Vulcan View: The latest EU developments 6 January – 10 January

Eurozone confronts renewed inflationary pressures, challenging ECB’s strategy

The eurozone is facing renewed inflationary pressures as 2025 begins, with consumer prices climbing to 2.4% in December – the highest rate since July.  This increase marks the third consecutive month of accelerating inflation, exceeding the European Central Bank’s (ECB) 2% target, and adds pressure on the ECB to stabilise prices while supporting the region’s faltering economy.

December’s inflation increase, up from 2.2% in November, reflects a combination of surging energy costs and persistent price increases in the services sector The services sector remains the primary driver of inflation, recording a 4% increase in December. Other notable contributors include processed foods, alcohol, and tobacco, which increased by 2.9%. In contrast, non-energy industrial goods remained stable at 0.5%, while energy prices rebounded marginally by 0.1% after months of decline.

Divergence among Member States and factors

Inflation rates vary widely across the eurozone. Fourteen of the twenty eurozone economies experienced price increases in December, with some countries experiencing significantly high rates: Croatia (4.5%), Belgium (4.4%), and Estonia (4.1%). On the other hand, the countries that did better in controlling inflation were Ireland (1.0%), Italy (1.4%) and Luxembourg (1.6%). Among major economies, both Germany and Spain reported 2.8% inflation, while France (1.8%) and Italy (1.4%) maintained lower rates.

Germany’s inflation rebound is particularly concerning given its stagnant economic growth and importance in steering economic growth in Europe. A contracting major economy coupled with rising prices and an upcoming general election in February, complicates the ECB’s task of balancing rate cuts to stimulate growth while avoiding excessive monetary easing that could reignite inflation. Spain, meanwhile, faces its own difficulties with the Eurozone’s highest unemployment rate at 11.2%, as rising prices exacerbate its vulnerabilities.

France’s political challenges add further uncertainty. The country has yet to approve its 2025 budget—a task initiated by Michel Barnier’s impeached government and now taken up by François Bayrou’s new administration. The process is likely to be fraught given the fragmentation in the French Parliament. Without a budget in place, France risks plunging into political instability.

On the other hand, several other factors compound the ECB’s challenge to control inflation: ongoing geopolitical tensions in Ukraine and the Middle East, and potential trade disruptions from Donald Trump’s anticipated return to the White House. Consumer expectations are also trending upward, with eurozone residents anticipating 2.6% inflation for the coming year, up from previous forecasts.

The ECB’s delicate “balancing” act

The ECB has cut interest rates four times since June, bringing interest rates to 3%. Nonetheless, inflationary pressures persist, leaving the central bank facing the difficult task of balancing inflation control with the need to avoid stifling economic growth. Its strategy of gradual interest rate adjustments reflects this precarious balance as it seeks to navigate competing priorities.

As 2025 unfolds, the ECB’s ability to manage inflation without derailing economic recovery will be crucial. While progress has been made since the inflationary peaks of recent years, the latest data underscores that achieving price stability remains a formidable challenge. With inflation still above target in most member states, the coming months will test the ECB’s adaptability in addressing pressures from both domestic and global forces.

Irish Government formation talks: navigating the path to consensus

With the inauguration of Donald Trump just around the corner, government formation talks are ramping up in Ireland with negotiations resuming on Monday 6 January. The need for a stable government has become increasingly significant and is now a primary concern for Irish politicians as the world braces for Trump 2.0. Three strands remain up for discussion:

• Policy discussions.
• Government structure.
• The ratification of the final agreement.

Discussions regarding the allocation of ministerial portfolios are ongoing. The most contentious policy areas which require further deliberations include Health, Justice, Energy and control of the Housing portfolio. Party officials are formulating several policy documents in line with party manifestos. Once agreed, this document will serve as a foundation for the Programme for Government. It is anticipated that a new Department of Domestic Affairs will be created to handle immigration and asylum affairs. Fianna Fáil originally proposed the idea during the general election campaign. It remains unclear whether Simon Harris’s proposed Department of Infrastructure will come to fruition in the next government.

The Regional Independent Group is expected to begin participating in the talks in earnest imminently. This Group’s key negotiators are Michael Lowry (Tipperary North), Seán Canney (Galway East), and Marian Harkin (Sligo-Leitrim). Meetings between Fianna Fáil, Fine Gael, and the Regional Independent Group are expected to take place on Friday. Notably, there have been no discussions about possible ministerial positions for Independent TDs, which may prove to be a sticking point in any further negotiations.

Negotiators from Fine Gael and Fianna Fáil were expected to meet with representatives from Independent Ireland on Thursday. Party leader Michael Collins expressed that any deal with his party would be “based on policies”. However, it is unlikely that Fine Gael and Fianna Fáil will reach a viable agreement with Independent Ireland with the Regional Independent Group looking like the most feasible option.

Meanwhile, statements from the Social Democrats’ leadership on Tuesday would indicate that any remote possibility of the party entering government is no longer realistic. Sources close to Independent TDs Danny and Michael Healy-Rae—the Kerry brothers—suggest that Fine Gael and Fianna Fáil would need to offer a super-junior ministerial position for them to join the government.

Parties involved in the talks assert that there remains a possibility that an agreement will be reached to elect a Taoiseach when the Oireachtas returns on 22 January, particularly with the Independents coming to the table this week. However, it appears more likely that a new government will not be formed until late January or early February. Much remains up for discussion, including child benefit reform. Fianna Fáil wants to see the headline rate increased, while Fine Gael is advocating for a double annual payment in August.

Party members will vote on the Programme for Government as part of the ratification process for the final agreement. Despite no formal date being set, the scheduling of the conferences of the Fianna Fáil and Fine Gael memberships – which are necessary to ratify the agreement to enter government – will ultimately provide a good indication of the timeline for government formation.

The Gender Balance on Corporate Boards Directive enters into force

On 19 December 2024, MEPs concluded their recommendations for the EU’s position at the upcoming UN global gathering on women’s rights in New York in March 2025. The European Parliament calls for women’s equality in all areas of life, including by implementing the Beijing Declaration and Platform for Action.

MEPs have called for gender mainstreaming in all relevant EU policy areas and for equal opportunities through funding, work opportunities and health care. MEPs have also urged the EU to implement equal pay and pensions, more female political leadership, and work opportunities.

In recent years, many EU companies have introduced statutory gender quotas to balance gender on company boards, but progress has been slow. The Gender Balance on Corporate Boards Directive, which entered into application at the end of 2024, aims for a more balanced gender representation on the boards of listed companies across all EU Member States. The Directive requires large listed companies in the EU to have 40% of the underrepresented sex among their non-executive directors and 33% among all directors.

The deadline for transposition by Member States was 28 December 2024, with companies needing to meet the targets by 30 June 2026. If companies fail to achieve these objectives, they will need to adjust their selection process, and where candidates are equally qualified, priority should be given to the underrepresented sex. The European Commission may also launch infringement proceedings against Member States that fail to notify transposition, or correctly transpose, the Directive.

As noted by Lina Gálvez (S&D, ES), rapporteur and Chair of the Committee on Women’s Rights and Gender Equality: “The European Parliament wants women’s rights to be taken more seriously in all policy areas.” Overall, the new Directive represents a positive step forward, framing the Commission’s efforts on gender equality and enhancing gender diversity. European Commission President von der Leyen’s ongoing commitment to achieving gender balance is further demonstrated by her efforts to establish gender balance within the College of Commissioners last year.

The European Parliament’s recommendations for the UN global gathering on women’s rights reflect a strong commitment to advancing gender equality across all areas of life. The focus on gender mainstreaming, equal pay, and enhanced female representation is a necessary step forward. The new Gender Balance on Corporate Boards Directive is a welcome effort and underscores the EU’s ongoing push for gender equality amongst its citizens.

Compliments of Vulcan Consulting – a member of the EACCNY