We were surprised when the chief of staff of the armed forces in France warned last Sunday that Russia considers France as its main adversary in the EU. What could have possibly led to this exposed position? France is nowhere near the Russian border, and it supports Ukraine, but so does the rest of the EU. This assertion also raises questions. If Russia singles out France, does this mean France has to declare Russia its official enemy? Or can they choose not to?  

This morning, we read in l’Opinion that Thierry Burkhard’s warning was in fact a bit hasty. Vladimir Putin did not single out France as the main adversary in Europe in any public statements. The news outlet looked for proof and could not find any. Nor did France declare Russia to be the official enemy. In diplomatic parlour France still refers to Russia as the state adversary or strategic competitor. We are thus not quite there yet.

But Russia is clearly a priority in France’s new defence strategy. In its National Strategic Review Russia was cited 90 times, compared with 17 only in 2022. The review concludes:

Russia poses the most direct threat today and in the years to come to the interests of France, those of its partners and allies, and the very stability of the European continent and the Euro-Atlantic area.

The review warns there is a risk of Russia launching an open war against Europe by 2030. Emmanuel Macron echoed this sense of urgency by stating that freedom has never been so threatened since 1945. Macron insisted to be free, one must be feared, and to be feared, one must be powerful. He mandated his defence minister and chief of staff of the armed forces to ring the alarm bells in statements for people to understand better those risks.

France looks at threats not from Russia alone. Instability in the Middle East or terrorism are also mentioned in the report. Another strategic concern is China and the uncertainty in relations with the US.  

Macron announced on Sunday a military budget that is double what it was when he came to power by 2027, with an extra €6.5bn in military spending over the next two years.

Nuclear deterrence was also a big part of the report. Macron assured on Sunday that it would remain totally sovereign and that they will start a strategic dialogue with EU partners who are ready for it, most likely Germany and Poland. The European dimension of the nuclear umbrella is part of what France defines as its vital interests against the extreme threat from Russia.

More than a decade ago, the Euro crisis showed the risks that Europe’s fragmented banking system posed. Home biases amongst European banks could lead to so-called doom loops. Failing banks would have to be bailed out by governments, but that would weaken their fiscal position, worsening balance sheets and causing other banks to fall into trouble, and so on. Banking fragmentation also contributes to the financial repression that exists in Europe, as savers and financial institutions see relatively poor returns.

European households’ net worth-to-income ratio has gone up by just 30pp since 2000, compared to 110pp in the US. Banking fragmentation contributes to this by limiting the kinds of instruments larger banks would be able to offer thanks to scale. But instead of improving with the EU’s banking union, cross-border lending has actually gone backwards since then. Europe’s banking system is more national than before.

But the reasons why more cross-border banking doesn’t exist are also illustrative of why we have this issue in the first place. The EU’s current banking union framework is incomplete: there is a supervisory pillar, but no well-functioning joint resolution framework, or common deposit insurance scheme.

Why this is the case, we think, is obvious when you look at the hostility existing cross-border banking provokes from European countries. Successive German governments have opposed UniCredit’s overtures towards Commerzbank, one of the country’s largest lenders. Their worries are both that a possible tie-up would lead to job losses, similarly to what happened after UniCredit acquired HVB. They are also concerned about how it could compromise a major lender to Germany’s Mittelstand, its network of small to medium-sized industrial companies.

On the other side of the Alps, the situation is not too dissimilar. The Italian government has opposed a possible joint venture between Generali, the country’s largest insurer, and Natixis, a subsidiary of French banking group BPCE. This contributed to Generali getting caught up in the complex web of Italian banking mergers, as the government tried to use its influence to prevent this from going forward. Some of Italy’s most prominent business families, too, have been determined to keep Italian finance in Italian hands.

In both cases, the fundamental issue is that governments in Europe view political control of the banking system as critical, and do not want to lose it. In Germany’s case, the flip side of financial repression is lending to its small businesses. For Italy, it is the relationship between Italy’s banks and the country’s large pool of sovereign debt. Without meaningful political integration, and a new set of institutions to deliver it, then, we think the prospects for more financial integration are dim.

Just contrast the two statements from Friedrich Merz and Donald Tusk on Ukraine, to highlight the west’s utter confusion about what it is doing. Merz describes the strategic direction as changing Vladimir Putin’s calculations and to bring him to the negotiating table. That’s how we see this too. This is also why we think he was right to buy two Patriot missiles systems for Ukraine from the US. As Russia has dramatically stepped up its air attacks on Kiev, Ukraine is running out of defences.

Tusk framed the goal of the Ukraine support operation in starkly different terms to Merz.

“Ukraine’s victory is a matter of security for the whole of Europe. And victory means territorial integrity, sovereignty, and to put it simply, a just and lasting peace.”

We still remember his unfortunate role during Brexit. He represents that part of the European discourse that is low on strategic thinking, and high on emotions.

Those who seek Putin’s defeat never tell us what this would take. The problem for Ukraine and its supporters is that Putin’s summer offensive is going well – and that contrary to our persistent claims about him running out of money and partners, he is militarily and financially able to continue the war. It looks to us that his current strategic goal is to press on until he gets the entirety of the four oblasts he has occupied: Luhansk, which we claims he has occupied in full; Donetsk; Zaparizhzhia; and Kherson. With his incursion into the Sumy oblast of Ukraine, he captured about as much land as Ukraine is now holding in Kursk. We see this mainly in terms of a trade-off potential for the future negotiations. At the current rate of battlefront progress, it would take him three years to occupy the four oblasts in full. But his calculation is that once the Ukraine front collapses in critical parts, the progress would be much faster. Linear extrapolation does not work in wars.

We have not seen any concrete steps taken by the Trump administration to resume direct weapons deliveries to Ukraine. All we saw so far is the Patriot deal – the US selling to Germans and Norwegians. We doubt very much that Trump will revert to the status quo ante.  

Zaki Laidi asks the right question: Why is Europe afraid of independence. He is focusing on foreign and security policy. The same is true in economic policies too. The short answer is: it is a collective action problem. The way the EU works right now – the Lisbon Treaty version of the EU – is not in a position to address it.

Virtually all macroeconomists who commented on how the EU would or should respond to US tariffs misjudged the collective action problem. We are not in the least surprised that Germany is pushing the European Commission to hoist the white flag in trade talks because any other outcome would be catastrophic for German industry in the short term. The tariffs we are about to get from Trump will be tolerable for German companies because the policy gives them time to relocate production to the US. The outcome is not good for the German economy though, and for those EU countries like Poland that are heavily reliant on German industry. Strategically, this will be a bad outcome for the EU. 

Instant capitulation in a trade war is what you get when you make yourself dependent on export surpluses. Europe's version of Mercantilism is fragile because it is reliant on inputs that are not domestically sourced – whereas China built its Mercantilism around the notion of national supply chain independence. West European is not as resource-rich as China and Russia, nor does it have a climate or geological features conducive to renewable energies. What Europe has is purchasing power, and engineering skills that are still unmatched in the world. The US and China are ruthless exploiting their monopolies – the US on global finance and China in respect of rare earths. The EU is not built to exploit its advantages in the same way.

But even without a geopolitical killer instinct, the EU could do more than it does. It could build strategic relationships with third countries. The EU could at the very least get the Mercosur deal over the line. Donald Trump last night imposed a 50% tariff on Brazil, despite the fact that Brazil runs a trade deficit with the US. Trump's tariffs came in protest against the trial of Jair Bolsonaro, the former president and Trump supporter. There is for sure business to be picked up in Brazil.

Europe could also offer to relax export licence for ASML, which producers the lithography printers used in the production of high-end microchips. Even without natural resource monopolies, there are deals to be made in the world. Not all of these will please the US.

The EU is not in a position to fight a trade war. But it is not powerless. Weakness is not a natural state of affairs. It is a political choice.

It is astonishing to find in the Brics+ summit statement more references to multilateralism than in any of the past G7 meetings. It is as if the world has turned upside down. Europe and the US used to be the champions of multilateralism and international law, but nowadays this seems to be a relic of the past. The EU and the US used to solve problems, now they are increasingly adding to them in this world. International law is being bent to the maximum or breached. Political agendas are driven by national interests with little regard to how they affect the rest of the world. The America First agenda is getting followers elsewhere. Each of the countries has their own stories with villains and heroes. It is as if we are back in the days of Greek myths with its many gods, where power runs supreme.

In Rio de Janeiro, the Brics states tried the impossible and reminded the west of its responsibilities. The Global South suffers most under climate change and has a strong interest to keep the wealthier countries engaged through the multilateral system on the common problem climate action. The Brics statement called for a more representative and fairer international order, and a reform of the multilateral system with its institutions, the UN, the IMF, the World bank and the WTO. They see global trade and supply chains threatened by western trade-restrictive actions, be it tariffs or protectionism under the guise of environmental objectives, aiming at the US and EU without naming them. The Brics states also strongly condemned coercive actions such as sanctions.

The tone of the statement was positive and measured, the role of the dollar not questioned. There are many differences between member states, but they have been papered over. Xi Jinping did not attend the summit this year, a first for him, and neither did Vladimir Putin or the presidents of Egypt or Iran.

Donald Trump, of course, had to comment on the Brics. He threatened to slap an extra 10% tariff on all those nations that support an anti-US agenda of Brics nations. China’s foreign ministry pushed back, saying that the Brics are not seeking confrontation. The Brics bloc is not about confrontation but building a more balanced global order, according to Beijing, with a focus on cooperation and inclusive development rather than confrontation. They warned that US tariffs are used as a tool of coercion and serve no constructive purpose.

Where will the Brics go from here? We in the west have our experiences of how to promise and not deliver. The Brics is a nascent trading bloc that has all the technological advantages available to make their promised trade integration work over such a disparate trading zone. Can they limit their political ambitions to become successful? Or will they too overload their agendas with the risk of achieving none of their goals? It will be interesting to see how they deal with internal differences and how China’s role in it evolves. And where the EU will position itself.

Car production in Italy is having a terrible time. Stellantis, by far the biggest car producer in the country, is producing volumes that are severely down year-on-year. According to the FIM-CISL trade union, it made 33.6% fewer cars in the first half of 2025 than in the same period in 2024. If you take van production into account, the year-on-year drop is 26.9%.

By the end of the year, the union estimates that Stellantis will have produced 440,000 vehicles a year. If this turns out to be true, it will be well below the 1m vehicle per year target that the firm agreed on with the Italian government. Overall production capacity for cars in Italy is 1.5m units a year, so utilisation will be lower than a third. The industry would need to be at 70% utilisation to ensure longer-term profitability.

Part of the issue has been a very bad experience with electric car production in Italy. This has been the case for one of Stellantis’s main factories in the country, its Mirafiori plant in Turin. Mirafiori, and Turin, are the spiritual homes of both Fiat, now part of Stellantis, and Italy’s car industry. But problems with an electric version of the Fiat 500, and low demand for the car, have led to repeated stoppages at the factory. Stellantis will be hoping that a switch in strategy to hybrid cars can pay off. But it’s still hard to see how such a sideways production situation can be reversed.

There are lessons from this entire experience that the Italian government should learn, and other ones that it will probably learn. One is that industrial policy should focus on new technology, and providing incentives for it, rather than dragging the old along. Italy was slow to the mark in getting an incentive scheme together for electric cars. More work could also have taken place, especially at the European level, on the electric car supply chain. China, now the world’s dominant electric carmaker, has been doing this for decades. We are way behind the curve.

But the lesson the government probably will learn is that it is risky to let big businesses fall out of Italian hands. Stellantis came about in 2021, after a merger between Fiat-Chrysler and the French Peugeot. The Italian Fiat, and its founding family, the Agnellis, were the dominant players in the Fiat-Chrysler relationship. Their influence has been diluted in the subsequent merger with Peugeot to create Stellantis.

The Italian government is likely to view it as not coincidental that the big drop-off in car production happened soon after the merger. It has already had various spats with Stellantis, which has tried to placate the government on several occasions. If car production in Italy continues to prove underwhelming, it wouldn’t be surprising to see the government double down on trying to keep the country’s largest firms in Italy.

Emmanuel Macron came from nowhere in 2017 and won the presidential elections. But as fast and furious as he came to power, will his movement outlast him? After his second term as president ends, who will take over from him? There is a non-trivial chance that Macron’s movement could disappear back into nowhere. 

There are various contenders to succeed Macron, and every one of them is running their own show. The most popular ones are Gabriel Attal and Edouard Philippe, both coming forth with their own programmes and support base. But Macron is not keen on either of them. He warned last Saturday that if they keep on strategising about the 2027 presidential elections, they will not get anything done until then and nobody from this party will survive. Does the party need another rescuer?

Emmanuel Macron had suggested in the past that he would leave the political stage once his second presidential term is over, and that for him there is a life beyond politics. But now Macron seems determined to stay. Last Saturday, on a surprise visit to his party’s youth group, Macron told his young audience that he will need them for years to come. If Macron continues to linger around in politics, in what capacity? Would he consider to run again in 2032? The French term limit for a president only applies to two consecutive terms. He could run again after a break. So far, he remains deliberately vague: I will need you for the next two, five, and ten years, he told his young supporters.

Macron’s greatest concern was that one day the Rassemblement National could come into power. At the same time, he is making life harder for a potential successor. By considering himself indispensable and neutralising potential contenders within his own party, Macron may end up preparing the way for the RN indeed.

As the holder of its rotational presidency, Brazil is hosting the Brics+ summit starting this Sunday. The delegations of eleven member states and another 10 observer nations are expected to attend. But there is still not enough coverage out there to make sense of what to expect substantively. The first notable news that emerged ahead of the official meeting is the setup of a new guarantee fund backed by the Chinese New Development Bank (NDB) to lower financing costs and boost investment in member nations, Reuters reports.

This fund is similar to the World Bank’s Multilateral Investment Guarantee Agency. It seems to step into the void in global investment shifts that Donald Trump’s US policy is leaving behind. No additional capital is required from member states at this stage. Instead it channels Chinese money towards projects that are expected to create for each dollar invested another 5-10 dollars in private money, according to Reuters.

There are also some expectations that the summit could see the launch of a new financial system that the Brics countries have been working on for the past decade. Phillip Patrick travels with his team from the Birch Gold group to Rio de Janeiro to be part of this historic moment, as he told Steve Bannon on his podcast. Great anticipation, but will it happen?

Notably absent from the summit is Xi Jinping, a first since he came to power, and a last-minute announcement. Why Xi chose not to attend, and how this reflects on the summit, we may never know. China is sending prime minister Li Qiang instead. Russia and Iran are also said to send their delegations, but this was more to be expected.

We also have yet to see how much politics intrudes for this trade bloc. The summit happens at the tail end of the Iran-Israel-US conflict. On a more fundamental level, the Brics+ include democracies and autocracies that have different foreign policy interests. India and China are two large member states at odds with each other. Brazil sees itself as a leader nation of the Global South and member of the Brics+, which may bring Lula da Silva’s own agenda also to the table. And this is just talking about differences amongst the five original Brics countries. Since the expansion of six more countries, most of them proposed by China, they are also experiencing what it means to manage a group of more than ten countries with a diverse and increasingly long agenda.

From 7 July, Poland will introduce its own checks at its borders with Germany and Lithuania. Donald Tusk’s decision is a direct response to the German government’s unilateral move of introducing border controls in May with its aim to send illegal migrants back to Poland. It also comes after the hard-right PiS won the presidential elections.

Poland’s retaliatory move is mainly about political posturing, a bow towards the hard-right parties and their supporters, by being tough against Germany’s unilateralism and ready for action to prevent migrants being sent back to Poland. Border checks are one of the easy options politicians seek when they want to cut immigration. And it has become acceptable to suspend Schengen, the borderless travel area for 29 countries.

But it does not do much in practice to combat migration. According to the German police union, about 160 asylum applicants have been rejected in the first four weeks since Germany imposed its border restrictions. This is nothing compared to 1300 people who were rejected for a lack of valid documentation.

Checkpoints are sign posts of frictions between different jurisdictions, in this case between Poland and Germany. It disrupts travel plans of ordinary people and complicates cross boarder work conditions. It emphasises differences rather than solutions.

After Germany and Poland, which country will be next to introduce checks? Politicians say those checks are temporary and are mainly meant to deter people from coming to their country. Really? Now that the hard-right gets one of its wishes, do we expect them to back off or double down? Going down that path of further tightening controls may be tempting for centre-right parties at the moment but it does not solve the problem.

Instead of bowing to the hard-right, it would require for centre-right parties to define a new approach towards migration. It is not enough to look at migration only from the defensive side. There are also more cooperative ways to look at migration. Europe is ageing and needs more legal migration to keep financing its social security system. Europe could increase local support in the original regions to reduce the need for people to flee. Doing our bid in balancing the chances is the responsible thing to do that also benefits Europe.

Tusk’s move also feeds a potential flare-up of tensions between Poland and Germany. Tusk said Warsaw’s patience with Germany sending migrants back to Poland is exhausted. There are patrols along the frontier with Germany by Polish vigilante groups that have ties to right-wing parties, Fakt reports. Those tap into old narratives and wounds that bring nothing but misery in the future.

The German government decided unilaterally on policies without thinking of the consequences with its neighbours. This has been the case for these border checks as well as for the decision to increase German debt from 60% of GDP to 80% to modernise and expand German military capacities. But for Germany and Poland to divide over border controls is to give in to the AfD and the PiS. The centre needs to hold if the ascent of the hard-right is to be prevented.

A heatwave has effects on the land, health of humans and animals and the economy. Every aspect of socio-economic life in Africa has been affected by the warmest decade on record. The hot air from Northern Africa is also spreading across Europe over Portugal, Spain, France, Greece, and across the Balkans. Even up north in the UK temperatures have been soaring. The CNN wrote that Europe is now the fastest-warming continent, warming at twice the rate of the rest of the world.

This also affects our economies just when forecasts said they are about to turn the corner. German Allianz insurer suggests in its publication that this heatwave could cost Europe 0.5 percentage points of GDP, ranging from 0.1pp for Germany to as much as 1.4pp for Spain. One day of heat with temperatures above 32 degrees is, for the economy, like half a day of strike action. Hotter temperature can reduce labour productivity, work hours, and labour income.

Using US wealth data, a study finds that one additional day above 32 °C lowers the annual payroll by 0.04%. This is even if some of the productivity losses during the heatwave is later made up for during cooler periods. An ECB paper finds that manufacturing and services partially rebound after a heatwave, while agricultural and certain infrastructure losses tend to persist.

It is not hard to see why. The ability to perform physical labour drops as the temperatures rises. In agriculture certain crops are lost or its yields significantly reduced; livestock, chickens and other poultry in particular, succumb to the heat, while cow milk production slows down.

The energy sector is also sensitive to the heat putting strains on the grid and the electricity production. Nuclear power stations lose efficiency if their cooling source warms up. Heat can also disrupt transport, and deform train rails or asphalt.

During heatwaves, the pressure on politicians to do something increases. Some countries have emergency plans in place to warn and prevent harm. France for example has a heatwave plan for the regions since the devastating 15 day heatwave in 2003. During this current heat wave Metéo France put 16 regions under a red alert that come with restrictions on traffic, suspension of certain activities like sports, and school closures. Yesterday a new decree entered into force in France laying out obligations for employers towards their employees during the heatwave. Opposition leader Marine Le Pen had the brilliant idea to call for more air conditioning in nursing homes, schools and hospitals, a provision that was part of green legislation that her party voted against only two weeks ago.

Adaptation is key for coping well. Organising working hours differently, shifting them towards cooler times of the day is a short-term measure to reduce the fallout. Long-term plans, like urban greening and reducing heat retention in buildings, is another. France has plans to make hospitals and schools heat-proof, but there is a lack of money and determination to get those projects off the ground.

Every heat wave is different, but it starts to become a constant feature of our lives. This may change how people think about climate change action at home or abroad. Prevention measures in Africa could also lower the likelihood of heatwaves in Europe. There is a bigger picture out there. Unfortunately, politics is mostly national while the EU currently has other priorities including how to protect European industries against competition from China and Donald Trump's tariffs.