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Week Ahead (13 January)

TPA


Monday, 13 January – E5 defence ministers gather in Warsaw; Poland to push for higher defence spending 

Defence ministers from France, the UK, Germany and Italy are convening in Warsaw today for a meeting hosted by Polish defence minister Wladyslaw Kosiniak-Kamysz. Ukraine’s defence minister Rustem Umerov will also participate remotely, since discussions will mainly focus on bolstering Ukraine’s defence capabilities, increasing military spending, and fostering greater cooperation within Europe’s defence industry. The meeting will mark only the second instance of talks of the so-called E5 format. The backdrop to today’s meeting is the impending return of Donald Trump to the White House next week, which has reignited pressure on NATO allies to take greater financial responsibility for their security. 

 

In an interview with the Financial Times over the weekend Kosiniak-Kamysz endorsed Trump’s demand for NATO members to increase defence spending to 5% of GDP. Currently, only 23 of NATO’s 32 members meet the existing target of 2%, with Italy and Spain among the most significant laggards. On the contrary, Poland’s 2024 defence budget allocates 4.7% of GDP to military expenditures, the highest in NATO, positioning Warsaw as a leading advocate for increased spending.  

 

Nevertheless, despite Poland’s push, significant disagreements persist among the E5 countries. Italy, which has yet to meet NATO’s 2% target, faces domestic budgetary constraints and has called for military spending to be excluded from EU deficit calculations. Meanwhile, Spain currently allocates only 1.28% of GDP to defence, the lowest among NATO members. Madrid has pledged to meet the 2% target by 2029, but this timeline is increasingly viewed as insufficient given the current geopolitical climate. Additionally, Poland’s call to redirect unused funds from the EU’s €800 billion COVID-19 recovery fund to defence has met resistance, particularly from Paris. Finally, the Polish defence minister highlighted that Poland’s presidency of the EU Council, which began on 1 January, will focus on securing €100 billion from the EU’s next seven-year budget for defence. 

 

Wednesday, 15 January - Thursday, 16 January – Eurostat to release set of key data on migration and asylum 

This week, the Eurostat will release a set of key data concerning migration and asylum. Firstly, on Wednesday, Eurostat will publish the figures for people seeking temporary protection in November 2024.  

 

Following Russia’s invasion of Ukraine, member states activated for one year the Temporary Protection Directive which grants Ukrainian people the right to work and access to services and social benefits. Since then, the Council has extended multiple times the special protection status for Ukrainian refugees, with the most recent decision (June) extending the temporary protection until 4 March 2026. Per the latest update (October 2024), up to 4.2 million people fled Ukraine as a consequence of the Russian war of aggression, obtaining temporary protection status in EU member states. This amounts to a ratio of temporary protection beneficiaries from Ukraine relative to the EU population of 9.3 per 1,000 people. Czechia was the member state with the highest ratio at the end of October (34.8), followed by Poland (26.9) and Estonia (25.3). In October alone, EU member states issued 63,530 new decisions providing temporary protection as the war drags on.  

 

On Thursday, Eurostat will also release data with the total number of asylum applications in October 2024. In September, the EU total rate of first-time asylum applicants was 16.9 per 100, 000 people. Compared with the population of each EU country, the highest rates of first-time applicants were recorded in Greece (66.0), followed by Cyprus (31.9). Syrians remained the largest group of people seeking asylum ahead of Venezuelans (5,480), Afghans (4,950), and Turks (4,455). 

 

Both data could feed into Eurosceptic forces. Temporary protection could be one of the issues fuelling war fatigue in EU member states as the war in Ukraine enters its fourth year next month. Furthermore, the growing presence of right-wing parties in the European Parliament and national parliaments have increased the pressure on EU centrist leaders to contain the rise of far-right forces, reinforcing a trend towards stricter and more externalised migration management. The Polish Presidency of the Council of the EU in the first half of 2025 is likely to further push towards this direction, as it has already announced that security will be the central theme of its tenure. The Polish government recently stated that the EU’s Migration and Asylum pact cannot be fully implemented because it threatens the country’s national security due to its geographical proximity to Russia and Belarus. Given the broader turmoil in the Middle East, this topic is poised for further politicisation in the coming months. 


Thursday, 16 January – ECB to release minutes of December meeting 

On Thursday, the European Central Bank (ECB) will release the minutes of its December meeting, indicating its monetary trajectory in 2025, including the level of support for the governing council’s further rate cuts in the coming months. 

 

The ECB concluded 2024 with its deposit rate at 3%, after cutting once again rates by 25 basis points in its December meeting, following a series of quarter-point cuts initiated in June to counter slowing growth and subdued inflation. As inflation rates eased to 2.3% by the year’s end, policymakers have grown cautiously optimistic that the price outlook is improving. In its December meeting, the ECB dropped its reference to maintaining a “restrictive” monetary policy, signalling that more rate cuts will follow in 2025. 

 

Following its dovish turn in late 2024, the ECB has indicated that it will maintain a cautious pace of rate cuts this year, aiming to stabilise the eurozone’s faltering economy while ensuring inflation remains aligned with its 2% medium-term target. Market expectations suggest the ECB will reduce rates further to between 1.75% and 2% by September 2025, a scenario supported by the ECB’s recent acknowledgment of ongoing weak economic momentum. However, 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 in coming months. 


Friday, 17 January – DORA to become applicable 

On Friday, the  Digital Operational Resilience Act (DORA) will become applicable. 

 

DORA aims to harmonise ICT risk requirements across member states and is considered a crucial piece of legislation in the protection of the financial sector at a time of growing digitalisation.   The Commission proposed DORA in September 2020, hoping to offer a comprehensive framework in order to harmonise digital resilience processes and standards across the financial sector. DORA also aims to strengthen the authority of the supervisors and enables direct oversight.  It will cover matters including the relationships between financial services companies and data storage providers and will have a direct impact on how cryptocurrencies are regulated.  The scope of the act is broad, applying to the traditional financial sector, fintechs, and third-party service providers for financial entities. It is estimated to cover over 20,000 entities. 

 

The Council adopted the new rules in November 2022, following a breakthrough in trialogue negotiations. In terms of a regulator, in their negotiations, member states compromised on the text by accepting the Commission's position that the supervision of ICT risk in Europe would be carried out jointly by the European Banking Authority (EBA), the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority, as opposed to its earlier idea of giving exclusive responsibility to the EBA. It is understood that Germany opposed the idea of the EBA taking on the role as it would mean further responsibilities being vested in the Paris-based organisation.  

 

DORA, together with the Markets in Crypto Assets Regulation (MiCA), whose last provisions became applicable last month, is part of the EU’s digital finance package that aims to ensure financial stability and consumer protection. 

 

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