Week Ahead (19 May)

W/C Monday, 19 May – EU – UK enter new chapter in bilateral relations in ‘’reset’’ summit, signing agreement on defence and security 

During today’s summit in London, the UK and the EU finalised a series of landmark agreements, marking the most significant step in bilateral relations since Brexit. Hosted by Prime Minister Keir Starmer in London, the UK-EU ‘’reset’’ summit saw both sides sign a new Security and Defence Partnership, formalising cooperation on hybrid threats, cybersecurity, critical infrastructure, maritime safety, and announcing the launch of a bi-annual EU–UK foreign policy dialogue on Ukraine and the Western Balkans. 

Today’s deal on security and defence will open the door for UK participation in EU joint defence procurement programmes, although formal access to the EU’s €150 billion Security Action For Europe (SAFE) rearmament fund will require further negotiations and a UK budget contribution.  Assuming these follow up negotiations are successful, UK defence companies such as BAE systems will be exempt from a rule which necessitates that arms companies in third countries can account for a maximum of 35% of the purchase value of any joint procurement under SAFE.   

Beyond defence, the summit has also delivered agreements on a range of politically sensitive areas: 

• Fishing rights: Brussels and London agreed to extend EU access to British waters for another 12 years, until 2038, a key demand from EU member states, especially France, that had previously held up progress on broader cooperation. 

• Trade and regulatory alignment: both sides agreed to continue on reducing post-Brexit frictions in agri-food trade and customs. A draft EU proposal foresees governance via independent arbitration panels. 

• Youth mobility: A narrowly defined reciprocal visa scheme remains under discussion, alongside efforts to ease university tuition fees for EU students in the UK. 

• Carbon markets and electricity integration: The two sides aim to avoid double carbon pricing under CBAM and accelerate the UK’s re-entry into the EU’s day-ahead electricity market. 

• Data adequacy: Discussions continue as the UK’s current status expires in June 2025, with Brussels currently assessing the UK’s new data bill reforms. 

The concrete results of today’s summit reflect a pragmatic shift in tone under Starmer, who has pledged to rebuild ties without reopening Brexit fundamentals. While rejoining the single market or customs union remains off the table, today’s deals mark a step-change from the Brexit-era impasse, sealing in many of the areas where the UK already acts as a de facto EU partner, especially on Ukraine and defence. 

Brussels sees the reset as confirmation that post-Brexit Britain cannot afford to go it alone in today’s volatile security landscape. London, meanwhile, will likely stress that it has retained control of its borders and laws, a key message for domestic audiences, particularly with the Reform UK party gaining ground in the polls. 

W/C Monday, 19 May – Pro-EU centrist Nicusor Dan defeats far-right challenger in second round of Romanian presidential elections 

Romanians returned to the polls on Sunday for the second round of the country’s presidential election, delivering a clear victory for pro-European independent Nicușor Dan over far-right candidate George Simion. With almost all votes counted by Monday morning, Dan secured 53.8% of the vote to Simion’s 46.2%.  

Dan’s win came as a relief to centrist and EU-aligned forces, following a tense first round on 4 May in which Simion captured over 40% of the vote and entered the runoff with significant momentum. Overall, turnout reached 65%, the highest since 1996 and appears to have a played a decisive role in shaping the final outcome, given Simion’s significant lead in the first round. 

Simion, leader of the ultranationalist Alliance for the Union of Romanians (AUR), had built his campaign on anti-establishment outrage, channelling Trump-style populism, opposing aid to Ukraine, and casting doubt on EU institutions. Though he has attempted to clarify his stance on NATO, Simion’s vow to appoint disqualified candidate Calin Georgescu to a senior post had raised red flags across Western capitals. In the end, the race was not as close as anticipated. Simion prematurely declared victory on Sunday night, echoing playbook tactics from Donald Trump, only to walk back his claim hours later in a Facebook video acknowledging Dan’s win and calling it “the Romanian people’s will.” 

Although Dan presented a more technocratic and moderate profile, he too campaigned as a political outsider, capitalising on widespread public anger at entrenched elites and endemic corruption. His candidacy managed to consolidate support from centrist and liberal voters disillusioned with Romania’s traditional political class. Ultimately, the message from Romanian voters is clearly a rejection of the old establishment. Both finalists ran on anti-system messages, underscoring a broader crisis of trust in institutions and the political mainstream. 

Even though the presidency in Romania is formally limited in power, it carries significant political weight. The president nominates the prime minister, appoints senior judicial and security officials, commands the military, and plays a key role in shaping foreign and EU policy. With Romania a crucial NATO ally on the Black Sea, Dan’s victory will help stabilise the country’s Western-facing trajectory and reinforce its role within the EU security architecture. 

W/C Monday, 19 May – Poland braces for second round of presidential elections following narrow first-round result  

Poland held the first round of its presidential elections yesterday setting the stage for a tightly contested runoff between pro-European liberal candidate Rafał Trzaskowski and conservative challenger Karol Nawrocki. With nearly all votes counted by early Monday morning, Trzaskowski edged ahead with 31.2% of the vote, narrowly beating Nawrocki, who secured 29.7%, according to a late-night poll. 

The frontrunner is Warsaw Mayor Rafal Trzaskowski, a senior Civic Platform (PO) figure who narrowly lost to Duda in 2020. Trzaskowski is campaigning on a liberal, Atlanticist platform. He has also pledged to liberalise abortion laws, boost the tech and arms industry, and solidify Poland’s influence within the EU.  Nawrocki, a conservative historian backed by the nationalist Law and Justice party (PiS), has drawn on traditionalist rhetoric, voicing opposition to the EU’s Migration Pact, Green Deal, and LGBT rights expansion. His hardline stance has energised PiS supporters, who view the presidency as a vital foothold after the party lost power in 2023. 

Despite the former’s lead, the margin was tighter than predicted by most polls, indicative of the challenge ahead for Trzaskowski as he seeks to broaden his support base before the 1 June runoff. In the coming days, a wave of targeted messaging from both camps aimed at winning over voters from the other first-round candidates should be expected, particularly those who backed far-right libertarian Sławomir Mentzen. Thus, Mentzen, who finished third, may now become a kingmaker. Although he is unlikely to endorse either candidate outright, his support base could prove decisive in the second round. He built his campaign around radical tax cuts, EU scepticism, and opposition to Poland’s military involvement in Ukraine. 

Despite the political divide, it is worth noting that both Trzaskowski and Nawrocki support raising defence spending to 5% of GDP, highlighting a growing national consensus on security amid ongoing regional threats. Poland has increased its defence budget from 2.7% in 2022 to 4.2% in 2024, with projections reaching 4.7% in 2025. 

While the Polish presidency is formally limited in power, it carries a crucial veto role. Since Prime Minister Donald Tusk returned to office in October 2023, the outgoing president, Andrzej Duda, has used this veto to block key parts of the government’s reform agenda. A victory for Trzaskowski would remove that obstacle, allowing Tusk’s coalition to move forward on judicial reform, media restructuring, and securing the remaining tranche of EU funds. 

In other words, the outcome of the 1 June runoff will shape the trajectory of Poland’s place in Europe. A Trzaskowski presidency would further align Warsaw with the Franco-German axis via the Weimar Triangle and deepen engagement with Brussels. A Nawrocki win, however, would preserve PiS’s veto power and likely prolong institutional standoffs with the EU on issues ranging from migration and climate to the rule of law. 

W/C Monday, 19 May – Ruling centre-right holds lead in Portugal election but far-right gains risk political deadlock 

Also yesterday, Portugal held snap parliamentary elections, adding to an electorally busy weekend. This was the third general election in just over three years amid growing public frustration with political instability and legislative deadlock. The snap vote was triggered in March when Prime Minister Luis Montenegro’s government failed to win a parliamentary confidence vote, following allegations tied to his family’s business activities in the data protection sector.  

The outcome delivered a fragmented parliament and raised fresh questions over the country’s political stability, with no party securing a majority and coalition-building now inevitable. Montenegro’s centre-right Democratic Alliance (AD) emerged as the largest bloc, winning 32% of the vote and securing 89 seats in the 230-seat parliament, well short of the 116 required for an outright majority. While AD improved on its 2023 result, its gains were modest, and Montenegro has ruled out any governing arrangement with the far-right Chega party. 

The main story of the night, however, was Chega’s surge. The ultranationalist party tied for second place with the Socialist Party (PS), both winning 58 seats. This represents a major breakthrough for Chega, which had just one MP in 2019 and became the third-largest party in the last election.  By contrast, the centre-left PS suffered a heavy blow, losing 20 seats in what became its worst electoral result since 1987. Voters appeared to punish the party for triggering early elections, which were widely viewed as unnecessary. Subsequently, PS leader Pedro Nuno Santos announced his resignation after the results were confirmed, stating he would not stand in the way of the party’s future direction. 

With Montenegro ruling out a deal with Chega and the PS in leadership transition, attention now turns to whether the centre left will allow AD to form a minority government, potentially through tactical abstentions, as was the case during Montenegro’s previous budget vote. However, relations between the two main parties have soured since the failed confidence vote in March, and it remains unclear whether PS will again step in to ensure governability. 

Despite concerns about voter fatigue, turnout rose to 64%, up from 59% in 2024. Still, the inconclusive result risks prolonging political uncertainty. Even though Portugal’s constitution does not set a deadline for forming a government, it also bars fresh elections for six months after a vote and with President Marcelo Rebelo de Sousa’s term ending in March 2026, the earliest a new snap election could be held would be in late spring next year. With no party expected to command a clear majority, coalition-building will be inevitable with implications for the country’s political stability. Much will hinge on whether Montenegro can manage to get together a functional alliance or whether the opposition can exploit fragmentation on the right. 

Thursday, 22 May – ECB to release minutes of April meeting 

On Thursday, the European Central Bank (ECB) will release the minutes of its 17 April meeting, indicating the level of support for the governing council’s further rate cuts in the coming months. Last month, ECB’s Governing Council announced its third rate cut for this year, reducing the deposit rate by 25 basis points to 2.25%. The decision, widely anticipated by markets, reflected increasing concern over the eurozone’s weak growth outlook and persistent trade-related uncertainty. Although the US temporarily suspended its “reciprocal tariffs” for 90 days on 9 April, the lack of a durable breakthrough in negotiations remains a key downside risk. 

Since the latest rate cut decision, inflation stabilised at 2.2% in April, providing room for further cuts. In previous weeks, markets were pricing in a 90% chance of another cut at the 5 June meeting, bringing the deposit rate to 2.0%, with forward curves implying a terminal rate of 1.75% by end-2025. 

However, internal divisions on the ECB Governing Council could widen, depending on the outcome of trade negotiations. In a public intervention on 9 May, Executive Board Member Isabel Schnabel warned that further easing could be premature, citing: 

• medium-term inflation risks from fiscal expansion (especially Germany’s €1 trillion infrastructure and defence pledge). 

• cost-push pressures from global supply chain fragmentation, especially if Trump’s tariffs are fully implemented. 

• The possibility that tariffs could be inflationary, even absent EU retaliation, due to upstream effects on input costs and value chains. 

Given all the above, Schnabel argued that the ECB is now in “neutral territory” and should keep a steady hand. Bond markets responded quickly with bund yields rising to 2.63%, a one-month high, while rate cut bets for year-end were modestly scaled back. 

Hence, Thursday’s minutes will be closely watched for signs of division and for any reassessment of trade risks as a constraint on further cuts. Upcoming inflation data as well as the ongoing developments in US-EU trade talks will likely shape expectations heading into the 4 June meeting.