Week Ahead (24 February)

Monday, 24 February – Germany enters new chapter following electoral victory of CDU; coalition talks with SPD set to begin 

Friedrich Merz is set to become the country’s next chancellor following his conservative CDU/CSU alliance’s victory in Sunday’s snap elections.  

The CDU/CSU won 30.1%, securing the lead, while the far-right Alternative for Germany (AfD) achieved its best-ever national result with 20.7%. The centre left SPD recorded 16.5%, its worst performance in a national parliamentary election since adopting its current name in 1890. The Greens followed with 12.3%, suffering significant losses after their role in the outgoing coalition. The left-wing Die Linke managed to reach 8.8%, benefiting from a surge in support from young voters opposing the far right. However, the liberal Free Democrats (FDP) and the populist-left Sahra Wagenknecht Alliance (BSW) failed to make it into the Bundestag, simplifying coalition talks. 

With the FDP and BSW falling below the 5% threshold, Merz can now form a two-party coalition with the SPD, avoiding the need for a three-party arrangement. Had BSW made it in, a CDU-SPD-Greens coalition would have been the only viable option, subjecting his conservatives to a more fractured alliance. 

The new coalition will also set the course for its economic recovery and fiscal strategy. Germany has endured four years of near-zero economic growth, and with expansion expectations remaining low, the new government will face urgent pressure to implement pro-growth policies. Once again, budget priorities will play a decisive role in coalition negotiations.  

Defence spending is another major issue on the agenda. Merz has pledged to increase Germany’s defence budget amid Trump’s calls for European allies to take on a greater share of NATO’s security burden. However, a major challenge for the next government will be the constitutional “debt brake,” which limits government borrowing. Merz has hinted at openness to revising the fiscal rule, but the election results have made this path more difficult. According to latest vote counts, the CDU, SPD, and Greens together do not have the two-thirds majority required to amend the constitution. With Die Linke and AfD holding enough seats to block any reform, fiscal policy debates will be crucial in coalition negotiations. This complicates plans for increased defence spending, infrastructure investments, and economic stimulus measures. Alternative solutions such as off-budget funds or legal loopholes may be explored to bypass these constraints.  

On migration, Merz has hardened the CDU’s stance, incorporating elements of AfD rhetoric to counter its rising support. However, despite this shift, yesterday, he once again ruled out cooperating with the AfD. In terms of transatlantic relations, Merz made a striking statement after his victory, signalling a shift in Germany’s foreign policy posture, stating that ‘’my absolute priority will be to strengthen Europe as quickly as possible so that, step by step, we can really achieve independence from the USA’’. Overall, the German political landscape has decisively shifted to the right, with both the SPD and Greens suffering major setbacks and the AfD gaining historic support but remaining politically isolated. Merz has pledged to form a government swiftly, aiming to finalise a coalition deal by Easter. 

Monday, 24 February – EU leaders to visit Ukraine to discuss security guarantees 

Today, European Commission President von der Leyen, along with European Council’s President Antonio Costa and several heads of EU governments, including Spanish Prime Minister Pedro Sanchez and the leaders of Lithuania, Latvia and Malta visit Ukraine. However, the full list of leaders attending remains undisclosed for security reasons. 

The gathering takes place on the third anniversary of Russia’s invasion and follows President Trump’s latest remarks blaming Ukraine for the war, comments that have sparked backlash among European allies.  It also reflects concerns about Europe’s exclusion from Trump’s diplomatic efforts with Russia, particularly the 18 February talks in Saudi Arabia. Besides showcasing solidarity for Kyiv, the leaders on Monday are expected to discuss security guarantees, especially after Washington hinted that Europe would have to bear the economic and security costs of rebuilding and protecting Ukraine once the conflict is resolved.  

Meanwhile, French President Emmanuel Macron travels to Washington to meet with President Trump to discuss the evolving situation and he has also shared his plan to tell the US President that letting Russia win its war in Ukraine would be a ‘’huge strategic mistake’’. Last week, Macron hosted two emergency meetings in Paris aiming to forge a European security response as pressure mounts to counter Trump’s plan to end the war, although both meetings ended without any major breakthrough. On Thursday, UK Prime Minister Keir Starmer will follow suit with his own White House visit. 

Earlier today, EU foreign ministers signed off on the bloc’s 16th sanctions package which introduced new restrictions on Russian aluminum and targeted Moscow’s “shadow fleet” of tankers circumventing oil price caps. However, once again, Russian LNG was left untouched despite growing calls from some member states to introduce restrictions. This decision reflects the continued reliance of certain EU economies, including Austria, Hungary, and Slovakia, on Russian energy supplies, as well as concerns over tightening global LNG markets ahead of winter 2025.  

Tuesday, 25 February – Court of Justice to rule on case regarding Google’s Android market dominance in Italy 

On Tuesday the Court of Justice (CJEU), the EU’s higher court, will rule on a case (C233-23) concerning Google’s market dominance in Italy, following a request for a preliminary ruling lodged by the Consiglio di Stato (State Council). A request for a preliminary ruling is the procedure where national courts submit questions to the CJEU regarding the interpretation or validity of European law.  

The key questions revolve around whether Google's refusal to allow the Enel X Italia JuicePass app interoperability with Android Auto constitutes an abuse of Google's dominant market position under Article 102 of the Treaty on the Functioning of the European Union (TFEU). This request for a preliminary ruling is directly linked to an earlier 2021 case where the Italian Competition Authority imposed a fine of €100 million on Google. The authority argued that Google abused its dominant position by not permitting the JuicePass app, which facilitates a range of electric vehicle charging services, to function on Android Auto. According to the authority, this exclusion limited consumer choice and technological progress, favouring Google’s own mapping services, which could extend to include similar functionalities. 

In her legal opinion issued last September, the Court’s Advocate General Laila Medina argued that ‘’Google’s refusal to provide third-party access to Android Auto platform may be in breach of competition rules’’. Although the CJEU Advocate Generals’ opinions are non-binding, the CJEU tends to follow their recommendations. 

Wednesday, 26 February – European Commission to present its Clean Industrial Deal 

On Wednesday, the European Commission is set to unveil its much-anticipated Clean Industrial Deal, a landmark initiative aimed at revitalising European industry while ensuring alignment with the EU’s climate goals. According to a draft circulated last week, the legislative package proposes a revamp of state aid rules, trade defence instruments, and energy price mechanisms to enhance Europe’s industrial competitiveness amid growing challenges from China and the US.  It proposes inter alia:  

• A European Investment Bank-backed scheme to help businesses secure long-term renewable energy contracts. 

• Fast-tracked permits for energy-intensive industrial projects. 

• Lower electricity taxes across the EU to the minimum legal level. 

• Softened gas storage targets beyond 2025 to curb inflated storage costs. 

On state aid, it specifically highlights the necessity to allow greater room for national subsidies “that crowds in private investment” and to simplify rules in order to allow the quick approval of State aid measures for decarbonisation.  On competition policy, it also states that “the guidelines for assessing mergers will be revised to ensure that impact of mergers on the affordability of sustainable products and on clean innovation, or on creating efficiencies that bring sustainable benefits, but also on innovation, resilience, and the investment intensity of competition in certain strategic sectors are better integrated in the competition analysis”.   

This can be seen as another indication that the Commission is contemplating increasing its focus on the market more broadly with regard to investment and innovation instead of its usually narrow competition concerns, echoing points made by Mario Draghi’s influential report in September. 

The European Commission is also trying to sharpen its trade defence instruments vis-à-vis the Trump administration on one side and China on the other and the draft also gives further indications of this.  The Commission is also proposing to act more on its own initiative or “ex officio” rather than waiting on a trade complaint while also shortening investigations which currently last around one year and leave European companies exposed to unfair competition during that period. 

A controversial omission in the draft is the lack of explicit support for nuclear power. While renewables, hydrogen, and electrification feature prominently, nuclear energy is excluded from state aid guidelines. This could spark tensions with France and pro-nuclear EU states, who advocate for nuclear-generated hydrogen to receive equal subsidies as renewables. French Commissioner for Industry Stephane Sejourne has vowed to push for nuclear energy’s inclusion, framing it as essential for EU energy sovereignty. The final version may still undergo political revisions. 

Overall, despite a growing consensus across Europe on the need to regain competitiveness, as European manufacturers struggle with high energy costs, trade pressures, and regulatory burdens, we should still expect the Clean Industrial Deal to spark a series of debates over nuclear policy, trade defence, and competition rules in the months ahead. 

Thursday, 27 February – ECB to release minutes of January meeting 

On Thursday, the European Central Bank (ECB) will release the minutes of its 30 January meeting, indicating the level of support for the governing council’s further rate cuts in the coming months.  

Last month, In its first monetary policy meeting for 2025, the Bank cut interest rates by 25 basis points to 2.75%, largely in response to weak growth.  President Christine Lagarde hinted that further easing remains on the table but emphasised that rates are still "restrictive" and not yet at a neutral level. She also left the door open for another potential cut in March, depending on new economic data. 

However, inflationary pressures persist, complicating the ECB’s path on monetary policy. After dipping below the ECB’s 2% target in September (1.8%), inflation climbed for three consecutive months, reaching 2.4% in December 2024. According to Eurostat inflation rose further to 2.5% in January 2025, suggesting sticky core inflation (2.7% for four consecutive months) and persistent price pressures driven by energy costs and wage growth. 

Following its dovish turn in late 2024, the ECB has indicated that it will maintain a cautious pace of rate cuts over the coming 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. Most recently, in an interview with FT last Wednesday, ECB’s Isabel Schnabel argued that ‘’we are getting closer to the point where we may have to pause or halt our rate cuts’’. Although Schnabel is one of the GC’s most prominent ‘’hawks’’ her comments further fuelled speculation over ECB’s monetary trajectory beyond its upcoming March meeting, where a rate cut is widely priced in. Therefore, market participants will look through this week’s minutes for any signs pertaining to its approach in the coming months.