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EU growth forecast estimated at 3.7% in 2021 will be boosted by recovery fund

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The European Commission’s winter economic forecast estimate that the EU economy will grow by 3.7% in 2021 and 3.9% in 2022. Europe remains in the grip of the coronavirus pandemic with many countries experiencing a resurgence in cases and the need to reintroduce or tighten containment measures. At the same time, the start of vaccination programmes has provided the EU with grounds for cautious optimism.

Economic growth is set to resume in the spring and gather momentum in the summer as vaccination programmes progress and containment measures gradually ease. An improved outlook for the global economy is also set to support the recovery, with the US and Japan also undertaking strong recovery measures. 

The economic impact of the pandemic remains uneven across the EU with the speed of the recovery projected to vary significantly.

"We can say we face fewer unknown risk and more known risks" 

Risks surrounding the forecast are described as more balanced since the autumn, though they remain high. They are mainly related to the evolution of the pandemic and the success of vaccination campaigns.On the positive side, extensive vaccination could lead to a faster-than-expected easing of containment measures and therefore an earlier and stronger recovery. 

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The forecast has not fully factored in the impact of the EU's recovery instrument of which the centrepiece is the Recovery and Resilience Facility (RRF), this could fuel stronger growth than projected.

 In terms of negative risks, the pandemic could prove more persistent or severe in the near-term than assumed in this forecast, or there could be delays in the roll-out of vaccination programmes. This could delay the easing of containment measures, which would in turn affect the timing and strength of the expected recovery. 

There is also a risk that the crisis could leave deeper scars in the EU's economic and social fabric, notably through widespread bankruptcies and job losses. This would also hurt the financial sector, increase long-term unemployment and worsen inequalities.

Paolo Gentiloni, Commissioner for Economy said: “Europeans are living through challenging times. We remain in the painful grip of the pandemic, its social and economic consequences all too evident. Yet there is, at last, light at the end of the tunnel. The EU economy should return to pre-pandemic GDP levels in 2022, earlier than previously expected – though the output lost in 2020 will not be recouped so quickly, or at the same pace across our Union.”

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Asked about the impact of Brexit, Gentiloni said that the exit of the UK and the free trade agreement that the EU finally reached with the UK implies an output loss of around half a percentage point of GDP until the end of 2022 for the Union and some 2.2% loss for the UK in the same period. He compared these figures with the estimates in the autumn forecast, which were based on the assumption of no agreements and of a WTO-terms deal. The agreed TCA reduces the negative impact on average by about one third for the EU and one quarter for the UK.

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Ex-EU Brexit negotiator Barnier: UK reputation at stake in Brexit row

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Head of the Task Force for Relations with the UK, Michel Barnier attendsthe debate on EU-UK trade and cooperation agreement during the second day of a plenary session at the European Parliament in Brussels, Belgium April 27, 2021. Olivier Hoslet/Pool via REUTERS

Michel Barnier, the European Union's former Brexit negotiator, said on Monday (14 June) that the reputation of the United Kingdom was at stake regarding tensions over Brexit.

EU politicians have accused British Prime Minister Boris Johnson of not respecting engagements made regarding Brexit. Growing tensions between Britain and the EU threatened to overshadow the Group of Seven summit on Sunday, with London accusing France of "offensive" remarks that Northern Ireland was not part of the UK. Read more

"The United Kingdom needs to pay attention to its reputation," Barnier told France Info radio. "I want Mr Johnson to respect his signature," he added.

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Germany’s Merkel urges pragmatic approach to Northern Ireland

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German Chancellor Angela Merkel (pictured) called on Saturday for a “pragmatic solution” to disagreements over part of the Brexit deal that covers border issues with Northern Ireland, Reuters Read more.

Prime Minister Boris Johnson said Britain will do "whatever it takes" to protect its territorial integrity in a trade dispute with the European Union, threatening emergency measures if no solution was found.

The EU has to defend its common market, Merkel said, but on technical questions there could be a way forward in the dispute, she told a news conference during a Group of Seven leaders' summit.

"I have said that I favour a pragmatic solution for contractual agreements, because a cordial relationship is of utmost significance for Britain and the European Union," she said.

Referring to a conversation she had with U.S. President Joe Biden about geopolitical issues, Merkel said they agreed that Ukraine must continue to remain a transit country for Russian natural gas once Moscow completes the controversial Nord Stream 2 gas pipeline under the Baltic Sea.

The $11 billion pipeline will carry gas to Germany directly, something Washington fears could undermine Ukraine and increase Russia's influence over Europe.

Biden and Merkel are due to meet in Washington on July 15, and the strain on bilateral ties caused by the project will be on the agenda.

The G7 sought on Saturday to counter China's growing influence by offering developing nations an infrastructure plan that would rival President Xi Jinping's multi-trillion-dollar Belt and Road initiative. L5N2NU045

Asked about the plan, Merkel said the G7 was not yet ready to specify how much financing could be made available.

“Our financing instruments often are not as quickly available as developing countries need them,” she said

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Macron offers UK's Johnson 'Le reset' if he keeps his Brexit word

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French President Emmanuel Macron offered on Saturday (12 June) to reset relations with Britain as long as Prime Minister Boris Johnson stands by the Brexit divorce deal he signed with the European Union, writes Michel Rose.

Since Britain completed its exit from the EU late last year, relations with the bloc and particularly France have soured, with Macron becoming the most vocal critic of London's refusal to honour the terms of part of its Brexit deal.

At a meeting at the Group of Seven rich nations in southwestern England, Macron told Johnson the two countries had common interests, but that ties could improve only if Johnson kept his word on Brexit, a source said.

"The president told Boris Johnson there needed to be a reset of the Franco-British relationship," the source, who spoke on condition of anonymity, said.

"This can happen provided that he keeps his word with the Europeans," the source said, adding that Macron spoke in English to Johnson.

The Elysee Palace said that France and Britain shared a common vision and common interests on many global issues and "a shared approach to transatlantic policy".

Johnson will meet German Chancellor Angela Merkel later on Saturday, where she could also raise the dispute over a part of the EU divorce deal that is called the Northern Ireland Protocol.

The British leader, who is hosting the G7 meeting, wants the summit to focus on global issues, but has stood his ground on trade with Northern Ireland, calling on the EU to be more flexible in its approach to easing trade to the province from Britain.

The protocol aims to keep the province, which borders EU member Ireland, in both the United Kingdom's customs territory and the EU's single market. But London says the protocol is unsustainable in its current form because of the disruption it has caused to supplies of everyday goods to Northern Ireland.

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