
Week Ahead
Monday, 3 February – Informal EU summit to discuss defence
Today, EU leaders are holding an informal meeting in Brussels to discuss European defence and how to strengthen the bloc’s defence capabilities. This is the first such meeting since Donald Trump’s return to the White House. In previous days, Trump’s recent call for NATO to set an annual defence spending goal of 5% of GDP for its members once again highlighted the divisions and the diverging priorities among EU member states.
Despite broad agreement on the need for higher defence spending, EU member states remain divided over the extent of the increase. Baltic states and Poland back a significant boost, with Latvia, Lithuania, and Estonia advocating for a 3% GDP NATO target, while Lithuania pledged to meet Trump’s 5% goal. Poland, already at 4.7% GDP by 2025, supports further increases, while Estonia calls for more investment without tax hikes. Last week, Estonia, Latvia, Lithuania and Poland jointly submitted an 11-page paper to the European Commission calling for the EU to spend at least €100 billion on defence by 2027, before the bloc's next budget cycle.
In contrast, Germany and Italy reject the 5% target as unrealistic, citing budget constraints, though Berlin’s stance could shift under a CDU-led coalition. French President Macron has acknowledged the need for more defence investment but insisted funds should strengthen Europe’s own defence industry rather than increase reliance on US suppliers. Last month, French Armed Forces Minister Sébastien Lecornu warned that Paris would rather scrap the €1.5 billion European Defence Industry Programme (EDIP) than allow it to finance non-EU weapons made under licence in Europe. In addition, last Thursday, the leaders of 19 member states including Germany, France, Italy and Spain sent a joint letter to the Council and European Investment Bank (EIB) chair Nadia Calvino urging the bank to ease lending rules and boost private finance for defence projects by revising the list of excluded defence activities, increasing the share of EIB financing for defence, and issuing defence-specific bonds, similar to those for clean transition projects.
NATO Secretary-General Mark Rutte, who has been invited to a Summit lunch, has also echoed concerns that current defence spending levels are insufficient for future security. These positions, outlined in recent member state submissions, feed into the upcoming White Paper on defence policy, set to be unveiled on 19 March, and will shape discussions at today’s informal Summit.
Monday, 3 February – French Assembly to once again vote for the 2025 Budget; PM Bayrou likely to face a no-confidence motion
Later today, the National Assembly in France is scheduled to hold a vote on the country’s long-overdue 2025 Budget.
Over the weekend, Prime Minister Bayrou admitted that he does not have enough parliamentary support to pass the proposed budget, which includes €53 billion in spending cuts and tax hikes with the aim of reducing the deficit to 5.4% of GDP by the end of the year from 6% currently. To that end, he warned that he had no other option but to invoke Article 49.3 of the French Constitution to bypass parliamentary opposition and force through the legislation. However, this would trigger a motion of no confidence by the left-wing parties, in particular, Melenchon’s far-left ‘’La France insoumise’’, the Communists and the Greens, which have already signalled their intention to do so. This is exactly what brought the downfall of his predecessor, Michel Barnier, just two months ago after both the far-right Rassemblement National and the left-wing bloc voted against him.
However, this time, the key difference lies with the Socialist Party. While some MPs oppose what they see as a return to austerity, others acknowledge that recent negotiations secured key concessions, including a review of the 2023 pension reform and the protection of 4,000 education jobs. However, Bayrou’s recent rhetoric on immigration, using language historically associated with the far-right, has unsettled many within the party, making their final decision unpredictable. A potential abstention could secure Bayrou’s and his cabinet’s survival. Another government collapse would prolong the country’s political deadlock, further complicating economic governance and risking market instability as France is still lacking a fully approved budget for 2025.
Monday, 3 February – Eurozone flash inflation estimate for January
Today, Eurostat will release its Eurozone flash inflation estimate for January.
After dipping below the European Central Bank’s 2% target in September (1.8%), inflation has shown signs of rebounding, with December marking the third consecutive uptick to 2.4%, following November’s rise to 2.2%, with core inflation holding at 2.7% for a fourth month in a row. This upward trend is attributed to energy prices and resilient wage growth. However, the eurozone economy remains fragile, with growth for 2024 forecasted at just 0.7%, compounded by geopolitical uncertainties, US tariff concerns, and the political uncertainty in France and Germany, the bloc’s two largest economies.
Despite the latest inflationary uptick, the ECB Governing Council last Thursday decided to cut rates by 25 basis points to 2.75% in its first monetary policy meeting for 2025. ECB President Christine Lagarde hinted that further easing is likely if inflation declines noting that rates remain "currently restrictive" and not yet at a neutral level, suggesting room for further adjustments, citing weak economic growth and geopolitical tensions. She specifically left the door open for another potential cut in March, depending on new data. Hence, this week’s inflation data could play a key role in influencing the ECB’s next rate decision.
Wednesday, 5 February – General Court to rule on Poland’s challenge to EU penalty recovery via budget offsets
On Wednesday, the General Court, the EU’s lower court, will rule on Poland’s legal challenge to the European Commission’s recovery of unpaid judicial penalties by deducting the amounts from EU funds allocated to Poland. The cases in question, T-830/22 and T-156/23, concern penalties imposed on Poland for its failure to comply with an ECJ interim order on judicial independence (C-204/21, also known as the "Muzzle Law" case).
Poland has refused to pay the fines, which initially stood at €1 million per day, later reduced to €500,000 per day in April 2023 following partial compliance. In response, the Commission began offsetting the unpaid sums from Poland’s EU funding, leading Warsaw to launch a legal challenge against the Commission’s recovery mechanism. Poland argues that the Commission exceeded its legal powers, wrongly recovered sums beyond the period of non-compliance, and failed to provide a clear legal basis for its offsetting procedure.
The ruling could have significant implications for the EU’s ability to enforce financial penalties against member states that refuse to comply with court rulings. If the Court upholds Poland’s challenge, it may limit the Commission’s ability to use budgetary offsets as a tool for enforcing ECJ rulings. Conversely, a ruling in favour of the Commission would reinforce its authority to recover unpaid fines through EU budget deductions, a crucial mechanism for ensuring compliance with EU law.
Wednesday, 5 February – General Court to rule on Ryanair’s legal challenge against the European Commission’s renewed approval for state aid for TAP Air
On Wednesday, the General Court will also rule on Ryanair’s legal challenge against the European Commission’s July 2021 renewed approval of state aid for TAP Air Portugal. The case follows the Court’s 2021 annulment of the Commission’s original clearance, which prompted a reassessment of the aid.
Ryanair argues that the Commission should have conducted a full investigation before reapproving the rescue package, initially granted to compensate TAP for losses caused by the COVID-19 pandemic. The airline claims that the aid was disproportionate, misapplied under Article 107(3)(c) TFEU, and violates EU principles on non-discrimination, free provision of services, and free establishment. It also accuses the Commission of failing to provide sufficient justification for its decision.
This case represents yet another chapter in Ryanair’s persistent legal battles against state aid for airlines. The Irish airline has consistently argued that many of these measures are disproportionate, discriminatory, and distort competition within the internal market. The airline’s legal strategy has seen both successes and setbacks, including its recent victory in February when the General Court annulled a €3.4 billion Dutch state aid scheme for Air France-KLM’s Dutch subsidiary.
Thursday, 6 February – Bank of England committee to decide on interest rates with a rate cut widely priced in
The Monetary Policy Committee (MPC) of the Bank of England (BoE) will convene its first meeting for 2025 on Thursday, with a cut in interest rates by 25 basis points to 4.5% widely expected. In the previous December meeting, the Bank maintained rates following an inflationary uptick, after dropping them 25 basis points to 4.75% in November. Last August, the MPC announced its first interest rate cut since March 2020.
Since the BoE's last projections in November, the economy has flatlined, while key inflation measures have fallen, even though wage growth unexpectedly accelerated. According to the Office for National Statistics (ONS), real GDP is estimated to have shown no growth in the three months to November 2024, compared with the three months to August 2024. Notably, the MPC vote split in December, with 6 voting in favour of holding rates and 3 calling for a rate, suggests that internal divisions remain. The BoE also faces external pressures, as the ECB has already cut rates five times since mid-2024.
MPC members have been cautious in public statements, though external member Alan Taylor recently backed four rate cuts in 2025, while Deputy Governor Sarah Breeden reiterated the need for gradual easing. In a Reuters poll conducted last eek, surveyed economists unanimously agreed that the Bank will cut rates by 25 basis points this week. In addition, financial markets currently price in three quarter-point cuts in 2025, though MPC members may signal a faster pace of easing given stagnant economic growth and declining inflation indicators. Hence, markets will focus on whether the BoE on Thursday signals a more aggressive rate-cut trajectory in response to persistent economic weakness.
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