A minimum tax on the EU’s richest individuals will not discourage innovators and start-up founders from investing in the bloc, prominent economist Gabriel Zucman told POLITICO. “Innovation does not depend on just a tiny number of wealthy individuals paying zero tax,” Zucman said in an interview at this year’s POLITICO 28 event. The young economist has become a household name in France thanks to his proposal to have households worth more than €100 million paying an annual tax of at least 2 percent of the value of all their assets. Critics of the tax warned about the risk of scaring investors out of the EU and that tech entrepreneurs could leave the bloc as they would be forced to pay a tax based on the market value of shares they own in their companies without necessarily having the liquidity to do so. But Zucman rejected “the notion that someone […] would be discouraged to create a start-up, to innovate in AI because of the possibility that once that person is a billionaire, he or she will have to pay a tiny amount of tax” “Who can believe in that?” he scoffed. The “Zucman tax” was one of the key demands by left-wing parties for France’s budget for next year. But the measure has been ignored by all France’s short-lived prime ministers, and rejected by the French parliament during ongoing budget debates. But Zucman is not giving up and still promotes the measure, including at the EU level. “This would generate about €65 billion in tax revenue for the EU as whole,” Zucman insisted.

Germany’s two banking supervisory agencies have drafted a plan to ease the burden of regulation on Europe’s smaller banks and are now seeing if it will fly. An informal discussion paper drafted by the Deutsche Bundesbank and Bafin — which share responsibility for supervising German banks — proposes freeing banks across the EU of the need to report capital ratios based on complex calculations of the riskiness of their assets, as well as liberating them from various other obligations. The proposals are the first concrete result of a drive to simplify regulation that began earlier this year and are the clearest sign yet that the EU is — belatedly — ready to undo some of the stifling financial regulation it introduced over a decade ago. Regulation is currently based on the global Basel III accords that were agreed by regulators in 2010, two years after reckless lending by U.S. and European banks caused the biggest financial crisis in nearly 80 years and a wrenching recession across most of the world. Basel III drastically increased the amount of capital and liquidity that banks have to hold to protect themselves against a possible repeat. But the accords were aimed primarily at big international institutions whose operations were capable of destabilizing the global financial system; as the impact of the 2008-2009 disaster has faded, regulators have grudgingly come to accept that their response went too far. The U.S., Switzerland and the U.K. have already implemented less intrusive regimes for smaller banks with simpler business models. “With the proposal for an EU small banks regime, we have provided important impetus to the discussions on simplifying the regulatory framework,” Michael Theurer, the Bundesbank’s head of banking supervision, said in emailed comments, stressing that the proposal “does not represent a departure from the Basel framework.” The framework would be open to banks with less than €10 billion in assets and with a mainly domestic focus (at least 75 per cent of their business should be in the European Economic Area). Banks using it would not be allowed to hold any cryptocurrency assets such as Bitcoin, and would be allowed to hold only minimal amounts of derivatives or assets for trading purposes. They would also have to prove that their vulnerability to changes in interest rates is acceptably low. ‘PARADIGM SHIFT’ Under the Capital Requirements Regulation, which applies Basel III in the EU, banks are generally required to report two capital ratios — one adjusted for risk, and one unadjusted. The latter, known as the leverage ratio, was originally intended as a backstop to prevent larger banks from gaming the system by understating the risks on their books under internal models allowed by the accords The German proposals suggest that smaller banks would merely have to report a leverage ratio, albeit a “significantly higher” one than the present 3 percent. By comparison, U.S. community banks must keep their leverage ratios above 9 percent, which means they must hold at least $9 of capital for every $100 in assets. Theurer said the Bundesbank had deliberately refrained from suggesting a specific ratio at this time. This idea “is more than a technical detail,” Daniel Quinten, a member of the board at Germany’s Federal Association of Cooperative Banks, said in a post on social media. “It would be a paradigm shift — and a chance for more proportionality, more efficiency and less bureaucracy in regulation.” The proposals — and the feedback they get — are to be incorporated in a report that a high-level European Central Bank task force will recommend to the European Commission at the end of the year. | Florian Wiegand/EPA The proposals also simplify demands on liquidity coverage. They would exempt banks from the Basel III Net Stable Funding Ratio — a complex formula for guaranteeing liquidity over a one-year timeframe — and would replace it with a new requirement that would limit their lending to only 90 percent of their deposit base. Banks would also have to keep at least 10 percent of their assets in highly liquid form, such as cash, central bank reserves or short-term government debt. This, the discussion paper said, “would achieve similar potential outcomes with dramatically reduced complexity.” The proposals — and the feedback they get — are to be incorporated in a report that a high-level European Central Bank task force will recommend to the European Commission at the end of the year. Additional reporting by Carlo Boffa.

VATICAN CITY — The new American pope is looking to his MAGA compatriots to shore up the Vatican’s finances after decades of scandal and mismanagement. The conclave that brought Pope Leo to power was overshadowed by painful divisions within the Church, a war between modernity and tradition, and bitter reflections over his predecessor’s complex legacy. But more prosaically it was also plagued by angst over a serious fiscal squeeze that is forcing the spiritual leader of the world’s 1.4 billion Catholics to moonlight as a fundraiser. Despite the Vatican’s vaults of priceless masterpieces, Leo has ascended to the papal throne amid a steepening liquidity crisis aggravated by a major downturn in donations from the U.S., making it increasingly difficult for the city state to function. Leo needs to fix it — but to do so he needs to keep traditionalist U.S. Catholics on side. Insiders say that Leo was elected in part because as an American he exuded an Anglo-Saxon financial seriousness. He was also seen as well positioned to bring back donations that have dried up thanks to persistent scandal and the hemorrhaging of support from powerful American Catholic conservatives.  Already, the gambit seems to be working. “Talking to some of the biggest donors in the country, they’re absolutely thrilled,” said one conservative Catholic leader in the U.S., granted anonymity to speak candidly. “I don’t know that they’re already writing their checks. I don’t see that necessarily yet. But as far as their optimism and excitement, it’s a 10 out of 10 — absolutely.” A boost to donations is desperately needed. According to Reuters, the latest internal figures show the Vatican ran a deficit of €83 million in 2024, more than double the €38 million reported in its last-published financial report in 2022.  The annual shortfall adds to liabilities including half-a-billion in pension obligations to the Vatican’s superannuated beneficiaries and past losses from the Institute for the Works of Religion (IOR), the Holy See’s scandal-riddled investment vehicle, also known as the Vatican Bank. The Vatican’s income is mainly derived from property assets and donations including from bishops and Peter’s Pence, the annual June collection by churches for the pope’s “mission” and charitable works. But donation revenue has fallen with increasing secularism and financial scandals. Donors from the U.S., the number one contributing country, were put off by Francis’ more liberal teachings on LGBTQ+ and marriage as well as corruption scandals including a botched investment by the Vatican’s top financial institution in London real estate, said John Yep, president of Catholics for Catholics, a conservative NGO.   ‘VERY EQUILIBRATED’ The momentum behind Leo as a bridge-builder emerged in pre-conclave lobbying sessions, when cardinals began to envisage that Leo’s alignment on hot-button conservative issues would help appease U.S. Catholics. Leo went on to secure more than 100 votes in the conclave, two well-placed insiders say, indicating that his support was broad and included right-leaning clerics.  A man holds a US flag in St. Peter’s Square, Vatican City, 08 May 2025. | Angelo Carconi/EPA-EFE Pope Leo “is a very equilibrated person, and he can give something to the right, without shifting the pontificate to the right,” one cardinal told POLITICO.  According to the cardinal quoted above, his constituency even included several of the die-hard Francis critics led by the arch-traditionalist American cardinal Raymond Burke. Burke himself reportedly received Leo — then Cardinal Robert Prevost — in his Vatican-owned apartment before the conclave, and spoke with him again after, according to one person familiar with the matter. Burke’s office could not reached for comment. In turn, Leo has signaled a willingness to address traditionalist priorities, drawing particular praise for his decision to move back to the original papal residence from his predecessor’s basic lodgings, as well as for his penchant for singing in Latin. This year’s conclave also happened to coincide with an annual Vatican fundraising jamboree known as “America Week,” a week of lavish Rome parties, that saw €1 billion committed to the Vatican should the “right pope” be elected.  The upshot is — theoretically — more money from across the pond. “American philanthropists want to see that so they will open up their coffers again,” said Yep. Electing Leo “was a very smart choice because they absolutely need the American money. The church is in a terrible position financially,” said the Catholic leader in the U.S. quoted above. “They need the American money. And they were able to pick an American who’s not that American. It was kind of a perfect pick.” LEGACY OF CORRUPTION But restoring confidence will also require a credible overhaul of the Vatican’s financial plumbing and accounting after years of scandal that also tainted the Church’s international image. Insiders often blame the shoddy financial situation on the Vatican Bank’s alleged links to a sprawling money-laundering scandal in the 1970s that reportedly involved Italian freemasonry, the mafia, the CIA, anticommunist militias in Latin America and a Milanese banker who was found hanging dead under London’s Blackfriars Bridge in 1982. Creative accounting persisted over the years, and the shock resignation of Francis’ predecessor, Benedict XVI, was partly driven by a raft of financial scandals leaked to the Italian press. Under a transparency drive, Francis hired former Deloitte accountant Libero Milone to audit the Holy See’s finances. Milone’s first task was to draw up accounting for the various dicasteries that make up the Curia, the Vatican City government. What he found stunned him. “They created a proper framework to bring Vatican financial reporting into the 21st century,” Milone told POLITICO. “But when I was brought in to do the audit work, we were still operating in the previous century.” Newly elected Pope Leo XIV smiles from the central loggia of Saint Peter’s Basilica, Vatican City, 08 May 2025. | Ettore Ferrari/EPA-EFE Financial accounts were written in pencil by nuns on “pieces of paper” and stashed in drawers, Milone said. Theologians with rudimentary financial knowledge massively underestimated the future costs of the microstate’s pension obligations, he said. When Milone began to notice discrepancies in various ministerial budgets, he was accused of being a spy. He was eventually brought in for questioning and compelled to resign — then found that a resignation letter had already been prepared a month prior. Francis didn’t sit on his hands. The Vatican Bank is profitable again, after he ended some of its shadier practices, and he also presided over the conviction of Cardinal Giovanni Angelo Becciu, a powerful secretary involved in a €200 million scandal involving a botched London property investment in 2014. As well as a hiring freeze and salary cuts, Francis set up a new fundraising commission and centralized the Vatican’s budgeting.  But the broader reform effort was seriously derailed by the departure of Milone, as well as Cardinal George Pell, an Australian who had been brought in to head a new Secretariat for the Economy but was called back to Australia to face charges relating to the clerical abuse scandal. Officials describe an enduring lack of transparency as well as internal resistance to the slow-going reform efforts from entrenched interests in the Curia, with staffers complaining about the effort to mediate spending. Representatives for the IOR and the Holy See’s Secretariat for the Economy declined POLITICO’s requests for interviews. So far, Leo has hinted that he will prioritize fundraising over austerity, announcing a €500 bonus to curial staffers. He has also signalled that he wants to distance the Vatican from scandals of the past, sanctioning a new investigation into a key witness against Cardinal Becciu’s conviction which could help overturn his conviction at the appeal this fall. On top of that, he will look into ways to boost profits in the Holy See’s vast real estate portfolio, after prelates complained about underinvestment, said the cardinal quoted above.  How all this pans out will depend on not only American largesse but whether Leo can empower the growing caucus of Church pragmatists who recognize that even the Holy See must occasionally lower itself to earthly responsibilities like basic financial planning. For others, the divine mission still trumps all — whatever the cost. “There will always be a way to get money, just like there will always be the poor,” said one prelate in St. Peter’s Square last month. “Right now, my concern is lunch.”

SOFIA — Has Bulgaria slashed key state-controlled prices to massage down inflation numbers and help it qualify for euro membership? In April, the country announced (rather surreptitiously) a highly unexpected 82.8 percent cut in daily fees for hospital treatment. Even the presenters on state TV confessed the reasons behind the move were a mystery. So what is the Bulgarian government up to? Sofia is now on track to receive a green light next month to adopt the European single currency on Jan. 1, 2026, but only passed the inflation test by the skin of its teeth — and the plunging health costs played a vital role in that. Those reduced healthcare costs have shifted attention to Bulgaria’s control over prices set at the state level and how those impact consumer price indices. “The only reason Bulgaria has qualified is, if you look at the inflation data, due to state-administered prices,” a former Bulgarian government official familiar with the data told POLITICO. “It is well known that statistical data was adjusted to show results more favorable than reality — especially in sectors like postal services, transport and healthcare.” While healthcare is the big factor, rail fares were also cut by over 9 percent, and postage costs were reduced by nearly as much. In all, the reductions in state-set prices helped push the harmonized index of consumer prices [HICP] down by 1.2 percentage points in April compared with March, bringing Bulgaria within the required limits. Steve Hanke, a professor of applied economics at Johns Hopkins University and the economist who designed Bulgaria’s currency board in the late 1990s, said the data raised red flags. “I think there’s a high probability that [the inflation data] has been manipulated,” Hanke told POLITICO in emailed comments. “Given my experience as an advisor to the president of Bulgaria (1997–2002) and my observations of the machinations surrounding Bulgaria’s application to formally enter the eurozone, I would not trust inflation data that have been thrown up as far as I could throw them.” Any discussion of the data used to bind the former Soviet satellite more tightly to the heart of the EU quickly becomes politically charged. Pro-Kremlin, anti-EU politicians have long accused the administration of cooking the books to rush the country into the eurozone before it is ready, running the risk of importing western European prices. The European Commission notes the critical role of state-set prices in meeting the inflation target. | Vassil Donev/EFE via EPA Bulgaria’s government has said the sudden shift in the hospital prices was unrelated to euro convergence, but technocrats, economists and even — most importantly — the European Commission note the critical role of state-set prices in meeting the inflation target. MAKING THE GRADE To make the grade for single currency convergence, Bulgarian inflation was required to fall within 1.5 percentage points of the average of the three EU countries with the lowest inflation rates. Economists estimate that the drop in hospital prices alone subtracted 0.89 percentage points from the overall 12-month inflation rate, which came in at 2.7 percent, narrowly clearing the threshold for euro entry (it was in fact just below the reference value of 2.8 percent for the price stability criterion.) The European Commission openly acknowledges the importance of April’s reduction in the cost of a daily hospital stay from 5.8 leva (€2.97) to 1 lev, given its weight in the core index of prices. “The drop in April 2025 of the annual HICP inflation rate was largely due to a substantial reduction in hospital fees,” the European Commission said in its convergence report on Bulgaria. “In April, hospital fees were reduced from 5.8 BGN to 1 BGN, that led to 2.9 percentage points decline in annual services inflation.” Bulgaria has long been seen as a strong contender for euro membership due to its tight budgets and the fact its currency is pegged to the euro under the strong management of a currency board established in 1997. Inflation, however, has recently been a bugbear. “The pick-up in inflation in Bulgaria in 2025 is of a temporary nature and mainly reflects increases in January 2025 in a mix of taxes and administered prices, partially offset by the lowered hospital fees in April,” the European Commission added. Overall, Bulgaria’s official announcement of HICP inflation for April 2025 put the average rate for May 2024 to April 2025 at 2.7 percent compared with the same period 12 months earlier. Breaking the figures down by sector, prices for health services fell by more than any other category, dropping 11.5 percent. FUNDING THE HOSPITALS Nobody is disputing the importance of the lower hospital costs in bringing down the inflation numbers, given their weighting in the index. Vassil Donev/EFE via EPA The question is what that means in practical terms, and whether the 82.8 percent cut is an entirely painless change for Bulgarian hospitals that are often in a poor state of repair. The sums involved are modest — particularly relative to their weight in the inflation index — but they still leave gaps that need to be filled. At a public level, Bulgaria has not explained the rationale for slashing the hospital fee. When contacted by POLITICO, the Bulgarian health ministry said it “supports all policies aimed at reducing the financial burden of healthcare services on households,” noting that the initiative aligns with recommendations from the Council of the EU. In a letter sent to the health ministry after the fee was cut, a number of medical associations clubbed together to urge the government to reverse its decision, stating they opposed the change and the manner in which it was imposed. “We understand from media reports that the reduction in the [hospital stay] fee is being presented as a measure to improve access to healthcare. However, it does not address the structural problems within the system and carries a number of serious risks,” the letter said. It added that the fee “although symbolic, is a source of revenue for medical facilities, of particular importance for [those in] remote areas.” For example, for St. Ekaterina University Hospital in Sofia, the annual loss in revenue from the price drop is estimated at around 40,000 leva (€20,451) according to Bulgarian media. In fact, Bulgaria’s health system is so inadequate that many people already have to pay out of pocket. “At 34 percent [of all health costs], out-of-pocket payments, primarily for pharmaceuticals and direct payments for services not in the benefits package, are the highest in the EU, where the average is 15 percent,” the OECD said in a 2023 country report. ‘DISINFORMATION AND RUMORS’ Bulgaria’s finance ministry pushed back strongly against claims that hospital price adjustments were motivated by euro adoption targets, noting it “has always been a reliable partner in providing statistical financial information and will not allow any disinformation and rumors to undermine the authority of the institutions in Bulgaria.” A spokesman for the National Statistical Institute added that “the NSI only provides statistical data, while decisions are made by other institutions.” Bulgaria’s health system is so inadequate that many people already have to pay out of pocket. | Vassil Donev/EFE via EPA Atanas Pekanov, an economist and a former deputy prime minister in Bulgaria’s caretaker government, said state pricing was not unusual. “There are state-controlled prices in many EU countries. These are not prices that were until recently market-based, and now all of a sudden the state controls them. These are the services [whose prices] the state has always decided,” he told POLITICO. He said that Bulgaria might have met the criteria earlier if inflation in other euro countries had not been artificially capped via emergency measures. “At least we haven’t received any warning or recommendation by European institutions that, well, you are treating your debt in some hidden way,” Pekanov said in a separate exchange. Still, Hanke, who designed the Bulgarian currency board, was wary of Sofia’s inflation claims. He previously developed a formula to estimate the optimal growth rate of the money supply needed to maintain price stability. That benchmark, in Bulgaria’s case, is currently around 6.3 percent. “Since April 2023, Bulgaria’s annual money supply growth rate has been well above 6.3 percent per year. Given the elevated growth rate of the money supply, it looks like Bulgaria’s inflation data have been doctored to look somewhat better (read: lower) than true inflation measures would indicate,” Hanke said. The final decision on Bulgaria’s accession — including setting the conversion rate — is expected to be taken by the Council on July 8. Boryana Dzhambazova contributed reporting.

SOFIA — Bulgaria’s central bank governor expects the country to keep its political and fiscal discipline, even as its entry into the eurozone transforms its ability to borrow. “Fiscal discipline has been a cornerstone of our macroeconomic framework for more than a quarter of a century, and this should remain unchanged,” Governor Dimitar Radev said in exclusive comments to POLITICO. “The convergence process should reinforce — not weaken — our long-standing commitment to fiscal stability.” Previous expansions of the eurozone have often led to boom and bust cycles in the countries joining. This is because the ECB’s interest rates have tended to be too low for such economies, given that they have lower debt and higher growth potential than the big Western European economies. While the most spectacular example was Greece, most such busts have affected countries that, like Bulgaria, were emerging from communism with stunted financial systems and controls. But fears of a debt-fueled spending spree once Bulgaria secures low interest rates and easier access to international capital markets are misplaced, Radev said. “We are fully aware that joining the eurozone implies adopting a policy framework designed for the whole area,” Radev said. “The solution is to strengthen national policies, particularly in fiscal and structural domains, to ensure resilience under a common monetary regime.” The European Commission and the European Central Bank gave Bulgaria the final approval last week to adopt the euro on Jan. 1, 2026, making it the 21st member of the currency union. It’s a historic moment for the Balkan country of 6.4 million, which first committed to the step in 2007 but faced years of delays — most recently due to a bout of inflation after the pandemic and Russia’s invasion of Ukraine. In order to join the euro, Bulgaria’s average inflation rate from April 2024 to April 2025 had to fall within 1.5 percentage points of the rate of the three EU countries with the lowest inflation. It jumped to 4 percent at the start of the year as various measures to protect the population from the inflation surge — such as VAT holidays on restaurants, bread and flour — expired. However, it fell back to an annual average of 2.7 percent through April, with the help of a substantial drop in state-directed administrative prices. The numbers may now look alright but Brussels noted that Bulgaria still faces challenges in fighting corruption and improving judicial independence. Radev made clear that Bulgaria’s new status won’t radically alter its economic philosophy. “The key challenge is not whether we can borrow more, but whether we remain committed to using debt in a prudent and growth-oriented manner,” he said. NEW PRESSURES Bulgaria’s central bank, too, will face a significant adjustment. Under the currency board regime, inflation has been kept largely in check not through interest rate policy — which Sofia has ceded — but through fiscal discipline and tax policy. The Bulgarian National Bank’s main levers have instead been bank reserve requirements, currently set at 12 percent, and the interest rate charged on those reserves, which is set at zero. But it will lose control of both those levers from next year, with potentially big consequences: The ECB’s reserve requirement is only 1 percent. That means that, other things being equal, Bulgarian banks will suddenly have a lot more money available to lend, stoking a credit boom that is already in full swing: Mortgage lending was up 26 percent in the year to April, while consumer credit was up 14 percent. The Bulgarian National Bank’s main levers have instead been bank reserve requirements, currently set at 12 percent, and the interest rate charged on those reserves, which is set at zero. | Vassil Donev/EFE via EPA Joining the eurozone and shedding the currency board removes an automatic discipline mechanism and makes the Stability and Growth Pact rules — a framework that the EU has deliberately made more flexible — the ultimate constraint on fiscal policy. Those rules are all enshrined in national law too, but in its convergence report, the ECB noted that “further progress is still desirable” to ensure that Bulgaria’s fiscal council, which is responsible for monitoring the government’s observance of the rules, can provide adequate accountability. “It is a structural characteristic of the monetary union that monetary policy is common, while fiscal policies remain national,” Radev said, acknowledging the potential asymmetries. “We should not expect the ECB to tailor policy for individual economies — the responsibility lies with national authorities to align and adapt.” DIGITAL EURO AND MONETARY INNOVATION Bulgaria is joining the eurozone at a unique juncture: the potential introduction of a digital euro. Banking associations across the bloc are fretting that this will make their members more susceptible to deposit runs and crimp their ability to lend, if designed wrongly. That could be a particular problem for Bulgaria, where banks play an even larger role in financing the economy than in most parts of the eurozone, due to the lack of a domestic capital market. While Radev dismissed concerns that the digital euro would complicate Bulgaria’s entry, he acknowledged it adds “a layer of strategic thinking, particularly in the payments and technology domains.” He added that Bulgaria is participating actively in Eurosystem discussions about the digital euro’s design, advocating a model that preserves financial stability and protects privacy. “Any digital euro must respect European values, including the right to privacy,” he said, calling for a “calibrated approach” to avoid creating a surveillance tool. He argued that Bulgaria’s experience under the currency board — which has enforced conservative reserve management and strict liquidity practices among commercial banks — positions it well to manage the risks associated with a future digital euro. A CONSERVATIVE FORCE As Bulgaria prepares to take its seat at the table in Frankfurt, Radev signaled that the BNB will keep a cautious, stability-focused approach to monetary policy. While avoiding the traditional ‘hawk’ or ‘dove’ labels, Radev made clear he will side with policies that strengthen resilience, reduce fragmentation, and safeguard price stability in the euro area. “I lead one of the more conservative central banks, and we have no intention of revisiting that stance,” he said.

The European Commission plans to make it easier for banks to invest in resold debt, known as “securitization,” under draft proposals to revise rules for the practice seen by POLITICO. The Commission will publish its revision of the EU’s securitization rules in a legislative package on June 17. This will include changes to the Capital Requirements Regulation, the Securitization Regulation, and two secondary laws, the Liquidity Coverage Requirement Delegated Act and the Solvency II Delegated Act. Under the draft plans here and here, the EU executive intends to change how capital requirements for banks investing in securitization are calculated to make them more “risk-sensitive” — in practice making it easier and more attractive for banks to engage in the practice. The plans also seek to loosen due diligence and reporting rules. The revamp forms part of the EU’s push to deepen and integrate its capital markets to generate more capital to invest in businesses under its “savings and investments union” plan.

PARIS — France’s Court of Auditors is sounding the alarm over the financial health of the country’s generous social safety net. In a report published Monday, the country’s highest audit authority said that social spending had spiraled “out of control.” The document also warned that a “liquidity crisis” could impact benefits payments as early as 2027 and affect France’s ability to borrow on financial markets. France’s social security system registered a €15.3 billion deficit in 2024 and the government is forecasting the program to be €22.1 billion in the red in 2025. The Court of Auditors, however, said it believed the 2025 deficit is likely to be even greater, as that forecast is based on government projections on growth and savings from tax cuts that the report’s authors deemed optimistic. “We need to take back control. Over the past years, especially in 2023 and 2024, we have lost control of our public finances,” the court’s president, Pierre Moscovici, said in an interview Monday with radio station RTL. France’s state budget deficit has ballooned in recent years, reaching 5.8 percent of gross domestic product in 2024 — well over the 3 percent limit set by European Union rules. The French government has pledged to bring the deficit down to 5.4 percent of GDP in 2025 and back to 3 percent of GDP by 2029. Last week, the International Monetary Fund recommended that France cut social spending and further reform its pension system to rein in its massive deficit. In their report, the auditors recommended reconsidering targeting cuts to employers’ mandatory contributions to the social security system and limit the use of expensive paramedical staff.

The EU needs to radically ramp up efforts to slash red tape and unify its single market if it wants to compete with China and the United States, France’s Europe minister told POLITICO. Benjamin Haddad applauded efforts by the European Commission to start streamlining rules in fields such as finance and sustainability as part of a so-called Omnibus Simplification Package, which was launched last month. But the European Union now needs to pick up the pace in revamping rules on corporate sustainability, due diligence, finance and defense, among other areas — taking much bolder steps than it has so far. “Now I think we need to accelerate. The Omnibus needs to become a TGV,” he said, referring to France’s Train à Grande Vitesse high-speed rail lines. “When the Commission wants to go fast, it can do so … There is a window to act now.” Asked whether the Omnibus package should be followed by further efforts to slash red tape he said: “Of course. We’ll need to address many other areas, including defense. It is almost one year since the European Parliament election. And now we are starting to talk about the first [simplification] bills. We have a window to act and we need to take it.” Haddad’s comments come in the wake of a joint push on Monday by the leaders of both France and Germany to abolish a law on ethical supply chains, amid a pro-business anti-green effort designed to bolster Europe’s competitiveness. The Europe minister said several EU countries, in addition to France and Germany, want to go beyond the Commission’s proposed streamlining and abolish the Corporate Sustainability Due Diligence Directive. “In trilogue, at the Council, there will be many states that want to go further than the Commission’s proposals, notably on due diligence,” he said. Haddad also took aim at the EU’s 2040 climate targets and said Basel III — an international banking regulation designed to improve bank capital and liquidity — should be further delayed after the EU postponed implementing components of the regulation until the start of 2026. “I hear about other projects from the Commission, like creating new environmental benchmarks for 2040,” he said. “This is not the time to add complexity, but to see how we can make sure our companies are competitive on the international stage.” “At a basic level, we can’t allow decarbonization to reinforce Chinese and American industry. So let’s have a pause on further norms and let’s accompany our companies, protect them.” While hacking away at regulation, the EU also needs to overcome decades of inertia and start to unify its fragmented single market so EU companies can draw on deeper stores of capital and grow large enough to compete with American and Chinese rivals, Haddad said. He emphasized the need to push ahead with the formation of a so-called capital markets union — an idea that has failed to gain critical mass among EU countries despite years of advocacy by Paris and Berlin. “There will be proposals in coming months which go in this direction on the capital markets union, whether it’s on securitization or on a European savings account or a single supervisory authority,” he said. “Now is the time to go ahead with these things.” Another item on Haddad’s wish list: a common legal regimen for companies across the bloc. Currently, companies wishing to expand beyond their national borders need to grapple with 27 different legal systems — a problem that former Italian Prime Minister Enrico Letta has vowed to solve by creating a 28th, European regime. “I’d go even further,” Haddad said. “I know the Commission is working on a 28th regime of corporate law. We’re not going to harmonize everything overnight. But let’s add a 28th regime for companies that can choose between a national or European regime if they want to develop on a European scale.”

Turkey’s financial authorities scrambled Monday to stop a rout in the currency and stock market, after the country lurched toward a full-blown political crisis at the weekend with the imprisonment of a rival to President Reçep Tayyip Erdoğan. The lira fell nearly 2 percent against the dollar and the government bond market was also hit by heavy selling as markets reopened after the weekend, but by midday there were signs that emergency measures from the Central Bank of Turkey (TCMB) and stock exchange regulator (SPK) had contained the fallout, at least in the short term. Turkey’s currency had slumped to a new all-time low against the dollar and euro last week after Istanbul Mayor Ekrem İmamoğlu — the man who was set to challenge Erdoğan for the presidency at the next election in 2028 — was arrested on charges of corruption. That in turn triggered a wave of nationwide protests, which continued on Sunday after a court ordered İmamoğlu’s detention in jail pending trial. Both the protests and the market fallout could have been worse, Deutsche Bank strategist Jim Reid said in a note to clients on Monday. “The fact that he wasn’t charged with terrorism means the news isn’t as extreme as it could have been,” he argued, noting that “such a move would have led to the appointment of a trustee to the Istanbul Municipality, risking more protests and unrest.” Turkey’s interior minister said on Monday around 1,100 protesters have been detained in total so far. DÉJÀ VU ALL OVER AGAIN The events have revived fears — never far from the minds of investors in Turkish assets — that the country will slide into outright autocracy and that the government will again ride roughshod over them in Erdoğan’s efforts to entrench himself in power. Foreign investors and many domestic businesses are still licking their wounds after Erdoğan secured reelection with a wild spending spree that led to inflation peaking at over 80 percent in 2024. Erdoğan’s crackdown on political opposition after a failed coup in 2016 had likewise led to a sharp lira devaluation and big losses in local markets at the time. However, in contrast to both of those episodes, analysts say the Turkish economy is currently on a relatively solid footing: Inflation has been falling steadily and confidence in the domestic banking system has been rising. The current account deficit, typically the Achilles’ heel of the Turkish economy, has run at less than 4 percent of gross domestic product in the last three months, according to JPMorgan analysts. “The macro-economic set-up does not require any large lira adjustment, even if variables have started to deteriorate,” they argued in a note to clients on Monday. Against that backdrop, the authorities’ efforts to keep stability have gained traction relatively quickly. Already last week, the TCMB had reacted with a suite of measures to deter selling the lira: It had raised its overnight lending rate to 46 percent from 44 percent and had suspended the regular one-week lending operations through which it controls the domestic money supply. On Monday, it tightened lira liquidity further by selling 50 billion lira ($1.31 billion) in 91-day bills — the first time since 2007 that it has resorted to that measure. The SPK, for its part, had tried to put a floor under the stock market on Sunday by instituting a ban on short selling, and also made it easier for companies to buy back their stock on the market. The benchmark BIST 100 stock index, which fell some 15 percent last week as İmamoğlu was first arrested, then charged, responded by rising just less than 1 percent on Monday. However, analysts warn that the situation is still evolving and that the economy is unlikely to escape the consequences: BNP analysts said the TCMB will likely have to keep policy tighter than expected for the rest of the year, limiting the degree of support it can give the economy. A weaker lira, they argued, will continue to push the price of imports higher, leaving inflation still around 30 percent at the end of this year.