Week Ahead (4 May)

Monday, 4 May – Tuesday, 5 May – Eurogroup to focus on Middle East energy shock as southern states push for fiscal flexibility

Finance ministers are meeting today and tomorrow, with the economic fallout from the Middle East crisis set to dominate discussions, as a group of southern member states seeks greater fiscal leeway to address rising energy costs.

Italy, backed by Spain, is expected to argue for the exclusion of energy-related spending from EU fiscal rules, reflecting mounting domestic pressure as higher fuel and electricity prices feed through to households and industry. Rome in particular is pushing for greater flexibility, with Finance Minister Giancarlo Giorgetti expected to call for additional support at EU level. Madrid has taken a similar line, with Pedro Sanchez advocating broader exemptions for strategic spending, including green investment and energy support.

However, the initiative is likely to face resistance from both the European Commission and fiscally conservative member states, notably Germany. Brussels’ current position remains that the energy shock, while significant, does not justify reopening the fiscal framework, given the risks of further debt accumulation across already highly indebted economies. This points to a familiar divide between southern and northern capitals, echoing earlier debates during previous crises.

The timing is politically sensitive. Several key member states, including Italy, Spain, France and Poland, are heading into election cycles in 2027, increasing pressure on governments to shield consumers from rising costs while maintaining fiscal credibility. As a result, the debate is not only economic but also deeply political, with ministers balancing short-term support measures against longer-term fiscal constraints.

The ongoing conflict in the Gulf continues to disrupt energy markets, with shipping constraints around key routes and tighter global LNG supply pushing prices higher. This is feeding into renewed inflationary pressures and weakening growth across the euro area: fresh inflation data released last week pointed to a 3% jump in the euro area for April – up from 2.6% in the twelve months to March and from 1.9% the month before that. In response, the EU has so far relied on targeted instruments such as the recently adopted crisis state aid framework, rather than systemic changes to its fiscal rules.

Against this backdrop, discussions this week are expected to remain exploratory, with limited prospects for immediate decisions. Still, several member states are likely to argue that a prolonged deterioration in economic conditions could eventually force a shift in the Commission’s stance. Eurogroup President Kyriakos Pierrakakis may outline possible next steps or guidance at a future meeting, depending on how the situation evolves.

Beyond energy, ministers will also cover a broader agenda, including banking union resilience (with a focus on cybersecurity and AI), cross-border banking consolidation, capital markets development, and digital finance. However, these items are expected to be secondary to the immediate focus on the economic impact of the Middle East crisis.

Wednesday, 6 May – Trilogue talks on the EU-US trade talk to resume under pressure, a few days after President Trump revived tariff threats

EU institutions will return to trilogue negotiations this week on the EU–US trade framework, only a few days after fresh tariff threats from US President Donald Trump.

Late last week, Trump once again threatened to raise tariffs on EU car and truck imports to 25%, escalating tensions just as Brussels is attempting to finalise the agreement reached at Turnberry in July 2025. That deal, negotiated by President von der Leyen, was built around a 15% baseline tariff and seen as a stabilising arrangement after months of volatility. However, its durability is now increasingly in question.

Washington’s latest move reflects a broader pattern of transactional trade policy, with tariffs used as leverage not only on economic issues but also on wider geopolitical disputes. EU officials and parliamentarians have linked the escalation in part to broader transatlantic tensions, including disagreements over the Middle East conflict, reinforcing concerns that trade is becoming intertwined with non-trade policy areas.

This week’s trilogue discussions, involving the European Parliament, Council and Commission, were initially expected to focus on finalising the agreement. Instead, they are now likely to centre on how to safeguard the EU’s position in the face of renewed US unpredictability. The chair of the Parliament’s trade committee, Brando Benifei (S&D) has already warned that Washington is “breaking its commitments’’ while several MEPs are pushing for stronger defensive provisions.

This reflects a broader shift in the Parliament’s position since earlier this year. Following the legal uncertainty triggered by the US Supreme Court ruling on tariff authorities of the so-called ‘’Liberation Day’’, MEPs temporarily paused the ratification process before relaunching it with a more defensive stance. The Parliament’s mandate, adopted in late March, now includes robust safeguard mechanisms, such as suspension clauses allowing the EU to withdraw tariff concessions if the US deviates from agreed terms, as well as “sunrise” and “sunset” provisions linking implementation to US compliance and limiting the agreement’s duration.

A key fault line concerns the inclusion of so-called “guardrail” clauses. France and parts of the Parliament are advocating provisions that would allow the EU to suspend concessions if the US deviates from agreed terms. Prominent voices within the European Parliament have called for the possible activation of the EU’s Anti-Coercion Instrument (ACI) to deter further unilateral measures. However, deploying such tools would require political consensus among member states, which remains difficult given differing levels of asymmetric exposure to the US market.

Thus, Germany, supported by a group of export-oriented economies like Ireland and the Netherlands, is resisting a more confrontational approach, favouring rapid ratification of the existing deal to provide certainty for industry, particularly the automotive sector. This reflects broader divisions within the EU between those prioritising stability and those seeking stronger leverage against Washington’s actions.

Thursday, 7 May – UK to hold local and devolved legislative elections; likely to reshape political landscape and test Starmer’s government

Voters across the UK will head to the polls this week in a wide-ranging set of local and devolved elections in England, Scotland and Wales, in what is shaping up to be the first major electoral test for Prime Minister Keir Starmer since taking office in July 2024.

In England, more than 5,000 council seats across 136 local authorities are up for election, with Labour Party defending a large share of positions. However, current polling points to significant losses not only for Labour but also for the Conservative Party, reflecting broader voter dissatisfaction over cost-of-living pressures, migration concerns and limited economic improvement.

The primary beneficiary is expected to be Reform UK, led by Nigel Farage, which has consistently topped national polling for over a year. The party is widely projected to secure the largest share of seats in England and is also targeting breakthroughs in Scotland and Wales. A strong performance would reinforce its claim to have supplanted the Conservatives as the dominant force on the right and Labour’s principal challenger nationwide.

In Scotland, elections to the Scottish Parliament are expected to confirm the continued dominance of the Scottish National Party, albeit with some erosion of support. Both Labour and the Conservatives risk further decline, while Reform UK could enter the parliament for the first time. In Wales, the expansion of the Senedd to 96 seats introduces additional volatility. Labour risks losing its leading position, with Plaid Cymru and Reform UK both positioned to make gains. Across all three contests, Green Party of England and Wales is also expected to increase its representation, capitalising in part on disillusionment among Labour voters, particularly in urban areas such as London.

For Starmer, the political stakes are high. Having entered office with a rare net-positive approval score, his popularity has since fallen significantly, at one stage dropping below that of opposition figures such as Nigel Farage and even Conservative leadership figures. More concerning for Labour, recent polling suggests a majority of its own 2024 voters now hold an unfavourable view of the Prime Minister, pointing to erosion within the party’s core base. Political pressures have been compounded by a series of domestic controversies, including criticism over senior appointments and internal party tensions. Speculation around potential challengers has intensified, with figures such as Andy Burnham and Deputy Prime Minister Angela Rayner increasingly mentioned in internal discussions.

Against this backdrop, poor showing would intensify internal pressure within Labour, where speculation about leadership alternatives has already begun to surface. Although general election is not required until 2028, a sharp electoral setback could further weaken the Prime Minister’s authority early in the parliamentary cycle and emboldening both internal rivals and external challengers who will likely step up calls for a snap election.

Beyond domestic politics, the results also carry implications for EU–UK relations. The government has been pursuing a gradual “reset” with Brussels ahead of a planned summit in July, focusing on incremental measures such as reducing trade frictions and enhancing sectoral cooperation. However, a stronger showing by Eurosceptic forces, particularly Reform UK, would likely constrain London’s room for manoeuvre, reinforcing caution around deeper alignment.