Week Ahead (19 January)

Monday 19 January – French cabinet to discuss which “legislative instrument” Sebastian Lecornu will use to pass France’s budget for 2026 

Last Thursday, finally acknowledging that the parliamentary arithmetic is impossible, the Lecornu government suspended the budget debate in the Assembly.  Lecornu has indicated that he will decide by tomorrow which “legislative vehicle” he will use to pass the budget.  Per previous updates, our assessment is that this can be only one of two vehicles – an unprecedented use of ordinances through the deployment of Article 47 (3) or the deployment of Article 49.3, per his predecessor Francois Bayrou.  Either way, Bayrou has indicated his determination that a budget will be passed “before the first half of February”.   

Lecornu is expected to make proposals for changes to the original draft (not the one approved by the Senate) to attempt to find a compromise between Les Republicains and the Socialists.  For the moment, the Lecornu team is insistent that the substance of the budget must be addressed before he decides on the legislative vehicle.  Press reports suggest that Macron, perhaps befitting of a President not seeking re-election, favours the use of ordinance in order “to get rid of” the budget as soon as possible.  By contrast, Lecornu may have an eye on the presidential election and on that basis will be reluctant to completely bypass parliament through the use of ordinance.   

Either way, Lecornu / Macron’s political opponents are already on the warpath.  Marine Le Pen accused the governing parties of lying when they committed to using neither Article 49.3 nor Article 47 (3).  The left are similarly up in arms.  

There are risks with both avenues.  Article 49.3, given that it enables some parliamentary oversight via a no confidence vote, is less controversial.  Two votes would almost certainly be required – firstly when introduced to the Assembly and again when it comes back from the Senate.   Thus, the support of the Socialists would need to be locked down in order to ensure the government’s survival.  

There is some suggestion that the government could use a combination of ordinance and Article 49.3 to minimise votes while maintain a veneer of parliamentary oversight.  Again, this would need to be pre agreed with the Socialists and likely Les Republicains.   Should Lecornu opt for ordinance because no negotiated solution with the Socialists / Les Republicains could be found, a censure motion would seem inevitable.  In this instance, the Lecornu government would be unlikely to survive but, at least, a budget would be in place for 2026.   

Nevertheless, over the weekend, political momentum appears to have shifted away from ordinances and towards Article 49.3, although the Prime Minister’s office continues to insist that Lecornu has not yet made a final decision. A cabinet meeting, which must authorise the use of Article 49.3, is scheduled for today, and it seems likely that the chosen instrument will be announced shortly after.   

W/C Monday, 19 January – EU leaders to assess response to latest US tariff threats over Greenland 

EU leaders will convene later this week (likely on Thursday) for an extraordinary in-person meeting to assess the bloc’s response to escalating US tariff threats linked to Greenland. The move comes after President Trump threatened to impose 10% tariffs on a group of EU member states, in particular Denmark, Sweden, France, Germany, the Netherlands and Finland, as well as the UK and Norway, over their stance on Greenland, marking another episode of deterioration in transatlantic relations. 

The emergency summit will take place after three days of intense diplomacy, with EU leaders using the World Economic Forum in Davos as an early de-escalation channel. Starting today, Davos is expected to host at least one face-to-face interaction between Trump and senior European leaders and officials, including Ursula von der Leyen and NATO counterparts, as capitals seek to prevent the Greenland dispute from spilling over into a broader NATO or trade crisis. National security advisers from several EU states are already on the ground, with Greenland displacing Ukraine as the top priority. 

Politically, EU leaders have so far tried to maintain a balance between firmness and restraint. EU diplomacy chief Kaja Kallas has warned that China and Russia stand to benefit from visible divisions among Western allies, while Italian Prime Minister Giorgia Meloni has described the US tariff move as a “mistake,” while signalling understanding of Washington’s Arctic security concerns. US Treasury Secretary Scott Bessent, by contrast, has shown little sign of backing down, arguing publicly that US control of Greenland would be “best for Greenland, best for Europe and best for the US.” 

In Brussels, contingency planning is accelerating. EU ambassadors have discussed the possible reactivation of up to €93 billion in retaliatory tariffs against the US — measures originally suspended after last year’s EU-US trade deal — should Washington follow through, although no decision is expected this week, with capitals watching whether the US follows through on its threats by 1 February. 

At the same time, debate is intensifying around the possible use of the EU’s Anti-Coercion Instrument (ACI). The ACI, which entered into force in 2023 after being designed in response to coercive trade tactics during Trump’s first term, would allow the EU to target US services, where Washington runs a significant surplus with Europe. In extremis, measures could include restrictions on US digital services and cloud infrastructure, limits on data flows or digital payments, suspension of certain intellectual property protections, or constraints on financial transactions involving US firms. While President Macron has spoken publicly in favour of keeping the ACI on the table, there is currently no majority among member states to trigger it, reflecting concerns about escalation and legal proportionality.  

Overall, for the moment the immediate preference remains de-escalation and dialogue rather than deliberate retaliation. Expectations for the ad hoc EU leaders’ meeting remain limited. The gathering is likely to focus on coordination, signalling, and scenario planning, rather than immediate countermeasures. Substantive decisions on tariffs or the ACI are more likely to be deferred to early February, once it becomes clear whether the US threat materialises. 

W/C Monday, 19 January – EU-UK to launch talks on linking carbon markets, part of ongoing ‘’reset’’ 

The EU and the UK are set to formally launch negotiations this week on linking their respective carbon emissions trading systems (ETS), marking another step in the gradual post-Brexit reset of relations. The talks were confirmed last Thursday by the EU’s Commissioner for Climate Wopke Hoekstra, who described an agreement as “imminently doable,” while stopping short of committing to a timeline. 

Linking the two ETS systems would allow UK exporters to avoid double carbon pricing under the EU’s Carbon Border Adjustment Mechanism (CBAM), which began applying CO2 costs this month to imports of carbon-intensive goods such as steel and cement. British industry has been pressing London to accelerate negotiations, warning that CBAM could apply to around £7 billion worth of UK exports if no linkage is agreed. Brussels has so far ruled out temporary exemptions while talks are ongoing. 

The move is politically framed as part of the broader EU–UK “reset” launched under the Labour government. The reset summit last May in London delivered a Security and Defence Partnership and progress across several sensitive files, including fisheries, agri-food trade, youth mobility, electricity market integration, and carbon markets. Even though defence originally emerged as one of the least contentious areas of cooperation, the UK’s participation in the EU’s €150 billion SAFE defence loan programme was not secured last November due to persistent disagreements over the terms of participation, including the UK’s budgetary contribution. 

Against this backdrop, carbon market linkage is seen as a technically complex but politically achievable win. UK power exports are largely expected to be exempt from CBAM due to already higher domestic carbon prices, but this is not the case for industrial goods such as steel. Progress on ETS linking would therefore reduce near-term trade frictions while reinforcing the narrative of pragmatic alignment, even as other dossiers, including subsidy control, data adequacy, and electricity trading, remain open. 

Tuesday, 20 January – European Commission to unveil Digital Network Act 

On Tuesday, the European Commission will present the long-delayed Digital Networks Act (DNA), after pushing back its original December timeline. The proposal is intended to streamline the EU’s fragmented telecoms framework and address investment shortfalls, but a draft version circulated this week points to a measured, politically constrained outcome rather than a structural overhaul. 

Telecoms policy continues to sit at the intersection of competition enforcement and the EU’s competitiveness agenda. Although the Draghi Report, which called in 2024 for greater scale as a prerequisite for investment and innovation, still informs the Commission’s narrative, member state resistance and institutional caution limit how far Brussels can move.  

Thus, the leaked draft suggests the DNA prioritises procedural harmonisation and governance adjustments over new fiscal instruments. It introduces a cross-border “single passport” allowing operators to provide services EU-wide based on authorisation from their home member state. Spectrum licences would, in principle, be granted for unlimited duration, while preserving national discretion, alongside a planned Commission recommendation on a common spectrum pricing methodology, an area of continued sensitivity for member states. 

Institutionally, the proposal would expand the role of BEREC, whose office would be rebranded as the Office for Digital Networks (ODN) and tasked with, among other things, developing a Union-level preparedness plan for digital infrastructure resilience. Operators would also face stronger obligations to cooperate with authorities in addressing fraud and misuse of networks, with the ODN acting as a coordination hub, including input from bodies such as Europol. 

Despite its technocratic framing, several elements are likely to generate external friction. Access to radio spectrum would be linked to forthcoming ICT supply-chain security requirements, reinforcing pressure on “high-risk” vendors such as Huawei and ZTE. The draft also introduces a conciliation mechanism allowing regulators to intervene in disputes between networks and digital service providers over what constitutes “fair, reasonable and proportionate” use of network resources, a provision likely to be interpreted by US tech companies as a de facto revival of the fair share debate. In parallel, the Commission would assume a more central role in authorising satellite-based connectivity providers through a single EU-level authorisation, with implications for actors such as Elon Musk’s SpaceX. 

Overall, if confirmed largely in its current form, the DNA is unlikely to close the EU’s telecom investment gap through new fiscal tools or centralised governance. In practice, a more permissive stance on consolidation – particularly around investment remedies – remains the most feasible adjustment tool, as alternatives such as EU-level spectrum centralisation or a mandatory “fair share” contribution from large digital platforms face persistent political opposition. This is because several capitals remain wary of fiscal implications for national spectrum auctions and of measures that could aggravate transatlantic tensions by being perceived as targeting US-based traffic generators. 

Thursday, 22 January – European Commission to publish minutes of December monetary policy meeting 

On Thursday, the European Central Bank will release the minutes of its December Governing Council meeting, at which policymakers held the deposit rate at 2% for a fourth consecutive meeting. While the decision itself was fully in line with expectations, the minutes are expected to provide clearer insight into the Governing Council’s risk balance for 2026, as well as the appetite heading into the next policy meeting on 4 February. 

The December decision reflected growing confidence that monetary conditions are broadly appropriate. President Christine Lagarde confirmed that neither rate cuts nor hikes were discussed, while stressing unanimity that “all options should remain on the table.” The ECB simultaneously upgraded its growth outlook, now forecasting euro area GDP growth of 1.4% in 2025 and 1.2% in 2026, alongside inflation expectations of 1.9% in 2026, slightly higher than previously projected due to slower disinflation in services. 

The minutes are therefore likely to underline a Governing Council increasingly comfortable with its current stance, but still cautious about declaring victory. In December, annual inflation stood at 2.0%, down compared to November’s 2.1% and meeting ECB’s target, with core inflation easing to 2.3% - its lowest level since August. However, services inflation remained elevated at 3.4%, reinforcing concerns about domestic price persistence despite easing headline pressures. 

Markets currently assign a very high probability to another hold in ECB’s next monetary policy meeting, with policy debate likely to centre on how long rates remain unchanged in 2026, rather than on the timing of the next move.