Week Ahead (11 November)

W/C Monday, 11 November – Germany enters a period of political uncertainty following collapse of the ‘’traffic light’’ coalition; snap elections on the horizon

Germany is entering a period of political uncertainty following the collapse of the ‘’traffic light’’ coalition on Wednesday. Escalating conflicts over fiscal policy and economic strategy culminated in Chancellor Olaf Scholz’s decision to dismiss Finance Minister Christian Lindner. Scholz cited Lindner’s repeated obstruction of government initiatives and refusal to relax spending rules as key reasons, particularly his resistance to funding additional aid for Ukraine. Scholz argued that Lindner’s actions had consistently undermined coalition unity.

Lindner, in turn, criticised Scholz for ignoring Germany's economic challenges, accusing him of downplaying citizens' concerns and failing to adopt pro-growth policies. Lindner’s Free Democratic Party (FDP), the smallest in the coalition with the Social Democrats and the Greens, has been struggling in the polls. FDP is polling at 4.5%, currently at risk of missing the required 5% threshold to enter the Bundestag.  It has found itself repeatedly at odds with its partners on budget priorities, tax policies, and climate measures. With the 2025 budget deadline looming and a substantial fiscal gap unresolved, Lindner pushed for liberal economic reforms, including tax cuts and a rollback on climate policies. This push was aimed at appealing to his fiscally conservative electoral base ahead of the 2025 federal election.

Following the collapse of his coalition last week, Scholz announced that a confidence vote should be expected on 15 January. In the likely scenario that he loses this vote, the German president has the right to dissolve the Bundestag within 21 days. Subsequently, a snap election should take place within 60 days, which effectively means by 6 April. This would leave Germany operating on a restricted budget until a new government forms and approves a full budget, which could be delayed up until mid-2025 if coalition negotiations extend.  Indicatively, after the last federal election to date in September 2021, the new figures were approved by parliament almost nine months later, at the beginning of June 2022.

Nevertheless, in an interview with German media last night, Scholz stated that he would be open to hold a confidence vote before Christmas ‘’if everyone sees it that way’’. The current leading opposition bloc, the conservative CDU/CSU and its leader Friedrich Merz have been urging the German chancellor to hold a confidence vote as early as this week, aiming to capitalise on the positive momentum in the polls. In addition, Anton Hofreiter and Irene Mihalic, two leading members of the Green Party, SPD’s junior partner in the current coalition, also told Bild newspaper over the weekend that the confidence vote should be held in December.

The CDU/CSU is currently first in the polls with 32%, far ahead of the far-right AfD and the ruling SPD, which are polling at 18% and 15.5%, respectively. The Greens follow with 10%, while the hard-left BSW are on 8%. Given that Merz has repeatedly ruled out any collaboration with the AfD, the CDU would likely need to partner with the SPD and Greens—or alternatively, with the Greens and FDP—to secure a majority. This scenario could require prolonged negotiations and compromise. Meanwhile, the German economy is expected to contract for a second consecutive year in 2024 before slowly recovering (1.1%) in 2025, per the latest projections.

Tuesday, 12 November – Parliamentary hearings of Commissioners-designate to conclude 

On Tuesday, parliamentary hearings of Commissioners-designate will conclude.

In September, President von der Leyen presented her list of the 26 nominees for the next European Commission to MEPs, along with their proposed portfolios. Each commissioner-designate has to undergo confirmation hearings before the European Parliament, often lasting several hours, where they face rigorous questioning. Although the Parliament can only reject the Commission in its entirety, rather than individual Commissioners, historically it is not uncommon for it to de facto reject individual nominees through political pressure; indicatively, during the last cycle, three bowed out at this stage.  

In last week’s hearings, all of the Commissioners-designate successfully passed the initial round securing over two-third majority votes. The only exception was Hungary’s Oliver Varhelyi who had to respond on Friday to five follow-up questions from MEPs in order to convince them of his suitability for the health portfolio, with a decision expected today. Nevertheless, it appears that this time all 26 nominees may pass. This would mark the first time since 2004 that all nominees proceed without disruption, a possibility driven largely by political pragmatism rather than unanimity.

In the remaining hearings tomorrow, the Parliamentary committees will deal with the nominated Executive Vice-Presidents. The list includes:

·       Estonia’s Kaja Kallas (Renew) who has been nominated to be in charge of the EU’s foreign policy;

·       Italy’s Raffaele Fitto (ECR) who would focus on economic affairs and cohesion;

·       France’s Stephane Sejourne (Renew), who would be in charge of the bloc’s industry and competitiveness;

·       Spain’s Teresa Ribera (S&D), who has been tasked with handling an enlarged portfolio encompassing both competition rules and green policies;

·       Finland’s Henna Virkkunen (EPP), who has been nominated Executive Vice-President for Tech Sovereignty.

As the only nominated Executive Vice-President to come from ECR, a group that did not back von der Leyen’s re-election, Raffaele Fitto is expected to face intense scrutiny by MEPs this week. S&D and Renew Europe members in particular have expressed concerns over Fitto, who is aligned with Georgia Meloni. However, they are constrained by the EPP’s capacity to retaliate against their own key candidates.

Ribera’s hearing will draw particular attention from various industries, since it is expected to be centred around the competition aspect of her portfolio rather than the climate one. Questions will focus inter alia on the potential modernisation of merger guidelines in competition policy, the Commission’s approach to the so-called killer acquisitions of European start-ups by non-EU companies, and state aid. In addition, questions will likely be posed on the Clean Industrial Deal, a major legislative initiative that featured in von der Leyen’s mission letter to Ribera in September, aiming to promote clean energy while reversing lagging competitiveness.

The goal is for the new European Commission to begin its term on 1 December. However, any complications or additional hearings could further delay the process, potentially extending it into January 2025.

Wednesday, 13 November – Deadline for Booking to ensure compliance with the DMA

On Wednesday, the deadline for the online travel platform Booking.com to ensure compliance with the Digital Markets Act expires. In May, the European Commission named Booking.com as a gatekeeper under the DMA marking it as the first European tech platform to receive this designation.

In September 2024, the Commission confirmed its initial list of six tech companies qualifying as "gatekeepers" under the DMA: Apple, Alphabet (Google), Amazon, Meta, ByteDance (TikTok), and Microsoft. Companies with an annual turnover exceeding €7.5 billion, a market capitalisation over €75 billion, and active monthly users in the EU totalling 45 million are subject to these rules. The Commission has the authority to investigate the actions of gatekeepers and impose fines of up to 10% of their global turnover from the preceding year if they breach the DMA. As previously reported, it has already launched full-scale investigations into the compliance of Apple, Google, and Meta with the DMA, aiming to conclude these within 12 months.

In its announcement of Booking.com’s addition to the gatekeeper list, the Commission described the platform as an "important gateway between businesses and consumers" in the digital economy, noting that it surpassed the monthly user threshold of 45 million last year. As a newly designated gatekeeper, Booking.com must comply with digital competition rules by this week, which may require changes to its online business practices, such as preventing it from favouring its own services over rivals on its platform. 

More specifically, by Wednesday, Booking.com has to submit a detailed report to the Commission outlining the measures implemented to ensure compliance with the DMA obligations (Article 11 DMA) and an audit describing customer profiling techniques (Article 15 DMA). Later this month, on 25 November, the Commission is organising a workshop on Booking.com to allow interested parties to ask for clarification and to give feedback on the proposed compliance solutions.

Thursday, 14 November - ECB to release minutes of October meeting

On Thursday, the European Central Bank will release the minutes of its last meeting where it dropped rates by 25 basis points on 17 October, its third rate cut this year, from 3.50% to 3.25%. The decision was driven by the easing of inflation to 1.7% in September, falling below the ECB’s target of 2% for the first time in over three years, along with a sluggish economic growth of 0.3% in the euro area in Q2 2024.

In previous months, the ECB Governing Council refrained from committing to a specific rate cut path, with its more hawkish members stressing the importance of data-driven decisions. However, a worsening economic outlook prompted Portugal’s central bank governor Mario Centeno to suggest that December’s meeting may consider a more aggressive cut, noting that the latest data “could support a more significant reduction in rates", hinting at the possibility of a 50-basis-point cut. In a similar spirit, Italy’s Fabio Panetta argued that "given the pace of disinflation and the weakness of the real economy, we cannot exclude that we may need to go below the neutral rate," suggesting the ECB could prioritise support for growth over inflation targets if needed.

Nevertheless, inflation data for October showed an uptick, rising to 2%, slightly higher than the 1.9% forecast, with food, alcohol, and tobacco prices driving the increase. Core inflation and services inflation, which are key indicators for domestic price stability, remained steady at 2.7% and 3.9%, respectively. This latest uptick is likely to settle the debate over a larger, 50-basis-point cut, signalling that the central bank may continue with more gradual approach in monetary easing, in line with the calls of its more hawkish GC members, including Austrian central bank chief Robert Holzmann.

Christine Lagarde has repeatedly stated that the Governing Council would not provide guidance on future rate decisions.  Nevertheless, market participants will look through this week’s minutes for any signs pertaining to its approach beyond the December meeting.

Friday, 15 November – Deadline for Snapchat, YouTube and TikTok to respond to the Commission’s latest request for information under the DSA

On 2 October, the European Commission sent a Request for Information (RFI), demanding that YouTube, Snapchat, and TikTok disclose details about the algorithms they use to recommend content and their compliance with the Digital Services Act (DSA). More specifically, the Commission is focusing on how these algorithms could impact sensitive areas such as the electoral process, mental health, and the protection of minors. The requests also cover the platforms’ strategies for mitigating the spread of illegal activities, such as the promotion of illegal drugs and hate speech, which could be amplified by their content recommendation systems.

An RFI is a preliminary step that could lead to an official investigation under the DSA.  If these three Very Large Online Platforms (VLOPs) fail to comply with the EU’s request by the end of this week (15 November), the Commission could take stronger action, including opening formal investigations and imposing fines. Under the DSA, firms face potential penalties of up to 6% of their annual global revenue for serious infringements.  The EU has already opened non-compliance proceedings under the DSA against several platforms, including Meta’s Facebook and Instagram, TikTok, AliExpress, and X to assess their compliance with the new rules. These ongoing probes could result in fines of up to 6% of the global revenue of the designated VLOPs.