Week Ahead (30 September)

W/C Monday, 30 September – Coalition talks to kick off in Austria following victory of far-right in general election 

On Sunday, Austria’s far-right Freedom Party (FPÖ) secured a victory in the national election, winning nearly 29% of the vote, its strongest ever result. The party, led by Herbert Kickl since 2021, campaigned on a platform of anti-immigration, Euroscepticism, and opposition to EU sanctions on Russia. This result puts the FPÖ ahead of the conservative Austrian People’s Party (ÖVP), which suffered a historic defeat, finishing with just 26%, losing nearly one-third of its  support in the previous general elections. Meanwhile, the Social Democratic Party (SPÖ) also fared poorly, ending with only 21%, its worst result in history. The Greens, who governed alongside the ÖVP in the current coalition, fell to just 8%, while the liberal NEOS saw a slight increase, finishing at over 9%. 

The FPÖ capitalised on concerns over rising crime rates and migration, positioning itself as the defender of Austrian identity and values. The party’s controversial platform includes drastic cuts to welfare provisions for asylum seekers and a proposed ban on what it calls “political Islam.” It has also called for a "remigration" strategy that could involve deporting even long-term residents, a stance that has drawn sharp criticism from human rights groups.  Economic dissatisfaction, particularly over inflation and energy security, has also been a focal point. Austria has been dealing with inflation rates above the EU average, driven by high housing costs and reliance on Russian gas imports. Although the current ÖVP-Green coalition has sought to diversify energy sources, their efforts have been hampered by logistical challenges and resistance from domestic industries. The FPÖ has capitalised on this, attacking the coalition for failing to shield Austrian households from price hikes and blaming the EU’s stance on Russia for exacerbating the crisis. 

Despite the FPÖ’s clear lead, the party’s path to the chancellorship is uncertain. Austria’s constitution grants the president, Alexander Van der Bellen, a former Green leader who has been openly critical of Kickl, the final say on government appointments. This makes it unlikely that Kickl himself will become chancellor, despite his caution ‘’against ignoring the will of millions of people’’. 

However, the FPÖ could still form a government if it fields a different candidate or if coalition negotiations lead to a power-sharing agreement with the ÖVP. The possibility of an FPÖ-ÖVP alliance remains on the table, but the ÖVP has publicly ruled out joining a coalition under Kickl’s leadership. Instead, a scenario similar to 2000 could unfold, where the FPÖ steps aside in favour of a less controversial leader to appease the ÖVP, allowing the former to enter government without Kickl as Chancellor. Another option could involve the ÖVP partnering with the SPÖ and NEOS to form a three-way coalition that excludes the FPÖ. However, such an alliance would span the ideological spectrum, making it inherently unstable. Furthermore, this coalition could backfire by reinforcing the FPÖ’s anti-establishment narrative, potentially setting the party up for an even larger victory in the future. Alternatively, a two-way coalition between the ÖVP and the SPÖ is theoretically possible, even though preliminary results suggest that these parties alone may not have enough seats to form a majority. 

The FPÖ’s victory is the latest in a series of strong showings by far-right parties across Europe, signaling a broader surge in support for Eurosceptic, nationalist movements. If the FPÖ manages to enter government, it would join a growing bloc of right-wing governments in Europe that includes Hungary and Slovakia. Kickl’s FPÖ is currently part of the Orban-led Patriots for Europe group, the third largest group in the European Parliament following the elections of June 2024.  Hence, even if the FPÖ is excluded from power through a centrist coalition, its rise—mirroring similar surges by far-right parties in Italy, Germany, and Sweden—will likely shift the political agenda towards more conservative policies. 

Tuesday, 1 October – Eurozone flash inflation estimate for August 

On Tuesday, Eurostat will release its flash inflation estimate in the euro area for September.   

According to inflation data released earlier in September, inflation eased to 2.2% in August, down from 2.5%, reaching its lowest point in three years. Excluding food and energy, core inflation in the euro area decreased from 2.9% year-on-year in July to 2.8% in August, also in line with expectations. In Q2 2024, the euro area grew by a sluggish 0.3%. The latest inflationary easing, along with weakening wage growth and economic activity paved the way for the ECB to drop rates by 25 basis points on 12 September, its second rate cut this year, from 3.75% to 3.50%.  Despite the declining inflationary trend, the ECB is not committing to any specific rate path. The more hawkish ECB members have stressed the importance of data-driven decisions, noting that the current economic environment requires patience and flexibility.  Earlier this month, Slovakia’s central banker, Peter Kazimir publicly claimed that the ECB will ‘’almost surely’’ have to wait until December to cut rates.  

However, recent weaker-than-expected economic data, including disappointing business surveys and a slowdown in German sentiment, will likely embolden dovish policymakers to push for a reduction in interest rates next month. According to Reuters, market expectations have shifted rapidly, with the likelihood of a 25-basis point rate cut in October rising to 50-60% from just 35% a week ago.  This sentiment will likely have been strengthened by inflation data emanating from Spain and France on Friday which showed inflation rates of 1.7% and 1.5% respectively – significantly below expectations of 1.9%. Further amplifying the pressure on the ECB to act, economists at Goldman Sachs, JPMorgan, BNP Paribas, and T. Rowe Price revised their forecasts on Friday, now anticipating an October rate cut. Adding to the urgency, last Monday’s Purchasing Managers’ Index (PMI) for the eurozone plunged to 48.9, dropping below the crucial 50-mark for the first time since February. 

Thus, this makes the September inflation report this week a key factor in deciding the ECB’s next move. If inflation falls significantly, it would strengthen the doves’ case that the ECB risks missing its medium-term inflation target, thereby justifying another rate cut to support growth. On the other hand, if inflation holds steady or only declines slightly, it may strengthen the hawks’ argument that recent rate cuts should be given time to impact the economy before considering further action. 

Tuesday, 1 October – Irish government to unveil its Budget for 2025 

On Tuesday, the Irish government will unveil its budget for next year. Although Ireland has slashed its budget surplus forecast for the years ahead, from a projected €65 billion 2023-2026 to €38 billion from 2024-2027, the state remains in a remarkably healthy financial position. Corporation tax revenues are now projected to reach nearly €30 billion for the year—far exceeding last year’s €23.6 billion and representing a sevenfold increase over the past decade. This surge, bolstered by an unexpectedly large August payment from Apple, provides the government with unprecedented resources. The challenge for Prime Minister Simon Harris and his three-party coalition is not just about managing this windfall, but demonstrating to voters that it will be used effectively to address pressing public needs ahead of the general election. 

In July, the Irish governing coalition signed off its Summer Economic Statement which sets out the parameters for Budget 2025. According to the agreed statement, in October's budget, the Irish government plans to allocate €1.4 billion in tax cuts.   

Party leaders met last Thursday to discuss the parameters of these tax cuts plus around €6.9 billion in spending measures.  With elections expected to be held later this year, the coalition faces a political balancing act between short-term relief and a long-term macroeconomic strategy, amid high expectations among the voting public.   

Wednesday, 2 October – Prime Minister Keir Starmer visits Brussels aiming to reset EU-UK relations 

This week, the UK Prime Minister Keir Starmer visits Brussels to meet with European Commission President Ursula von der Leyen, to launch talks aimed at resetting the UK’s post-Brexit relationship with the EU. This long-anticipated meeting was arranged last week during a brief discussion on the sidelines of the UN General Assembly. It comes as both sides seek to clarify their positions amid growing frustration in Brussels over what the UK actually wants from this “reset.” 

In February 2023, the EU and the UK, under Rishi Sunak’s government, signed the ‘’Windsor Framework’’, a post-Brexit legal agreement adjusting the operation of the Northern Ireland Protocol. Sunak’s government also managed to secure the UK’s re-entry into the EU’s €95.5 billion Horizon research programme. Prime Minister Starmer, who has already held meetings recently with French President Macron and German Chancellor Scholz, aims to go one step further and has vowed to ‘’turn a corner’’ on Brexit by rebuilding productive relations with EU Member States and ‘’get a better deal on trade relations’’. However, Starmer has also repeated that his goal is not to reverse Brexit or rejoin the single market but to create a "closer relationship on a number of fronts, including the economy, defence, and exchanges."  

Starmer’s cautious approach has already faced criticism from EU diplomats, who believe the UK needs to offer a clearer vision. One of the key sticking points will be the EU's proposal for a Youth Mobility Scheme (YMS) for 18 to 30-year-olds, which Starmer has hesitated to embrace due to concerns that any agreement resembling free movement could become politically controversial at home.  In their debate ahead of the elections of past July, former Prime Minister Sunak criticised Starmer’s approach, warning that “You might be able to negotiate a better deal, but do you know what the price of it will be? It will be free movement of people.” Sunak’s comments reflect concerns that any concessions on migration would risk opening the door to a reversion of unpopular EU policies, which could alienate voters in a country still polarised over Brexit. 

Despite these hurdles, the meeting is seen as an opportunity for Starmer to demonstrate the UK’s willingness to engage more constructively, especially as he has indicated his support for agreements that would smooth trade in food and animal products through a veterinary deal, mutual recognition of professional qualifications, and easier access for British musicians touring the bloc. Additionally, Starmer is pushing for a security pact, arguing that the UK can make a “strong contribution to European defence and intelligence.” The EU, for its part, has signalled that any comprehensive reset will come with its own demands, such as improved access to British fishing waters. In addition, Labour’s reluctance to address mobility issues has raised questions in Brussels about how far Starmer is willing to go.  

This week’s bilateral meeting between Starmer and von der Leyen could pave the way for a more structured dialogue and a potential high-level UK-EU leaders’ summit that would largely focus on security, migration, and trade. However, in the short-term, Starmer’s efforts to refine the UK-EU relationship will remain limited by domestic political constraints, as Brussels are likely to insist on using a deal on youth mobility as a bargaining chip for better trading arrangement. 

Friday, 4 October – Member States to vote on finalisation of EU tariffs on Chinese EVs 

On Friday, EU Member States will vote on whethwe to finalise tariffs on electric vehicles (EVs) imported from China. The vote, which was initially scheduled for 25 September, was delayed to allow for last-minute negotiations between Brussels and Beijing aimed at finding an alternative solution. This includes Chinese automakers potentially agreeing to voluntary measures such as setting a minimum price for their EVs in the EU market, which would help counterbalance the effect of Chinese subsidies. However, no agreement has been reached so far. 

Earlier in September, the Commission revised the tariffs downwards for the second time, albeit only marginally. SAIC, Volkswagen’s Chinese partner, will still face the highest duty, which has been slightly reduced from 36.3% to 35.3%. Other non-cooperative producers continue to face the same level of duties. Tesla’s tariff will be dropped from 9% to 7.8%, while Geely’s rate will be decreased from 19.3% to 18.8%. BYD’s duty remains unchanged at 17%. These duties are imposed in addition to the standard 10% customs tariff that the EU applies to all foreign-made cars, regardless of engine type. 

The upcoming vote will require a qualified majority to either approve or block the tariffs, meaning at least 15 of the 27 EU member states representing 65% of the EU’s population must vote against the proposal to prevent the duties from being imposed. Germany, the largest market for EVs in Europe and home to influential car manufacturers, has been leading the charge to block the tariffs. Berlin has been actively lobbying other member states, particularly targeting Spain and Italy, to build a coalition that could halt the measure. 

Initially, only four countries, Hungary, Slovakia, Malta, and Cyprus, opposed the tariffs in a non-binding vote held in July. However, Spain, which previously supported the tariffs, has since reversed its position and is now leaning toward opposing them, largely influenced by recent trade deals with China. In contrast, Italy, a key target of Germany’s lobbying, has remained steadfast in supporting the Commission’s plan, with Foreign Minister Antonio Tajani recently reaffirming this stance in an interview. Even if Germany successfully persuades Italy to join its camp, the coalition would still represent only 61.4% of the EU population, falling short of the 65% threshold required for a blocking minority.  

Nevertheless, even if the tariffs go through, the Commission and Chinese officials have signalled that negotiations will continue in search of a solution, such as price undertakings or Chinese voluntary measures to address the subsidy concerns. The final deadline for implementing the tariffs is set for 30 October, leaving a narrow window for both sides to strike a deal. With Germany’s push for a veto this week looking increasingly unlikely, a last-minute agreement between Brussels and Beijing next month appears to be Berlin’s best remaining hope to avoid a tariff war.