Week Ahead (14 July)

W/C Monday, 14 July – EU-US tariff negotiations enter decisive stage; EU countermeasures to be presented today following latest US tariff threats

With the Trump administration’s “Liberation Day” tariff suspension now set to expire on 1 August, EU–US trade talks are entering a critical point, albeit momentum for a quick breakthrough this week has now faded. Instead, attention is turning to today’s EU Trade Council, where the European Commission is expected to present a new package of retaliatory tariffs in response to fresh US threats.

On Friday, President Trump sent a formal letter to the EU threatening to impose 30% tariffs on a wide range of EU goods starting 1 August, unless Brussels accepts Washington’s terms. In order to facilitate negotiations, the Commission has shelved its first package of countermeasures, originally scheduled to take effect today (14 July), which targeted €21 billion worth of US exports. Instead, the focus has shifted to a second, broader package now under discussion. That list, initially meant to cover €100 billion in US goods, has since been watered down to €72 billion following a one-month consultation phase with member states and stakeholders. It is expected to focus on US cars and aircraft, sectors seen as strategically significant but politically sensitive. While the second package has been informally coordinated with key capitals, it still requires formal backing from member states. Today’s ministerial meeting will serve as a platform for presenting the new lists, with a formal vote expected at a later stage.

Commission President Ursula von der Leyen defended the revised approach on Sunday, stating that freezing the first package while preparing the second allows Brussels to remain “always prepared” without escalating prematurely. However, pressure is growing from some capitals to take a firmer line. France, in particular, has renewed its calls to activate the EU’s Anti-Coercion Instrument (ACI), arguing that Trump’s latest threats amount to clear coercion. ACI would target US big tech services and its potential leverage lies in the fact that the US runs a goods trade deficit with the EU, but maintains a services trade surplus Von der Leyen, however, pushed back, arguing that the ACI is reserved for “extraordinary situations” and that “we are not there yet.”

In parallel, EU capitals continue their push to shield key industries from potential US retaliation, leading to the narrowing of the countermeasure scope. The automotive sector remains one of the most politically sensitive areas. Since April, EU carmakers have faced a 25% US import tariff under Section 232, on top of the standard 2.5% rate. Several options are now on the table to resolve the auto component of the deal, including:

·       A production-offset proposal allowing carmakers with large US manufacturing bases (e.g., BMW, Mercedes-Benz) to receive import relief based on the value of vehicles they export from the US;

·       A “one-in-one-out” mechanism, under which each car exported from the US to the EU would allow one EU-produced car to enter the US at a reduced tariff;

·       A quota-based arrangement modelled on the UK–US deal, capping tariff relief at a fixed number of vehicles annually;

·       Or a flat tariff reduction aligning US auto tariffs more closely with the EU’s 10% rate.

Each proposal carries trade-offs, particularly for EU unity. A narrowly tailored production-offset deal would disproportionately benefit German firms, risking pushback from other EU carmakers, especially in Italy, Sweden, and Slovakia, that lack US production facilities. More politically neutral options, like a general tariff cut or quota-based deal, remain under discussion but could face resistance in Washington.

To date, however, no auto-specific deal is in sight although Trump clarified in Saturday’s letter that the proposed 30% tariffs would be separate from existing Section 232 measures, meaning the 25% levy on vehicles and parts would remain unchanged.

EU capitals will assess the Commission’s proposed retaliation list today, with a formal vote expected later this month, unless a breakthrough is reached by 1 August. Although Brussels wants to avoid a full-scale trade escalation, Trump’s latest 30% tariff threat has made it politically harder for EU leaders to justify further concessions.

Tuesday, 15 July – French Prime Minister Bayrou to present €40 billion spending cut plan, likely to fuel political uncertainty

French Prime Minister Francois Bayrou is expected to present a plan tomorrow outlining up to €40 billion in spending cuts as part of the 2026 budget, aiming to reduce France’s fiscal deficit to 4.6% of GDP. With the 2024 deficit projected at 5.8% of GDP, far above the 3% EU threshold dictated by the Growth and Stability Package, France is already under an Excessive Deficit Procedure, prompting Bayrou to push for deep cuts ahead of a tense autumn budget cycle.

Bayrou has continued to be secretive about the content of the announcement. However, a government source indicated over the weekend that virtually all ministries are expected to face cuts. Barring a last-minute change, the plan is also expected to include a freeze on pensions and on adjustments to the income tax scale, while local authorities will also be asked to contribute.

At the same time, the government is seeking to reassure the business community by offering targeted tax reductions, while planning to increase the tax burden on the wealthiest households. Bayrou is expected to maintain the differential contribution on high incomes (CDHR), originally intended as a temporary measure, and introduce a new tax on high net worth individuals, aimed at raising several billion euros annually. The combined effect would be double taxation of top earners, although details of any changes to tax loopholes are unlikely to be disclosed at this stage.

Complicating Bayrou’s job further, President Macron announced on Sunday that France will accelerate its defence spending timeline, with the armed forces budget now set to reach €64 billion in 2027, instead of 2030 as previously planned. This revision to defence spending will narrow the fiscal space available for cuts elsewhere and further complicates the government’s ability to meet its €40 billion savings target.

Tuesday’s announcement will come only a few days after his minority government narrowly survived a no-confidence vote earlier this month, thanks to the abstention of Marine Le Pen’s National Rally (RN). However, this most recent motion was introduced by the Socialists following the collapse of pension reform talks; RN leader Jordan Bardella has also made clear that the “moment of truth” for Bayrou’s government will come in the autumn during budget negotiations.

France’s budget process remains under heavy political strain. Bayrou’s coalition holds just 212 seats in the 577-seat National Assembly, far short of the 289 needed for a majority. As a result, his government has relied repeatedly on Article 49.3 of the Constitution, which allows passage of budget bills without a vote but automatically triggers no-confidence motions. This tool was used earlier this year to push through both the 2025 State Budget and the Social Security Financing Bill.

The 2026 budget calendar foresees the following: "ceiling letters" to ministries are due to be sent by 15 July, the draft text will be sent to the Council of State in August, and the final budget is expected to be submitted by 7 October. If parliamentary support is lacking, Bayrou has already said he would invoke Article 49.3 again. That would likely prompt another confidence vote and this time, RN has signalled it may not stand aside, increasing the likelihood of a successful motion of no confidence this autumn.  Bayrou should be somewhat relieved that the parliament entered recess last Friday, thereby ensuring his survival at last until it reconvenes in early September. 

Wednesday, 16 July – President von der Leyen to present the EU’s next long-term budget

On Wednesday, President von der Leyen will present the final version of the 2028-2034 multiannual financial framework (MFF), the EU’s next long-term budget.  The new MFF is expected to redefine how and where the EU spends its money over the next seven years, against a backdrop of slowing growth, mounting fiscal constraints in member states, rising geopolitical uncertainty, and pressure to match the industrial capacity of the US and China.

The current MFF allocates just over €1.2 trillion (2021–2027), with Cohesion Policy and the Common Agricultural Policy (CAP) together accounting for nearly two-thirds. These pillars are now under pressure as the Commission shifts focus toward industrial and strategic goals.

The centre-piece of the proposal is the European Competitiveness Fund (ECF), designed to consolidate up to 14 existing programmes under a single financial umbrella. According to a leaked draft, the ECF would merge funding streams from Digital Europe, InvestEU, the European Defence Fund, IRIS2, the Innovation Fund, and defence programmes like EDIRPA and ASAP. The goal is to pool resources for priority sectors, such as clean tech, digital, space, biotech, and defence, while leveraging more private capital through financial instruments. On the contrary, programmes focused on health, climate, and research could see their resources be diluted under the ECF’s broad scope.

At the same time, the Commission will propose new own resources to fund this expanded agenda. These include:

·       A corporate levy on large companies operating in the EU, based on “net turnover” above €50 million. This would apply regardless of where the company is headquartered and would be structured using revenue brackets, with higher earners contributing more;

·       A share of national tobacco excise duties;

·       A charge for non-recycled electronic waste;

·       A handling fee for long-distance e-commerce parcels, mainly targeting low-value imports from China.

However, one notable omission is the digital tax, which had previously been pitched as a potential EU own resource. Its absence reflects continued internal divisions and is also seen as a political concession to avoid further antagonising the US at a delicate moment in EU–US trade negotiations.

Alongside the funding side, changes to spending priorities are also expected. The Commission will propose a new system of “regional-national partnerships” and expand cohesion funding eligibility to include strategic goals like AI and defence. CAP spending is expected to decline, with internal estimates suggesting a 15–20% reduction. This shift coincides with the start of repayments on the €650 billion Recovery Fund, tightening the budget envelope unless new revenues are approved.

In a bid to secure political support ahead of the launch, President von der Leyen has already made concessions to the European Parliament, including maintaining the European Social Fund Plus (ESF+) as a standalone instrument and preserving direct payments to regions. These guarantees helped secure backing from the Socialists and Renew Europe, allowing von der Leyen to survive a no-confidence vote last week.

This week’s proposal will trigger negotiations between the Commission, Parliament, and member states that are expected to last until 2027. Major areas of disagreement in the coming months will centre around the budget’s total size, the future of cohesion and CAP funding, as well as the role of potential new EU-level revenue streams.