Week Ahead (15 September)

W/C Monday, 15 September – New French Prime Minister Sebastien Lecornu’s first full week in office amid nationwide strikes 

Today, kicks off the first full week in office for new French Prime Minister Sebastien Lecornu, who was appointed last Wednesday after the fall of Francois Bayrou’s short-lived government over its suggested 2026 Budget cuts. Lecornu will continue his consultations with stakeholders by holding talks today with France’s major syndicates and trade unions, namely CGT, CFTC, CFE-CGC and CPME, before meeting with political leaders later in the week. 

Lecornu has moved quickly to distance himself from his predecessor, promising not a cosmetic reworking of the July budget plan but a new draft aimed at broadening support in parliament. His first meetings with Socialist leader Olivier Faure earlier last week suggest he has presidential backing to make visible concessions, such as ruling out the use of Article 49.3 to pass the budget and opening the door to measures on tax justice, including a potential “Zucman tax” on ultra-wealthy households. 

The Socialists remain cautious but have not dismissed cooperation, setting conditions around new revenue streams and a higher minimum wage. However, ceding to many concessions to the Socialists would complicate relations with Les Republicains (LR), who share little policy ground with the left but are also wary of being seen as obstructing stability. 

This political balancing will take place in parallel with a day of nationwide strike action on Thursday, 18 September. France’s eight major unions, including CGT, Solidaires, FO and CFDT, have called demonstrations and blockades across multiple sectors. The mobilisation is formally directed against measures originally expected in the 2026 Budget, such as a freeze on social welfare spending and the abolition of two public holidays, but also reflects broader discontent over pay, working conditions. Despite the collapse of the Bayrou government, the appointment of Lecornu is seen by many protesters as a continuation of Macron’s policies. Significant disruption is expected in transport, education and the civil service. 

Overall, Macron has presented Lecornu’s mandate as building a bridge between the moderate left and right in order to secure adoption of a revised 2026 Budget before the end of 2025, with visible concessions on unpopular measures such as eliminating public holidays. Therefore, ministerial appointments are not expected immediately, given the complexity of this balancing act. 

W/C Monday, 15 September – Council could reach final deal regarding mandate of Canada and the UK’s participation in SAFE 

This week, EU ambassadors are expected to move closer to a deal on opening the Security Action for Europe (SAFE) programme to the UK and Canada. The €150 billion loans-for-weapons scheme, launched earlier this year to boost joint defence procurement, has until now been limited to EU member states. London and Ottawa have already concluded security and defence partnership agreements, signed in May and June, that paved the way for their inclusion, but a dedicated technical deal is still required before they can gain full access. 

Talks resumed earlier this month when national experts reopened the file on 4 September. According to diplomats, the aim is to finalise a Council mandate allowing the Commission to negotiate directly with the two partners, potentially as early as this week. The entry fees for the UK and Canada will be determined based on GDP, the competitiveness of their defence industries, and the scope of cooperation with EU partners, meaning countries with broader access to the European defence market would be expected to contribute more. 

Two key issues remain on the table. First is the maximum share of components that can originate outside the EU and its partners. France, which has consistently sought to reserve EU funds for EU industry, has pressed for stricter limits on UK and Canadian content, asking the Commission to clarify how percentages and third-country contributions should be calculated, and insisting ambassadors remain involved in the process. Even though Paris found little backing on last Friday’s meeting, several capitals share its underlying concern that EU funds should not disproportionately benefit UK industry. Second is whether the UK and Canada should be handled in a single Council decision or split into two separate tracks. 

Even though there are enough votes for a qualified majority despite French objections, agreeing on a defence file without Paris carries political risks. While no breakthrough is expected in today’s talks, officials are increasingly confident that an EU mandate could be signed off in the coming days, paving the way for formal negotiations with London and Ottawa before the end of the month. Meanwhile, the Commission also confirmed on Friday that Turkey and South Korea have requested participation in SAFE, a politically sensitive issue given Ankara would need unanimous approval from EU capitals, something Cyprus and Greece are likely to resist. 

Thursday, 18 September – Bank of England expected to keep rates steady amid sticky inflation despite weak labour market 

On Thursday, the Bank of England’s Monetary Policy Committee will convene against a worsening backdrop than in August, when a slim majority backed a 25bp cut that brought the Bank Rate down to 4.00%. This time, with inflation heading higher again and the latest CPI release due just a day before the meeting, markets and analysts widely expect the MPC to pause. 

The July CPI print surprised to the upside at 3.8%, the strongest reading in 18 months and the highest among G7 economies. The Bank itself now projects headline inflation to hit 4% in September, double its 2% target. Food inflation has become a particular concern, with prices expected to climb above 5% by year-end as payroll tax hikes and minimum wage increases feed into costs. 

Nevertheless, at the same time, the argument for easing is not entirely gone. GDP shrank by 0.1% in May and 0.2% in June, and wage growth has softened alongside a modest uptick in unemployment. Retail sales remain weak, while surveys of consumer and business confidence point to sluggish activity. The August rate cut was opposed by nearly half of the Committee, indicative of the difficulty of the balancing act that the Bank will have to perform in the months ahead. 

The inflation data for August, to be released on 17 September just one day before the meeting, could influence the tone of the debate, but is unlikely to shift the overall outcome. Most economists now expect the next 25 basis point cut in November, with another move possible in early 2026. The Bank’s latest forecasts suggest inflation will ease to 3.6% in December and average 2.5% over 2026, before returning to target only in the second quarter of 2027. 

Friday, 19 September – Eurogroup to discuss holding limits for digital euro 

On Friday, Eurozone’s finance ministers will meet in Copenhagen to discuss the design of the digital euro, with a particular focus on how much money citizens should be able to hold in a digital wallet. The project, launched by the ECB in 2021 and now in its preparation phase, aims to create a central bank–issued electronic version of cash that could be used alongside banknotes and coins. Even though not intended to replace physical money, the digital euro is intended to provide a secure and universally accepted means of payment across the euro area. 

The question of holding limits has been one of the most contentious topics with regards to the digital euro. The ECB has long argued that allowing households to store unlimited digital euros would risk destabilising the banking system, particularly in times of stress, when depositors might empty accounts en masse and move funds into central bank money. To mitigate that risk, the central bank has floated a holding cap of around €3,000 per person, combined with a “waterfall” system that would automatically transfer excess funds back into a linked bank account or convert deposits into digital euros when needed for larger purchases. 

On Friday, senior finance ministry officials examined a fresh compromise designed to close the gap between the ECB and national capitals on the holding limit. The approach would see the ECB publish a report and propose a cap roughly a year before the launch of the digital euro. Six months ahead of issuance, governments could, by reinforced majority, endorse or amend that recommendation. If they failed to agree, the ECB’s proposal would stand and the project could proceed. Importantly, any adjustment to the ceiling after the launch would require prior approval from member states, ensuring the central bank could not unilaterally revise it later. 

The proposal reflects months of difficult exchanges between capitals and the ECB. Similar ideas were floated in July but drew pushback from ministers and even led to direct tensions with ECB President Christine Lagarde. The Commission circulated the new version last Thursday, and the final text reached capitals only on Friday afternoon. Several governments asked for more details before putting it before finance ministers. It will now be up to the Eurogroup to consider whether to endorse the compromise when they meet in Copenhagen, where only 40 minutes of the agenda has been reserved for the digital euro. 

The ECB’s preparation phase runs until October 2025, after which a final political decision will be required to launch the project.