Week Ahead (9 December)

W/C Monday, 9 December – Macron to finalise identity of Michel Barnier’s replacement; allies indicate a decision will be made by Wednesday 

France remains in political crisis mode following the collapse of Prime Minister Michel Barnier’s government on Wednesday after a no-confidence vote in the French Assembly.

Barnier, who was appointed only three months ago by President Emmanuel Macron, was ousted after invoking Article 49.3 of the Constitution to force through an unpopular 2025 Social Security Bill. Even though this decision allowed him to effectively bypass the parliamentary vote, it also sparked outrage across the political spectrum, prompting both the far-left New Popular Front (NFP) and far-right National Rally (RN) to censure the government.

The vote marks the first time since 1962 that a French government has been toppled by a no-confidence motion, with 331 MPs supporting the move, well above the required 288. The outcome reflects not only opposition to Barnier’s austerity-driven budget but also a broader frustration with Macron’s governance, particularly his inability to secure stable parliamentary backing after June’s snap elections led to a fragmented Assembly.

Macron, addressing the nation on Thursday, criticised the "anti-Republican front" that brought down Barnier and pledged to quickly appoint a new prime minister to form a government “in the general interest.” He assured citizens that interim measures would prevent a government shutdown, including a special law to extend the 2024 budget. Marine Le Pen has already indicated that her RN will support this temporary fix which would avoid immediate financial chaos but will also come at the cost of delaying deficit reduction efforts. Budget Minister Laurent Saint-Martin warned that France’s deficit could widen further to 7% of GDP under this scenario.

Against this backdrop, speculation over the next appointee of Macron for the position of Prime Minister is intensifying, with Armed Forces Minister Sebastien Lecornu, centrist Francois Bayrou, Interior Minister Bruno Retailleau, Minister of Partnership with Territories and Decentralization of France Catherine Vautrin, former Socialist Prime Minister Bernard Cazeneuve and former Finance Minister François Baroin all rumoured to be contenders.  However, the fractured parliamentary landscape will once again complicate the task of forming a stable government, potentially further prolonging the political gridlock. Barnier will remain in a caretaker role, until Macron manages to secure the required parliamentary support for his replacement.

W/C Monday, 9 December – Romania braces for prolonged political turmoil – fresh elections to take place in March

Romania faces deepening political uncertainty after its Constitutional Court annulled the results of the first round of the presidential election, citing security concerns linked to alleged Russian interference. The court’s decision, announced earlier today, followed the declassification of security documents that reportedly revealed vulnerabilities in the electoral process. This decision mandates a rerun of the first round, which will now take place on 30 March, with a potential second round now taking place on 13 April.

The annulled vote had already shaken Romania’s political establishment. Georgescu took the political establishment by surprise with his unexpected first-round victory on 24 November, a success driven in part by a viral TikTok campaign. This also prompted the Romanian authorities to allege that it was supported by foreign influence, specifically Russia. In other words, the court’s decision not only invalidates his victory but also casts a shadow over the legitimacy of his candidacy and campaign methods.

Georgescu and his main rival the pro-EU mayor Elena Lasconi, along with any other candidates, will now have to re-submit their presidential bids. The stakes in this election are high. Georgescu, who has expressed admiration for Vladimir Putin and espouses anti-NATO rhetoric, has promised to pivot Romania away from its pro-Western policies. In contrast, Lasconi has framed the vote as a critical decision for Romania’s democratic and geopolitical future, pledging to strengthen ties with Western allies. This has fuelled fears of potential isolation for Romania and a weakening of its support for Ukraine in case Georgescu wins.

Both the results of the parliamentary election, held two weeks ago, and the ultimately annulled first presidential election highlighted the growing influence of far-right sentiment in Romania, reflecting dissatisfaction with the traditional political establishment and scepticism towards EU integration. The developments in the coming weeks will not only be critical for Romania but could also have implications for the direction of its foreign policy, given the country’s strategic position as a staunch ally of NATO and the EU.

Tuesday, 10 December – Executive Vice-President Ribera to give her first speech on competition policy

On Tuesday, the European Commission’s new competition chief, executive vice-President Teresa Ribera, will attend an annual Conference on competition policy hosted in Brussels by management firm Charles River Associates. Notably, she will give her first speech on competition policy since assuming office on Monday.

Teresa Ribera’s powerful new portfolio includes both competition policy and green transition goals, indicating the EU’s intent to lead in decarbonisation while maintaining global industrial competitiveness.  Having served as a Minister of Ecological Transition in Spain between 2018-2024, Ribera has extensive experience and strong credentials in green files. However, her views on competition policy are less known. Therefore, her speech will likely be a good early indication of the direction of competition policy in the coming five years. Nevertheless, her approach will likely reflect the priorities outlined by President von der Leyen in her mission letter to Ribera in September. Largely influenced by Mario Draghi’s report on the future of the European industry, von der Leyen outlined the following priorities with regard to competition policy:

·       State aid reforms to boost renewable energy deployment.

·       Simplified state aid rules.

·       The establishment of a European Competitiveness Fund.

·       Strengthened enforcement of Foreign Subsidies Rules (FSR) to prevent unfair competition from non-EU countries like China.

·       Stricter scrutiny on ‘’killer’’ acquisitions and mergers.

In other words, the new Commission could focus on deeper market integration in the financial, energy, and telecommunications sectors to enhance economic security and global competitiveness, especially in light of its growing competition with China and the US. This includes revising current restrictive merger rules to allow for greater market consolidation, especially in the telecom sector, which is currently lagging significantly behind both the US and China and strategically using state aid to support pan-European initiatives.

In parallel, Ribera will have to oversee the bloc’s scrutiny over big tech firms, including the enforcement of the Digital Markets Act (DMA), with the decisions on its inaugural probes –targeting Apple, Google and Meta- due next March. Last week, in an interview with Bloomberg TV, Ribera indicated that the possibility of splitting Google is still ‘’on the table’’ and warned that Chinese clean energy sectors could be subject to further scrutiny over potential anti-competitive practices.

Thursday, 12 December – ECB Governing Council to meet with another rate cut priced in despite inflation uptick in November

On Thursday, the European Central Bank’s Governing Council (GC) will hold its monetary policy meeting with another rate cut widely priced in.

Since initiating a series of rate cuts in June to counter slowing inflation and weak growth, the ECB has trimmed its deposit rate from 4% to 3.25% - most recently in its October meeting where it cut rates by a further 25 basis points. A further cut this week would align with market expectations and the recent Reuters survey, where nearly all 75 economists polled anticipate this move, marking it the fourth reduction this year.

In October, the ECB’s cautious optimism about inflation returning to target was tempered by weak economic growth, especially in Germany, and a gradual decline in core inflation. At the time, inflation had dropped to a three-year low of 1.8% in September, prompting a more dovish policy stance. However, the minutes of the October meeting, released in November, revealed diverging views among GC members. While some supported further rate cuts to ensure inflation stayed on course, others cautioned against excessive reliance on rate adjustments given lingering uncertainties.

Since then, inflation has shown signs of rebounding, with November marking the second consecutive uptick to 2.3%, following October’s rise to 2.0%. This upward trend is attributed to stabilising 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 fallout from the collapse of France's government.

In an interview earlier this week, ECB’s Philip Lane suggested the central bank may soon pivot from its meeting-by-meeting, data-dependent approach. In particular, he hinted that future decisions could focus on managing "upcoming risks rather than being backward-looking," a shift he argued would better align with the ECB’s medium-term inflation target of 2%. Similarly, Bank of Italy Governor Fabio Panetta called last month for pre-committed rate cuts to avoid falling into an era of subpar inflation and ensure economic confidence.

Although the upcoming meeting is likely to deliver a modest rate cut of 25 basis points, internal debate will likely continue over whether the ECB should provide stronger forward guidance to bolster confidence amid uncertainty. Yesterday, Croatian central bank chief Boris Vujcic, who is generally considered a moderate hawk, downplayed expectations for dramatic changes this week but acknowledged that there is a growing debate within the GC over the long-term trajectory of monetary policy.