This week, the European Union’s economy gives an impression of false calm: headline indicators look relatively reassuring, but medium‑term policy choices remain explosive. Inflation is cooling, private‑sector growth is holding steady, and Brussels is pushing ahead with its major trade projects. At the same time, the new fiscal governance framework is reviving the 3% rule in a “modernised” form, while the EU‑Mercosur agreement is ramping up pressure on European agriculture and industry.
Inflation down, growth sluggish but positive
On 19 January, Eurostat published new “euro‑indicators” confirming a further decline in inflation across the euro area. The annual inflation rate stood at 1.9% in December 2025, down from 2.1% in November, putting it slightly below the European Central Bank’s (ECB) 2% target and fuelling speculation about a more durable easing of price pressures in 2026.
However, this does not signal a simple return to the “pre‑crisis world”: the ECB remains cautious. In its analysis “Could inflation in Europe make an unexpected comeback in 2026?” (22 January 2026), Euronews notes that the central bank still projects inflation at around 1.9% in 2026 and 1.8% in 2027, while stressing that services inflation remains stubbornly high. Christine Lagarde has underlined that it is “hardly surprising” that services continue to drive prices upwards, which limits scope for a much looser monetary stance.
On the activity side, Boursorama headlines “Eurozone: private sector growth continues in January” (22 January 2026), reporting the results of the flash PMI index. Growth remains modest but positive, driven more by services than by manufacturing. In their note “Economic Perspectives January 2026” (22 January 2026), KBC economists describe a scenario of very moderate growth for the eurozone in 2026, with inflation below target but significant uncertainties around global demand and private investment.
EU‑Mercosur agreement: a decisive week in the European Parliament
After more than twenty‑five years of negotiations, the European Union and Mercosur signed their free trade agreement on 17 January 2026, paving the way for a major reduction in tariffs on a wide range of industrial and agricultural products and services. In the days that followed, official communications from the Commission and several national governments highlighted the “opportunities” for European exports (especially in the automotive, pharmaceutical and machinery sectors), while playing down the risks for agriculture and the environment.
But the political balance shifted on 20–21 January in the European Parliament. MEPs refused to simply endorse the political signature and adopted a resolution requesting an opinion from the Court of Justice of the European Union (CJEU) on the agreement’s compatibility with EU law. The move does not formally reject the deal, but it does place it in political and legal limbo: any ratification is now conditional on a prior green light from the CJEU on several key points, including respect for the treaties, division of competences, environmental and social safeguards, and the EU’s ability to maintain its regulatory autonomy.
For agricultural unions and many civil‑society organisations, this parliamentary move is seen as a first victory, or at least as a pause in a process they perceive as threatening jobs, standards and small‑scale farming. For the Commission and export‑oriented industries, it is a serious setback that could delay the agreement for years.
Budgetary framework reminder: 3%, 60% and spending paths
Behind these debates lies a familiar constraint. In the EU, governments are still expected to comply with two key “reference values”: a public deficit not exceeding 3% of GDP (the amount the state spends in excess of its revenue) and public debt around, or converging towards, 60% of GDP. As Fipeco recalls in its note on the new fiscal rules, these two thresholds remain in place even after the reform of economic governance.
What has changed is mainly the method. Instead of looking at a single year, each country must now present a multi‑year plan explaining how it will manage public spending so that deficit and debt gradually decline. This plan is negotiated with the European Commission, which assesses whether the country is “making sufficient effort”. In practice, this approach pushes governments to tighten the screws on public spending: hospitals, schools, culture, civil servants’ wages and social investment are all directly affected by these budget constraints.
What direction for the European economy?
Taken together, the signals are mixed. On paper, the economic situation seems to be improving: inflation is converging towards 2%, private‑sector activity is still in positive territory, and energy costs are easing. At the same time, fiscal policy remains dominated by the drive to bring deficits down quickly, which leads to choices that weigh heavily on public services, social investment and wages – all in a context where social conflicts are already multiplying.
The EU‑Mercosur agreement captures this contradiction perfectly: greater trade openness and potential gains for some export industries on the one hand, and deep concern among farmers and civil‑society actors on the other. In this context, the central political question for Europe’s leaders becomes: how can they reconcile fiscal discipline, trade liberalisation and social stability when workers, farmers and public‑service users are already bearing the brunt of adjustment policies? The week’s figures may look reassuring in macroeconomic terms, but the economic model that is emerging remains highly contested, especially among those on the front line of Europe’s social struggles.
Sources:
- European Parliament – “EU–Mercosur: MEPs request legal opinion on its compliance with EU treaties” (20 January 2026)
https://www.europarl.europa.eu/news/en/press-room/20260116IPR32450/ue-mercosur-meps-request-legal-opinion-on-its-compliance-with-eu-treaties - Le Monde – “Mercosur : le Parlement européen saisit la Cour de justice de l’UE, la France salue ‘une victoire’” (21 January 2026)
https://www.lemonde.fr/economie/article/2026/01/21/mercosur-le-parlement-europeen-saisit-la-cour-de-justice-de-l-ue-la-france-sa_6663564_3234.html - Reussir – “Mercosur : le Parlement européen vote la saisine de la CJUE, vers une suspension de l’accord” (21 January 2026)
https://www.reussir.fr/mercosur-le-parlement-europeen-vote-la-saisine-de-la-cjue-vers-une-suspension-de-laccord - Comptoir des Éleveurs – “UE‑Mercosur : que contient l’accord de libre‑échange” (18 January 2026)
https://www.comptoir-des-eleveurs.com/articles/cce6722c-6bed-f011-8195-000d3a2226fe/ue-mercosur-que-contient-l-accord-de-libre-echange - Techniques de l’Ingénieur – “Accord UE‑Mercosur suite à sa signature : enjeux économiques, industriels et environnementaux” (19 January 2026)
https://www.techniques-ingenieur.fr/actualite/articles/accord-ue-mercosur-suite-a-sa-signature-enjeux-economiques-industriels-et-environnementaux - Fipeco – “Les nouvelles règles budgétaires européennes” (11 December 2024)
https://www.fipeco.fr/fiche/Les-nouvelles-r%C3%A8gles-budg%C3%A9taires-europ%C3%A9ennes - Vie‑publique – “Budget de l’État 2026 : projet de loi de finances (PLF 2026)” (22 January 2026)
https://www.vie-publique.fr/loi/300444-budget-de-letat-2026-projet-de-loi-de-finances-plf-2026 - Boursorama / AFP – “Zone euro : la croissance du secteur privé se maintient en janvier” (22 January 2026)
https://www.boursorama.com/bourse/actualites/zone-euro-la-croissance-du-secteur-prive-se-maintient-en-janvier-57f09c90ea5e47780b4f2bce8a4b2e8b - Bourse Direct – “Zone euro : l’inflation révisée en baisse pour décembre” (18 January 2026)
https://www.boursedirect.fr/fr/actualites/categorie/analyse-de-la-tendance-des-marches/zone-euro-l-inflation-revisee-en-baisse-pour-decembre-bourse-direct-65c1a1d9c28f2c0001e9b7c2 - Euronews – “L’inflation en Europe pourrait‑elle faire un retour inattendu en 2026 ?” (22 January 2026)
https://fr.euronews.com/business/2026/01/23/linflation-en-europe-pourrait-elle-faire-un-retour-inattendu-en-2026
