Week Ahead (8 June)

W/C Monday, 8 June – Commission expected to unveil 21^st sanctions package against Russia; Chinese firms assisting Russian circumvention to be included 

The European Commission is expected to present its proposed 21st package of sanctions against Russia this week, marking the latest effort by Brussels to increase economic pressure on Moscow as the war in Ukraine enters its fifth year. 

The package is likely to focus heavily on Russia’s energy revenues, which remain a critical source of funding for the Kremlin’s war effort. Among the measures under discussion are the addition of dozens of vessels to the EU’s shadow fleet blacklist and efforts to maintain the existing G7 oil price cap rather than allowing it to rise automatically alongside global energy prices. Several member states are also reportedly pushing for broader restrictions targeting major Russian energy companies, including Rosneft and Lukoil, although such proposals could still face resistance during negotiations. 

The package is also expected to contain further listings targeting Russia’s military-industrial ecosystem and sanctions circumvention networks. Particular attention is being paid to entities located in third countries, especially China, which Brussels increasingly views as a key enabler of Russia’s sanctions-evasion efforts. Recent reports suggest that additional Chinese companies could be targeted for allegedly supplying components used in drone production, facilitating shadow-fleet operations or supporting Russia’s defence sector. 

The China dimension has become increasingly prominent in the EU’s sanctions strategy. Speaking recently to Euronews, EU Sanctions Envoy David O’Sullivan described China as a “very big problem” for the effectiveness of sanctions, arguing that Beijing continues to facilitate circumvention despite repeated diplomatic engagement. He also accused Chinese companies of “backfilling” products and technologies previously supplied by Western firms, including components used in Russian weapons systems. 

Importantly, the political dynamics surrounding approval may be more favourable than in previous rounds. Unlike many earlier sanctions packages, which were frequently delayed by Viktor Orban’s government, Hungary’s new Prime Minister Péter Magyar has adopted a markedly more cooperative approach towards Brussels. With Budapest currently focused on securing the release of approximately €10 billion in frozen EU funds ahead of an August deadline, the risk of a prolonged Hungarian veto appears lower than in previous negotiations. 

Following its presentation, discussions will begin among member states, with unanimity still required for final adoption and the aim of having the package approved by the bloc’s foreign ministers during the Foreign Affairs Council on 16 June.  

Wednesday, 10 June – Cyprus to present revised MFF compromise text as negotiations enter a more political phase 

The Cypriot Presidency is expected to present an updated compromise proposal on the EU’s next Multiannual Financial Framework (MFF) by 10 June, marking an important step in negotiations on the bloc’s long-term budget for 2028–2034. The revised text, known in Brussels as the “negobox”, will provide the first detailed indication of how the Council intends to balance competing national priorities ahead of a leaders’ discussion later this month. 

The debate centres on the European Commission’s July 2025 proposal for a nearly €2 trillion budget package, which seeks to reorient EU spending towards competitiveness, defence, innovation, digitalisation and economic security, reflecting priorities identified in the 2024 Draghi Report and broader concerns about Europe’s long-term competitiveness. At the same time, the proposal introduces significant changes to traditional spending structures, including a greater reliance on national partnership plans and a relative reduction in the importance of long-established policies such as agriculture and cohesion funding. 

These reforms have exposed familiar divisions among member states: Germany, the Netherlands and other net contributors continue to argue for tighter spending discipline, citing domestic fiscal pressures and limited appetite for increasing contributions to the EU budget. By contrast, a coalition of sixteen member states, including Italy, Spain, Poland and several cohesion beneficiaries, is pushing to preserve or even increase funding for agriculture, fisheries and regional development programmes. 

Current indications suggest that Cyprus is unlikely to endorse the more far-reaching cuts sought by the so-called “frugal” countries. Instead, the Presidency appears to be exploring a more balanced compromise, potentially involving modest reductions to newer instruments such as the European Competitiveness Fund and the Global Europe programme while seeking to shield parts of the Common Agricultural Policy (CAP) and cohesion spending from deeper reductions. Such an approach would likely be welcomed by Southern and Eastern member states but could face resistance from net contributors concerned about the overall size of the budget. 

The negotiations remain at a relatively early stage. Both the Council and the European Parliament must still formulate their respective positions before formal interinstitutional negotiations can begin. Nevertheless, this week’s compromise proposal will provide an important indication of where political landing zones may exist ahead of more substantive discussions among leaders later this month. 

Looking ahead, the process is expected to remain a central priority under the upcoming Irish Presidency, whose draft programme identifies the MFF as one of its four flagship priorities. Dublin is expected to focus on advancing negotiations with the objective of securing a final political agreement before the end of 2026, although significant disagreements over spending priorities, governance and new own resources suggest difficult negotiations still lie ahead. 

Thursday, 11 June – ECB expected to deliver rate hike as inflation continues to surge 

On Thursday, the European Central Bank (ECB) is expected to hold its latest Governing Council meeting, with markets and economists now overwhelmingly expecting a 25-basis-point rate increase that would lift the deposit rate from 2.00% to 2.25%. 

The meeting comes after another upside surprise in euro area inflation. According to Eurostat’s flash inflation estimate released last week headline inflation rose to 3.2% in May from 3.0% in April, marking the highest reading since September 2023 and extending the upward trend observed since the outbreak of the Middle East energy shock. More importantly for policymakers, core inflation accelerated to 2.5%, suggesting that higher energy costs are increasingly feeding through into the broader economy rather than remaining confined to energy markets alone. 

The latest inflation figures are likely to reinforce concerns already evident in the minutes of the ECB’s April meeting, published last month. Those minutes revealed a notably hawkish Governing Council, with several policymakers indicating that they “would not have opposed raising rates” had such an option been formally considered. Members also acknowledged that second-round effects from higher energy prices could continue to emerge over an extended period, particularly through transport, logistics and food prices. 

At the same time, the growth outlook continues to deteriorate. Recent PMI data showed euro area private-sector activity contracting for a second consecutive month, with the composite index falling to 48.5 in May. Demand conditions remain weak, while S&P Global estimates suggest the euro area economy could contract by around 0.2% during the second quarter if current trends persist. The combination of rising inflation and weakening activity increasingly resembles a classic negative supply shock, complicating the ECB’s policy response. 

Nevertheless, the balance of opinion appears to have shifted decisively toward a June hike. A Reuters survey conducted between 29 May and 3 June found that more than 90% of economists expect a 25-basis-point increase this week, with a majority also anticipating a further move in September. Several ECB officials, including Isabel Schnabel, have recently stressed the importance of preventing inflation expectations from becoming unanchored. 

Overall, the most likely outcome remains what has been described as an “insurance hike”, acting as a limited tightening step designed less to restrain demand and more to demonstrate the ECB’s determination to keep inflation under control. However, barring a significant deterioration in inflation dynamics, the current macroeconomic backdrop is unlikely to justify a return to the aggressive tightening cycle seen during the 2022 energy crisis. As a result, markets will focus as much on President Christine Lagarde’s guidance regarding the second half of the year as on the rate decision itself.