Week Ahead (17 February)

Monday, 17 February – EU emergency defence meeting to be held in Paris 

This afternoon, French President Emmanuel Macron is hosting an emergency summit in Paris, bringing together the leaders of Germany, Italy, Poland, Spain, the Netherlands, Denmark, and the UK, alongside European Commission President Ursula von der Leyen, European Council President Antonio Costa, and NATO Secretary-General Mark Rutte.  

The summit follows last week’s Munich Security Conference, where a widening transatlantic divide became evident, particularly after revelations that the US will launch peace talks with Russia in Saudi Arabia this week without consulting Ukraine or European partners. European leaders were further alarmed by reports that President Donald Trump had spoken directly with Vladimir Putin without informing key EU allies, boosting fears that the US may attempt to broker a settlement with Moscow that undermines Ukraine’s sovereignty and excludes Europe from negotiations. In addition, his defence secretary, Pete Hegseth, ruled out Ukraine joining NATO and deemed a return to Ukraine’s 2014 borders as ‘’unrealistic’’. 

Ukraine has already made clear that it will not accept any settlement negotiated without its direct involvement, with President Volodymyr Zelenskyy stating that he rejects any decisions made between Washington and Moscow that concern Ukraine’s future. European governments are now facing a series of difficult questions, as Trump has also made it clear that the US will not commit troops to any post-war stabilisation effort in Ukraine and has instead sent European NATO members a questionnaire requesting clarification on their willingness to deploy forces. This has prompted the reaction of certain European leaders with Germany’s Chancellor Olaf Scholz insisting that European security guarantees must be determined by Europe itself rather than dictated by Washington, while Antonio Costa reiterated that Russia remains ‘’a global threat’’. 

Against this backdrop, at today’s summit leaders will attempt to define Europe’s role in shaping Ukraine’s future. The discussions are expected to focus on a range of options, including the possibility of additional European security guarantees for Ukraine, further increases in defence spending, financial support for Kyiv, the use of frozen Russian assets, and whether European forces should be involved in a post-war stabilisation mission. Despite a growing push for greater European strategic autonomy, divisions remain among EU and NATO members over how far to go in asserting Europe’s independent role.  

W/C Monday, 17 February – Final week of campaigning for German federal elections 

The final week of campaigning begins in Germany, with snap federal elections scheduled for Sunday 23 February. The collapse of Chancellor Olaf Scholz’s “traffic light” coalition in November over fiscal disagreements triggered these elections, with major implications for Germany’s economic recovery, fiscal policy, defence commitments, and EU-US relations. 

Recent polls indicate that the centre-right Christian Democratic Union (CDU), led by Friedrich Merz, is leading with approximately 30% support. The far-right Alternative for Germany (AfD) follows with around 20-22%, having increased its polling rates in recent weeks, while SPD and the Greens are polling at approximately 14-16% each. Notably, the left-wing Die Linke has seen an uptick, reaching 6% in some polls, surpassing the recently formed Sahra Wagenknecht Alliance (BSW), which is polling at around 5%. The FDP is polling slightly below the 5% threshold required for Bundestag representation. If all three smaller parties enter parliament, coalition talks will be more complex, likely requiring CDU to form a government with two partners, with a CDU-SPD-Greens or CDU-SPD-FDP coalition emerging as the most viable option.  

The election will not only determine Germany’s next government but 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. The constitutional “debt brake,” which limits government borrowing, remains a major obstacle to increased public spending. If the next government aims to boost investments in defence, infrastructure, and industrial policy, it may need to pursue constitutional reforms to loosen fiscal constraints. However, such an amendment requires a 2/3 majority in the Bundestag, a threshold that could be blocked if the AfD, BSW, and Die Linke together secure at least 1/3 of parliamentary seats. 

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. The challenge, however, lies in how these increases will be financed, as Germany’s strict fiscal rules limit the scope for additional defence expenditures without offsetting cuts elsewhere. On migration, Merz has hardened the CDU’s stance, incorporating elements of AfD rhetoric to counter its rising support. However, despite this shift, all major parties have ruled out cooperating with the AfD. 

Regarding transatlantic relations under Trump and a looming trade war, Merz has positioned himself as a leader who will work to unite Europe in response to Trump’s increasingly protectionist trade policies. Given Germany’s reliance on exports, any new US tariffs targeting the EU, particularly on steel, aluminium, and automobiles, could have severe economic consequences. However, how Berlin chooses to respond will largely depend on the composition of the next government. A CDU-Green coalition might prioritise strengthening EU strategic autonomy, while a CDU-FDP government could seek a more conciliatory approach to avoid trade escalation.  

Given the significant political fragmentation and the multiple coalition scenarios in play, forming a stable government is likely to be a lengthy and contentious process lasting several months. 

Monday, 17 February – Eurogroup to discuss economic outlook amid growing US policy uncertainty; Bulgaria to provide update on its progress towards euro adoption 

Today, Eurozone finance ministers will meet in Brussels for a discussion primarily shaped by economic uncertainty and external risks linked to US trade and monetary policy under the new administration. With sluggish growth prospects for the euro area, ministers will assess downside risks to the economy and discuss policy responses. 

A key concern will be the potential economic fallout from the Trump administration’s tariff threats. The US has already imposed new tariffs on steel and aluminium, prompting warnings of retaliation from the European Commission. Ministers will need to assess the possible implications of further trade restrictions, particularly in light of the EU’s strong export reliance and the vulnerability of key sectors like automotive and manufacturing. 

Another focus will be the effects of US fiscal and monetary policies on the eurozone, including potential shifts in Federal Reserve interest rates and their impact on the euro-dollar exchange rate. Representatives from the European Central Bank (ECB) will also provide its assessment of how a changing US economic environment could influence financial conditions in Europe, including capital flows and inflationary pressures. Ministers will also adopt the annual eurozone economic policy recommendation, which has undergone some revisions since the European Commission’s initial proposal. 

Finally, Bulgarian Finance Minister Temenuzhka Petkova will also provide an update on Bulgaria’s progress towards adopting the euro. With inflationary pressures still a challenge, ministers will assess whether Bulgaria is on track to meet the necessary economic and monetary criteria for eurozone entry. Bulgaria’s timeline for joining the eurozone was revised last year with 1 January 2026 set as the new target date after persistent inflation and political instability that forced Sofia to miss its original goal of 1 January 2025. Τhe ECB is expected to publish an ad-hoc report on Bulgaria’s readiness for eurozone entry around May 2025 which will form the basis for discussions among EU finance ministers, MEPs, and heads of government. If the country successfully meets the criteria, it could achieve eurozone entry by the revised January 2026 deadline.   

Monday, 17 February – EU member states to discuss state aid ahead of the publication of the Clean Industrial Deal 

Today, the Council’s Working Party on Competition Policy convenes to discuss the future of EU state aid rules, a debate that has gained further traction as Europe struggles to keep pace with industrial policy developments in the US and China. The Temporary Crisis and Transition Framework (TCTF), introduced to mitigate the economic impact of the energy crisis and Russia’s invasion of Ukraine, expired on 31 December 2024, removing key flexibility provisions that had allowed governments to provide targeted subsidies for clean technology, renewables, and critical industrial projects. Its expiration has reignited a fundamental debate over whether similar provisions should be extended, permanently integrated, or phased out in favour of stricter competition rules. 

The discussion is taking place against the backdrop of the Draghi Report on European Competitiveness, released in September 2024, which made the case for deeper state intervention to support strategic sectors such as defence, clean energy, and advanced technologies. The report recommended expanding the Important Projects of Common European Interest (IPCEI) framework and proposed a new “Competitiveness IPCEI” to foster large-scale industrial projects that enhance the EU’s global standing. This shift in approach was further reinforced by European Commission President Ursula von der Leyen, who, in her mission letter to Competition Commissioner Teresa Ribera, called for a "new approach to competition policy" that balances competition enforcement with enabling European companies to scale up in global markets. 

However, member states remain deeply divided over the path forward. France and Germany, both of which have strong industrial bases, advocate for retaining key provisions of the TCTF to prevent Europe from falling behind in the global race for strategic investments. By contrast, fiscally conservative northern countries such as Sweden and Finland are pushing for a return to stricter state aid controls, fearing that prolonged subsidy schemes could distort competition within the Single Market. Poland, meanwhile, has indicating greater openness towards a more flexible state aid approach. 

In December 2024, shortly after taking office, Ribera announced that the Commission would revise its state aid framework as part of the Clean Industrial Deal, scheduled for release on 26 February 2025. The new framework is expected to focus on accelerating renewable energy deployment, facilitating industrial decarbonisation, and strengthening manufacturing capacity for clean technology. The Commission has already moved in this direction by prioritising AI, semiconductors, quantum computing, and edge computing under the IPCEI framework, reflecting Europe’s need to invest more in critical technologies. 

However, tensions will likely persist between larger economies that can finance industrial projects domestically and smaller member states that favour EU-wide financing mechanisms to avoid market fragmentation. To address these concerns, the Commission will also propose a European Competitiveness Fund as part of the bloc’s next long-term budget to invest in European strategic technologies. 

Today’s discussions will serve as a crucial indicator of the EU’s trajectory on state aid reform and the extent to which member states align with Ribera’s agenda ahead of the upcoming publication of the Clean Industrial Deal later this month. 

W/C Monday, 17 February – European Commission likely to rule on Nokia’s $2.3 billion acquisition of Infinera 

The European Commission is likely to deliver its decision this week as to whether Nokia’s $2.3 billion acquisition of US optical networking specialist Infinera complies with the EU’s merger control framework. The transaction, announced in June 2024, aims to strengthen Nokia’s position in the optical networking market, enabling it to the capitalise on the AI-driven expansion of data centres. 

The acquisition would make Nokia the second-largest player in the global optical networking market, surpassing Ciena and trailing only Huawei. Optical transport networks, which are used for high-speed data transmission, are essential for AI-driven cloud computing and data center expansion, making this a strategic move for Nokia amid slowing 5G equipment sales. CEO Pekka Lundmark described the acquisition as “optimal timing,” positioning Nokia to benefit from AI-driven investments by Amazon, Alphabet, and Microsoft, all of which are ramping up spending on cloud infrastructure. Infinera’s strength lies in intra-data center communications, which facilitates ultra-fast server-to-server data transfer. Nokia expects to generate €200 million in cost synergies, helping offset the deal’s high purchase multiple. Analysts suggest that while Infinera’s growth trajectory has been inconsistent, the long-term strategic benefits could justify the valuation. 

The deal, which was already approved last week by Taiwan’s Fair Trade Commission, is now awaiting the EU’s final verdict, which will determine whether the acquisition is cleared unconditionally or subjected to an in-depth investigation (Phase 2) which could delay closure by several months or result in remedies to address competition concerns.  The Commission’s ongoing review is focusing on whether the deal could distort competition in the EU’s telecom and data infrastructure market.   Although the Commission has set a provisional deadline of 26 February to issue its initial ruling, a decision is expected as soon as this week.