Eurozone News
LAST UPDATE: June 5, 2025
EU executive starts disciplinary steps against Austria over budget deficit
The European Commission has initiated disciplinary proceedings against Austria due to its budget deficit exceeding the EU’s permissible limit.
Insight
The EU’s action against Austria underscores the importance of fiscal discipline within the union. Austria’s budget deficit surpassing the 3% GDP limit raises concerns about economic stability and adherence to EU fiscal rules. This move serves as a reminder to member states of the consequences of fiscal non-compliance and the EU’s commitment to maintaining economic order.
Italy calls on EU to allow deficit leeway for defence spend over 20-30 years
Italy’s Defence Minister Guido Crosetto has urged the European Union to extend budget flexibility for defence spending to 20-30 years, rather than the four years currently proposed.
Insight
Italy’s request highlights the challenges EU member states face in balancing increased defence spending with fiscal responsibility. The current EU proposal allows for a temporary breach of the 3% GDP deficit limit to accommodate defence expenditures, but only for four years. Italy, with a high public debt projected to peak at nearly 138% of GDP in 2026, fears that this short timeframe could strain its finances and hinder long-term planning. Extending the leeway to 20-30 years would provide more sustainable budgeting for defence without compromising essential social spending. This move also reflects Italy’s cautious approach, as it awaits the outcome of the upcoming NATO summit before deciding on participation in the EU’s defence funding scheme.
German cabinet approves $52 bln corporate tax relief package
The German cabinet approved a €46 billion ($52 billion) corporate tax relief package to be implemented from 2025 to 2029, aiming to stimulate investment and revive the sluggish economy.
Insight
This significant tax relief package demonstrates Germany’s proactive approach to countering economic stagnation. By offering favorable depreciation measures, including “super depreciations” allowing a 30% annual write-off over three years, the government aims to incentivize corporate investment. This move is expected to bolster business confidence, encourage capital expenditure, and enhance Germany’s competitiveness in the global market. However, the effectiveness of this package will depend on its implementation and the broader economic context, including global demand and supply chain dynamics.
Germany must rethink costs of energy transition, economy minister says
Economy Minister Katherina Reiche emphasized the need to reassess the financial aspects of Germany’s energy transition, citing overlooked system costs that could jeopardize its success.
Insight
Germany’s ambitious shift towards renewable energy, while commendable, has encountered challenges related to the overlooked costs of system integration, infrastructure upgrades, and supply security. Minister Reiche’s call for a “reality check” underscores the necessity of a holistic evaluation of the energy transition, considering projected electricity demand, grid development, and hydrogen infrastructure. Addressing these factors is crucial to ensure the transition remains economically sustainable and does not compromise the country’s industrial competitiveness.
EVs boost German auto sales, Tesla falls again
While overall electric vehicle (EV) sales in Germany rose nearly 45% in May, Tesla’s sales declined for the fifth consecutive month, with a 36.2% drop, amid growing competition and political backlash linked to CEO Elon Musk.
Insight
The contrasting performance between the broader EV market and Tesla highlights the increasing competitiveness of the EV sector in Germany. Tesla’s decline is attributed to factors such as the depletion of its old Model Y inventory ahead of new deliveries and intensified competition from Chinese manufacturers like BYD. Additionally, political controversies surrounding CEO Elon Musk may have influenced consumer sentiment. Tesla’s ability to rebound will depend on the successful rollout of its updated models and strategies to address market-specific challenges.
Portugal’s PM Montenegro to keep mostly same key ministers in new cabinet after re-election
Portuguese Prime Minister Luís Montenegro will retain most key ministers in his new cabinet following his center-right Democratic Alliance’s victory in a snap election, signaling policy continuity.
Insight
The decision to maintain the existing cabinet lineup reflects a commitment to policy stability and continuity, which may reassure investors and stakeholders. Retaining key figures in finance, environment, and foreign affairs suggests a focus on ongoing initiatives, including tax reforms and addressing housing and immigration challenges. However, operating as a minority government, Montenegro’s administration may face legislative hurdles, necessitating strategic alliances and negotiations to implement its agenda effectively.
