidential election day, Emmanuel Macron and Marine Le Pen are preparing for their big face-to-face television debate tonight — a repeat of a live confrontation that proved disastrous for Le Pen five years ago and sealed Macron’s subsequent victory, writes Victor Mallet in Paris.

In the 2017 debate, the far-right candidate came across as clumsy and ill-prepared, and Macron, who had been finance minister in the Socialist government, skilfully exposed her fragile grasp of business and economics and skewered her plan to leave the euro and go back to a French franc.

This time, her advisers say, Le Pen is better prepared, more experienced and more relaxed, and will be taking a break from campaigning beforehand so that she is not as exhausted and stressed before the debate as they say she was last time.

She has already ditched the unpopular policy of leaving the EU and the euro — even if her critics argue that her continued insistence on the primacy of French over European law will lead to Frexit anyway — and focused more on the rising cost of living than on her controversial plans to choke off immigration and send foreigners home if they have no jobs.

In this second round of the 2022 presidential election, Le Pen and the French far right have never been so close to power — an achievement that Macron and other liberal internationalists say would undermine Nato, cripple the EU and ruin the French economy.

Some recent opinion polls suggested that Macron’s lead over Le Pen was as little as 51 per cent to 49 of the vote on Sunday, within the margin of error of the surveys, although in the last few days there are signs that the incumbent president is increasing his advantage.

An OpinionWay-Kéa Partners poll published yesterday gave Macron a 56:44 lead over Le Pen, and showed the main concerns for voters were the cost of living and social security, followed by crime and immigration. The war in Ukraine — a potential problem for Le Pen given her past associations with Russia’s Vladimir Putin — came 11th on the list of issues.

Macron, meanwhile, has embarked on a flurry of tours and meetings in different parts of France after coming out ahead in the first round on April 10, with 28 per cent of the votes, against 23 per cent for Le Pen. They were the two that qualified for the second round, though the far-left candidate Jean-Luc Mélenchon was not far behind with 22 per cent.

In an effort to persuade Mélenchon’s voters — including many environmentalists and Muslims — to support him, Macron has emphasised his green credentials and attacked Le Pen’s proposal to ban the wearing of the veil in public by Muslim women.

Fuelling hunger

One of the many damaging effects of the war in Ukraine has been rising food insecurity — a topic that will feature prominently at World Bank and IMF spring meetings this week, write Sam Fleming and Andy Bounds in Brussels.

Beata Javorcik, the chief economist at the European Bank for Reconstruction and Development, said Egypt, Turkey, Jordan, and Tunisia were among countries that were facing economic strains because of the “huge increase” in agricultural commodity prices driven by Russia’s war on Ukraine.

Policy responses include facilitating exports of grain from Ukraine by creating land transport corridors, or better yet by reopening transport routes via the Black Sea, Javorcik told Europe Express. But another area where policy could be adjusted is biofuels.

“The US and EU could think of ways of temporarily diverting production of grain away from biofuels and toward consumption to help address food security concerns,” she said.

Chart showing international cereal prices

There was a similar need to respond to interruptions to Ukraine’s sunflower seed production. “Soya and rapeseed are close substitutes but they are being used for biofuels in the US and EU, so again this production could be diverted to edible oils.”

The US uses over a third of its corn production in ethanol production, while 3-4mn tonnes of EU-grown wheat are used to produce ethanol for fuel. The Greens-EFA group in the European Parliament has called for the European Commission to put a “temporary halt” to the use of edible crops for agrofuel production for at least two years given the food crisis.

The World Food Program projects that the rise in prices caused by the war in Ukraine, especially in global wheat, corn and edible oil markets, could leave 323mn people in the grip of acute hunger in 2022, 47mn more than without the war.

Finland this month became the first EU country to cut the amount of biofuel producers must blend with road fuel, while Sweden has proposed freezing its mandate for 2023 at 2022 levels, according to media reports. Greece has said it could divert sunflower oil from biofuel to food by reducing its mandate.

Brussels is giving its blessing to such moves. “The European Commission is supporting potential efforts by members to reduce the rates at which fuel makers must blend crop-based biofuels into oil in order to free up more land for production of crops for food,” the commission said.

The EU biofuels industry is far less impressed. “EU biofuels production creates food, feed and fuel, significantly strengthening Europe’s strategic autonomy by offsetting the need to import animal feed and displacing the use of crude oil in transport,” said the EU Biofuels Chain — a coalition representing Europe’s farmers and agri-co-operatives.

Chart du jour: Missed opportunity

Bar chart of EU natural gas imports by source, 2020 (%) showing Algeria is the third largest supplier of natural gas to the EU

Read more here about why Algeria, the third-biggest natural gas supplier to Europe, with direct pipelines to Italy, Spain and Portugal, is missing the opportunity to become a viable alternative to Russian gas imports.

Energy drain

The punishing effects of the war in Ukraine are set out in the IMF’s latest round of forecasts, unveiled ahead of the spring meetings taking place this week, writes Sam Fleming.

There is no surprise as to where the pain is felt hardest: Ukraine is heading for a 35 per cent contraction this year as the invasion ravages its economy, the IMF predicts, while the sanctions-struck Russian economy will shrink by 8.5 per cent this year and another 2.3 per cent in 2023.

The impact on the eurozone looks relatively slight by comparison, with GDP now forecast to rise by 2.8 per cent this year, 1.1 points lower than the previous IMF outlook. Growth is forecast at 2.3 per cent in 2023, a shade below the fund’s previous 2.5 per cent prediction.

But the picture could yet get a lot worse, the IMF says. The fund’s forecasts assume the EU and its allies continue to exempt the Russian energy sector from sanctions.

But the IMF outlook contains an alternative scenario under which embargoes on both oil and gas are imposed on Russia, alongside “the disconnection of Russia from much of the global financial and trade system.”

This darker scenario would deliver a massive hit to EU growth, leaving the level of GDP nearly 3 per cent below the baseline by 2023.

The scale of the dive in GDP helps explain the obvious hesitancy among EU member states when it comes to the details of the next round of sanctions. While the European Commission is pushing for an oil blockade as part of the next package, sanctions on Russian gas exports remain a less imminent prospect.

What to watch today

  1. Emmanuel Macron faces Marine Le Pen in the only televised debate ahead of Sunday’s final round of presidential elections

  2. German foreign minister Annalena Baerbock travels to the Baltic countries to meet her counterparts

Notable, Quotable

  • Sanctions, in court: Russia plans to take legal steps to recover $300bn of its foreign currency reserves frozen by western governments in a bid to overturn one of the most painful measures imposed on Moscow in response to its invasion of Ukraine. No official timeline has been made public, however.

  • Restarting nuclear: In this explainer, the FT is unpacking the reasons why prolonging the life of Germany’s nuclear power plants wouldn’t solve the country’s dependency on Russian oil and gas. For a full picture of Europe’s gas imports and what it would take to replace them, click here.

  • Moving (ware) house: While the UK government launches a search for Brexit opportunities, one group has already discovered them: Dutch warehouse owners. An influx of British-based companies to the Netherlands has swelled as they struggle with the disruption of a customs border across the North Sea.

  • Nato courthouse: The Belgian side of a Paris terror trial kicked off yesterday at Brussels’ former Nato headquarters, VRT News reports. Over a dozen helpers of the suicide bombers who killed 130 people in November 2015 are being tried for taking part in a terrorist plot. Brussels’ own terror trial for the 2016 attack on the airport and the Maalbeek metro stop will take place later this year.

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