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The European Central Bank opted to leave interest rates steady, a sign it believes the euro zone economy can weather the impact of Donald Trump’s tariffs and continuing political uncertainty in France.

Within the last hour, the bank announced that the deposit rate will remain unchanged at 2% – widely in line with economists’ expectations. It also published new forecasts for growth and inflation. Analysts are expecting no more cuts this cycle, though more hints are expected from Christine Lagarde’s press conference, which is underway in Frankfurt. (Follow our live-blog for all the updates)

Policymakers will also be watching closely for any warning bells about the economic situation in France following yet another bout of political turmoil. (The ECB chief is of course one of France’s best-known public figures having previously served as the country’s finance minister) 

Sebastien Lecornu, right, and Francois Bayrou, former prime minister, during a handover ceremony on Wednesday. Photographer: Benjamin Girette/Bloomberg

French President Emmanuel Macron moved quickly to appoint a new prime minister following the collapse of the government this week, selecting long-term ally Sebastien Lecornu, who served as defense minister in the previous cabinet. Lecornu is a popular figure, as Bloomberg’s Samy Adghirini writes.

Even Marine Le Pen has praised him in private. But he faces the herculean task of reining in the country’s debt and tackling its gaping deficit which at 5.8% of GDP is well in breach of the European Union’s fiscal rules.

In a departure from Macron’s previous approach to installing new prime ministers over the last few years, the French president has tasked Lecornu with consulting lawmakers on the budget before picking the ministers to serve in his government. Lecornu met with the heads of the parties in the centrist bloc this morning as well as the presidents of both chambers.

Looming over the political machinations in Paris  is a scheduled rating update on France from credit rating agency Fitch tomorrow evening, amid concerns over the country’s creditworthiness. French borrowing costs topped those of Italy for the first time earlier this week, in the latest sign of investor concern about the health of the French economy.

The Latest

• While frustrated European leaders are threatening sanctions on Israel and rethinking ties to their longtime ally, one area they haven’t touched is Israel’s defense industry, which supplied Europe $8 billion worth of weapons last year.
• NATO is preparing a defensive military response to this week’s drone incursion in Poland to strengthen deterrence across the alliance’s eastern flank, Bloomberg’s Andrea Palasciano reports.
• Efforts to make the EU’s financial regulations more attractive to investors would likely draw more green capital, the bloc’s financial services commissioner Maria Luís Albuquerque told Bloomberg in an interview.
• A deadly fungus is spreading rapidly across Europe’s hospitals, according to the European Centre for Disease Prevention and Control, which warned of a serious threat to patients and healthcare systems.
• The Spanish Parliament voted down Prime Minister Pedro Sanchez’s proposal to reduce the working week in the latest setback to his struggling minority government.
• The EU’s top court annulled the European Commission’s approval of Hungarian state aid for the Russian-led expansion of a nuclear plant in Hungary. The ruling throws the decade-old project into limbo. 

Seen and Heard on Bloomberg

The fallout from the new 15% tariff rate announced by the US  “is going to be challenging for Europe,” UBS Group CEO Sergio Ermotti told Bloomberg TV. While inflationary aspect on tariffs is yet unclear, the “inflation question and how it plays into the central bank policies remains open.”

Chart of the Day

Poland’s households should be allowed to contest mortgages tied to the interbank rate used to set the cost of most home loans, an adviser to the EU’s top court said in a legal opinion today. The opinion raises the prospect of a new wave of lawsuits for lenders. Wibor-linked mortgages were the dominant borrowing tool in Poland for years as banks avoided offering longer fixed-rate deals. That left households exposed when the central bank began steep rate hikes after the pandemic, sending installments soaring.

Coming up

• Finnish President Alexander Stubb visits Ukraine today. 
• Commission president Ursula von der Leyen takes part in strategic dialogue on future of the European automotive industry, has a working dinner with European tech and industry CEOs in Brussels tomorrow
• Meeting of EU education ministers continues in Copenhagen today and tomorrow
   

Final Thought

At their heights, Denmark’s corporate champions, Novo Nordisk and Orsted, seemed untouchable, riding high on demand for weight loss drugs and wind power. Now, those triumphs look fragile. The turbulence at these two companies has sent tremors through Denmark's government ministries, pension funds and households, with concerns about lower growth and the potential for something akin to Finland’s “Nokia risk” for the Danish economy.

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