EUR News
LAST UPDATE: June 10, 2025
Europe facing security ‘perfect storm’: EU defence chief
Europe is facing a “perfect storm” on defence as it presses to rearm in the face of Russian aggression and doubts over US engagement, the EU’s defence commissioner said Tuesday. “Our readiness for defence is not sufficient. It demands an urgent ramp-up and a longer term strategy how to replace American capabilities in Europe,” commissioner Andrius Kubilius said.
Insight
Europe’s security predicament reflects the confluence of multiple strategic challenges that threaten the continent’s post-Cold War stability assumptions, requiring fundamental restructuring of defense capabilities and strategic autonomy initiatives. The EU’s acknowledgment of insufficient defense readiness represents a stark admission that decades of peace dividend policies have left Europe vulnerable at precisely the moment when security threats are multiplying across multiple fronts. Kubilius’s emphasis on replacing American capabilities reflects growing European recognition that Trump’s “America First” approach may permanently alter transatlantic security arrangements, forcing Europe to develop independent defense capacities. The “perfect storm” metaphor captures how simultaneous Russian aggression, American disengagement, and internal European political fragmentation create compounding vulnerabilities that traditional NATO structures may no longer adequately address. The urgent call for defense spending increases comes as European nations face fiscal constraints and political resistance to military expenditure, creating a classic security dilemma where the need for defense investment conflicts with domestic political and economic priorities.
U.K.’s Labor Market Cools, Keeping BOE on Course for Summer Rate Cut
The U.K.’s labor market cooled in the three months to April, offering reassurance to Bank of England policymakers despite the level still being well above that required to return inflation to target any time soon. Average weekly earnings excluding bonuses rose 5.2% from a year earlier, down from 5.5% in the three months to March. The unemployment rate edged up to 4.6% from 4.4%.
Insight
The UK labor market’s cooling trajectory provides the Bank of England with the economic justification for anticipated summer rate cuts, even as wage growth remains elevated above levels consistent with the bank’s 2% inflation target. The deceleration in earnings growth from 5.5% to 5.2%, while modest, represents continued progress toward the central bank’s forecast of wages falling to around 3.75% by late 2025, suggesting monetary policy transmission is working albeit slowly. The rise in unemployment to 4.6%, the highest since mid-2021, signals that higher interest rates are beginning to affect labor demand, though the level remains relatively low by historical standards and insufficient to dramatically suppress wage pressures. The Bank of England’s cautious approach reflects the delicate balance between supporting economic growth through lower rates while ensuring wage growth doesn’t become entrenched at levels incompatible with price stability. The minimum wage increase of 6.7% in April likely contributed to continued strength in accommodation and food services wages, highlighting how policy interventions can complicate monetary policy transmission mechanisms and delay the return to target inflation.
Swedish GDP grew 0.4% in April versus March, statistics office says
Sweden’s gross domestic product grew 0.4% in April compared to March, according to preliminary figures from the Statistics Office. The data suggests continued modest economic expansion in the Nordic country despite ongoing global economic uncertainties.
Insight
Sweden’s modest GDP growth of 0.4% in April represents a positive development for an economy that has struggled with subdued growth patterns in recent quarters, though the pace remains insufficient to drive significant improvements in employment or inflation dynamics. This monthly expansion occurs against the backdrop of Sweden’s central bank maintaining accommodative monetary policy to support economic recovery, with the Riksbank having cut rates multiple times to stimulate domestic demand. The growth figure suggests that Swedish consumers and businesses are gradually adapting to the new interest rate environment, though external factors including global trade uncertainties and geopolitical tensions continue to constrain more robust expansion. Sweden’s export-oriented economy remains vulnerable to international demand fluctuations, making this domestic growth particularly important for maintaining economic momentum independent of global trade patterns. The timing of this growth comes as the Riksbank considers its future policy stance, with continued modest expansion potentially providing room for maintaining current low interest rates while monitoring inflation developments and global economic trends that could affect Sweden’s small, open economy.
Sweden businesses more pessimistic over economy, central bank survey shows
Swedish businesses have become more pessimistic about economic prospects according to the central bank’s regular survey, reflecting ongoing concerns about global trade tensions and domestic economic conditions. The survey indicates a split between different sectors, with export-oriented companies performing better than domestic-focused businesses.
Insight
Swedish business pessimism reflects the broader challenges facing small, open economies in an era of increased global economic uncertainty and trade fragmentation, with domestic companies particularly vulnerable to weakening consumer demand. The sectoral divide highlighted in the central bank survey demonstrates how global trade tensions create winners and losers within the same economy, with export manufacturers benefiting from competitive exchange rates while retail and services companies suffer from reduced domestic consumption. This business sentiment deterioration provides the Swedish central bank with additional evidence supporting continued accommodative monetary policy, as weakening confidence can become self-fulfilling through reduced investment and hiring decisions. The survey results underscore how monetary policy transmission works through confidence channels as well as direct financial mechanisms, with business pessimism potentially constraining economic recovery even when interest rates are supportive. Sweden’s experience illustrates the challenges facing central banks in small open economies where external factors can overwhelm domestic policy measures, requiring careful calibration of monetary tools to address both global and domestic economic pressures while maintaining financial stability.
Norway’s Core Inflation Slows More Than Forecast to 2025 Low
Norway’s underlying inflation rate declined slightly more than expected in May, cementing the case for Norges Bank to begin interest-rate cuts in coming months. Underlying consumer-price growth excluding energy fell to 2.8% last month, matching this year’s lowest level from January. Economists surveyed by Bloomberg had a median forecast of 2.9%, while Norges Bank projected a rate of 3.1%.
Insight
Norway’s inflation deceleration to 2.8% provides clear evidence that the central bank’s aggressive monetary tightening cycle has successfully anchored price expectations in one of Europe’s wealthiest economies, setting the stage for a potential pivot toward policy easing. The fact that inflation came in below both economist and central bank forecasts suggests that underlying price pressures are cooling more rapidly than anticipated, potentially allowing Norges Bank to cut rates sooner than previously indicated without jeopardizing price stability. Norway’s experience demonstrates how energy-rich economies can achieve inflation control through monetary policy despite global commodity price volatility, with the exclusion of energy prices from core measures providing a clearer picture of underlying domestic price dynamics. The inflation slowdown to match January’s level indicates that Norway has avoided the second-wave price pressures that have complicated monetary policy in other developed economies, suggesting effective policy transmission through Norway’s interest-rate sensitive mortgage market. This development positions Norway’s central bank to potentially lead European rate-cutting cycles, which could have broader regional implications for monetary policy coordination and exchange rate stability within the Nordic region and broader European economic area.
Moldova’s annual inflation reaches 7.92% in May, statistics says
Moldova’s inflation reached 7.9% year-over-year in May 2025, with consumer prices rising 0.4% month-over-month
Insight
This inflation figure reflects Moldova’s ongoing economic challenges amid regional instability and energy pressures. The 7.9% rate shows persistent price pressures, particularly in food items like fruits (up 33%) and vegetables (up 18.7%). The National Bank of Moldova had targeted around 5% inflation, so this overshoot suggests monetary policy may need further tightening. Moldova’s inflation trajectory is concerning given its small economy’s vulnerability to external shocks, energy dependency, and political uncertainties. The broad-based price increases across food and services indicate structural inflationary pressures rather than temporary disruptions.
Hungary raises 2025 net financing need by $1.84 bln
Hungary has increased its financing requirements for 2025 amid economic pressures and budget constraints
Insight
Hungary’s increased financing needs reflect the country’s economic challenges heading into 2026 elections. Prime Minister Orbán faces the difficult balance of maintaining fiscal discipline while supporting economic growth before voters go to the polls. The higher financing requirement suggests budget pressures from multiple sources: EU funding restrictions due to rule-of-law disputes, economic recession in late 2024, and the need for pre-election spending to maintain political support. Hungary’s credit outlook has been downgraded to negative by rating agencies, making borrowing more expensive. This financial strain could limit Orbán’s traditional pre-election spending strategy and may impact Hungary’s long-term fiscal sustainability.
