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This article is an on-site version of our Europe Express newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday and fortnightly on Saturday morning. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Here’s a dark tale to start the week: Russia’s FSB spy service is systematically grooming Ukrainian teenagers, orphans and young adults to spy against their country, a Financial Times investigation has found, handing out cash to kids who take photos of military sites, scope out targets or even plant homemade bombs.Today, our trade and tech correspondents report on European lawmakers wading into the US trade talks with a pre-emptive warning to negotiators not to offer any leeway on digital rules on US big tech companies. And our finance correspondent brings us an update from the increasingly one-sided Eurogroup leadership race.Parliamentary oversightAs a deadline to seal a trade deal with the US draws nearer, the European Commission is finding its room for manoeuvre limited not just by US President Donald Trump’s hardline approach but also by EU lawmakers, write Andy Bounds and Barbara Moens.Contest: To avoid Trumps’ threat of 50 per cent “reciprocal tariffs” across the board, Brussels is offering unspecified concessions on “non-tariff barriers”, EU rules and regulations which the US believes hurt its companies and block imports. Trump has delayed the tariffs until July 9 while the two sides negotiate a deal.Members of the European parliament, who would have to approve any changes in legislation as well as the final trade deal, are starting to agitate about what the commission might be tempted to offer behind closed doors. A key concern is the enforcement of the Digital Markets Act, the EU’s landmark new digital rules, which is a major flashpoint for Trump. European Commission president Ursula von der Leyen has made clear that formal changes to the EU’s digital rule book are off the table. But the bloc has some leeway in how far it goes in enforcing the rules, for example when it comes to the amount of the fines for tech companies. Matthias Jorgensen, a senior trade official in the commission, told a parliamentary committee last week that rule changes were a red line but it would look at how US companies “can comply with our legislation in an easier way”.Commission executive vice-president Teresa Ribera, who oversees the DMA, has been increasingly vocal in recent weeks that it must not be used as leverage in the trade talks, implying that she fears some inside the EU’s executive think otherwise. Now, European lawmakers are also urging the commission not to cave in on its enforcement of the digital rules. Twenty-three MEPs sent questions to the commission, warning that concessions on the DMA “would set a dangerous precedent for external interference in EU legislation”, and asking the commission to commit to properly enforcing it without exceptions for US companies.The lawmakers also include two from von der Leyen’s own group, the European People’s Party.European parliament president Roberta Metsola reminded leaders at an EU summit last week that the parliament is key for signing off on any upcoming trade deal. “Parliament will have a choice with a final vote in plenary,” Metsola said.Chart du jour: Safe havenSome content could not load. Check your internet connection or browser settings.Europe’s tourist hotspots are bracing for a record number of visitors this summer as holidaymakers spurn the US and the Middle East.Euro raceThe election of the next president of the Eurogroup in one week seems a foregone affair. But that hasn’t stopped candidates from throwing their hat into the ring, writes Paola Tamma.Context: The head of the Eurogroup, the council of finance ministers from the 20 Eurozone countries, is elected by a simple majority. The vote is set to take place next Monday.The incumbent Paschal Donohoe, Ireland’s finance minister, is likely to return for a third two-and-a-half-year term, keeping the conservatives at the helm of yet another top EU job.But two of Donohoe’s peers entered the arena on Friday: Carlos Cuerpo of Spain, and Lithuania’s Rimantas Šadžius, both of the Socialists and Democrats (S&D) group.Cuerpo’s bid was made literally at the last minute: his candidature was sent at one minute before midday on Friday, which was the deadline. Spain’s Prime Minister Pedro Sánchez pushed his candidate at last week’s leaders’ summit.“It is time for the euro area to seize this opportunity to regain our leadership on the global stage,” Cuerpo said in a statement.But both he and Šadžius are unlikely to win, as the majority of Eurogroup members are representatives of conservative parties, and the S&D will have to split their already meagre vote between two candidates.However, the finance ministers of the three largest EU economies are not conservatives: Germany’s belongs to the S&D, France’s to the liberal Renew, and Italy’s is a part of the nationalist rightwing Patriots for Europe grouping.It is for their votes that candidates are vying.Spokespeople for the finance ministries of France, Germany and Italy declined to comment. What to watch today EU Council president António Costa and European Commission president Ursula von der Leyen attend UN conference on financing for development in Seville.EU chief diplomat Kaja Kallas visits Armenia.Now read theseRare earths: France is emerging as a critical domestic player in the European rare earths market, seeking to exploit China’s move to drastically reduce exports.‘Overflowing’: Europe’s most important ports are running at maximum capacity as Trump tariffs and low river levels cause huge goods congestion.Proud: Hundreds of thousands of people defied Hungarian Prime Minister Viktor Orbán’s ban and marched at Budapest’s largest ever Pride.Are you enjoying Europe Express? Sign up here to have it delivered straight to your inbox every workday at 7am CET and on Saturdays at noon CET. Do tell us what you think, we love to hear from you: [email protected]. Keep up with the latest European stories @FT Europe More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldCanada has scrapped a digital services tax that targeted US technology companies, in an effort to smooth trade negotiations with its neighbour after President Donald Trump described the levy as a “direct and blatant” attack. The decision to abandon the tax, a 3 per cent levy on revenue for the biggest technology companies, came hours before it was due to come into effect on June 30. “Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the US to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians,” said Canada’s finance minister François-Philippe Champagne on Sunday night.Prime Minister Mark Carney said cutting the tax “will support a resumption of negotiations towards the July 21 timeline” that was declared at this month’s G7 leaders’ summit in Kananaskis, Alberta. Carney and Trump have agreed that they will resume negotiations, the statement said. Trump said on Friday the US was “terminating” trade talks with Canada in retaliation against the tax on tech companies, reigniting a bitter North American trade war after months of détente.Trump repeated these complaints on Fox News on Sunday. “Until such time as they drop certain taxes, yeah,” he said. “People don’t realise, Canada is very nasty to deal with.” Several EU countries, including France, already have taxes on digital companies, while European Commission president Ursula von der Leyen warned earlier this year that the bloc could impose duties on Big Tech’s advertising revenues if US trade talks fail.In December 2023, Canada’s parliamentary budget office estimated the DST would increase federal government revenues by C$7.2bn ($5.3bn) over five years.The tax, first announced in 2020, targeted companies such as Meta, Netflix and Amazon as well as local businesses. Those affected had to file a return by the end of June or face a fine. While the tax was one of Trump’s main complaints, it was also unpopular with some Canadian business groups. “For many years, we have warned that the implementation of a unilateral digital services tax could risk undermining Canada’s economic relationship with [the US],” said Goldy Hyder, president of the Business Council of Canada. The US dollar was flat against the Canadian currency at about C$1.37 in early trading on Monday.Trump’s unprecedented hostility to his northern neighbour — with repeated threats to annex Canada and the imposition of tariffs in violation of a free trade agreement — dominated the Canadian election and helped propel Carney’s Liberal party to victory.Carney had vowed to stand up to Trump and last week the finance minister said Ottawa would push ahead with the tax. Carney also this month announced a huge increase to Canada’s defence spending, enabling it to meet the Nato target of at least 2 per cent of GDP annually this year instead of 2030. This followed criticism from Trump that it and other Nato members were not pulling their weight. Canada has an annual trading relationship with the US worth C$1.3tn and sells most of its products and services to the US. Carney has launched a sweeping set of reforms to diversify the economy from relying on the US too heavily, including a push to drop internal trade barriers that have prevented the flow of goods and services between Canada’s provinces. More

President Trump said the United States would send out letters telling other countries “what they have to pay,” even as other officials said negotiations could be extended past a July deadline.President Trump suggested on Friday that the United States was close to reaching trade deals with multiple countries but held out the prospect of reimposing high tariffs on some trading partners, introducing fresh uncertainty into his trade talks.Scott Bessent, the Treasury secretary, had suggested earlier in the day that the administration might give countries more time to negotiate beyond a quickly approaching deadline for tariffs to snap back into effect on July 8. In an interview on Friday, Mr. Bessent said that negotiations with trading partners could be “wrapped up by Labor Day,” adding that “nothing gets done in Washington well in advance.”But at a news conference on Friday, the president seemed inclined to keep everyone guessing. Asked whether he would reimpose tariffs on July 8, he responded, “We can do whatever we want.”“We could extend it. We could make it shorter,” Mr. Trump said. “I’d like to make it shorter. I’d like to just send letters out to everybody, ‘Congratulations, you’re paying 25 percent.’”Mr. Trump also said that the United States was in the “process” of making deals with some countries, but that other countries would receive a letter stating the tariffs their exports now face.“We’re just going to tell them what they have to pay,” he said.Mr. Trump quickly followed up his remarks with a social media post threatening tariffs against Canada, which is set to begin collecting taxes charged on American tech companies on Monday.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

Prices that consumers pay rose slightly in May, while the annual inflation rate edged further away from the Federal Reserve’s target, according to a Commerce Department report Friday.
The personal consumption expenditures price index, the Fed’s primary inflation reading, rose a seasonally adjusted 0.1% for the month, putting the annual inflation rate at 2.3%. Economists surveyed by Dow Jones had been looking for respective levels of 0.1% and 2.3%.

Excluding food and energy, core PCE posted respective readings of 0.2% and 2.7%, compared to estimates for 0.1% and 2.6%. Fed policymakers consider core to be a better measure of long-term trends because of historic volatility in the two categories. The annual rate was 0.1 percentage point ahead of the April reading.
Along with the inflation numbers, consumer spending and income showed further signs of weakening. Spending fell 0.1% for the month, compared to the estimate for an increase of 0.1%. Personal income declined 0.4%, against the forecast for a gain of 0.3%.
Markets had little reaction to the data, with stock market futures indicating a positive open on Wall Street while Treasury yields also rose.
The report comes with the Fed contemplating its next move on interest rates.
Markets largely expect the central bank to remain on hold at its late July meeting. However, a few officials of late have been advocating a cut as long as inflation data shows muted pressures from the tariffs President Donald Trump has instituted since taking office in January.

Trump has been pushing the Fed to ease, insisting that inflation is low and the Fed can always switch gears if prices start moving higher again.
Fed Chair Jerome Powell, though, has advocated a more cautious report, despite increasingly aggressive pressure from the president. Trump has been criticizing Powell on a regular basis lately, earlier this week calling him “stupid” and indicating that he will name a successor soon.
Inflation pressures generally were muted in May.
Food prices increased 0.2%, but that was offset by a 1% decline in energy-related goods and services costs, including a 2.2% slide in gasoline and other energy goods. Shelter prices increased 0.3%. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The number of foreign direct investment projects in the UK has fallen to the lowest level since records began 18 years ago, highlighting the challenge facing the government as it seeks to revive overseas interest in Britain and spur growth.In the financial year ending this March, 1,375 FDI projects landed in the UK, according to data published by the Department for Business and Trade on Thursday.The figure was down 12 per cent from the previous year and the lowest since records began in 2007-08.Experts pointed to persistent problems such as high energy costs and geopolitical uncertainty as key factors behind the decline.The continued fall in inward investment is “a worrying sign for the UK”, said Nigel Driffield, professor of international business at Warwick Business School, adding that “high energy prices, and continued global uncertainty have weakened global FDI flows”.He said it illustrated the need for the newly released industrial strategy, noting that “while the new reset with the EU will help”, the UK’s closer alignment with the bloc was “too late for these figures”.Foreign investment is a key driver of growth in productivity and living standards, but the number of new projects was down nearly 40 per cent from the peak of 2,265 in the financial year 2016-17. Some content could not load. Check your internet connection or browser settings.Labour’s industrial strategy, a 10-year plan to increase business investment and boost strategic growth sectors, focused on cutting burdensome electricity prices for manufacturers, and backed advanced manufacturing and clean energy industries. The government did not publish the value of new FDI projects but estimated that jobs created through FDI were down 3 per cent, to 69,355, in the fiscal year to 2024-25.The number was the lowest since 2020-21, when strict Covid-19 pandemic restrictions were imposed.The fall in foreign direct investment in 2024-25 “will be disappointing to the government, given its ambition to attract more foreign capital”, said Andrew Wishart, economist at the investment bank Berenberg. He noted a “tension” between Labour’s growth ambitions and recent cost pressures on employers, such as the increase in the employers’ national insurance contribution, which took effect from the start of April.Other European countries have also struggled to attract investment, according to the EY European attractiveness survey published earlier in June. It showed that “weak economic growth, geopolitical turbulence and ongoing high energy prices” caused foreign direct investment in Europe to drop to a nine-year low in 2024, with falls for all the largest economies. London attracted 31 per cent of all UK new projects, the DBT data showed, despite a 15 per cent year-on-year decline. By contrast, Scotland, Wales and Northern Ireland all registered increases.But there were widespread declines across sectors and countries of origin. The US, the largest investor in the country, generated 13 per cent fewer FDI projects than in the previous year. Some content could not load. Check your internet connection or browser settings.IT and financial services, the two largest sectors for FDI, respectively recorded a 2.3 per cent and 5 per cent year-on-year decline in new projects, with falls in life sciences, biotechnology and pharmaceuticals Joe Marshall, chief executive of the National Centre for Universities and Business, said: “The latest data is particularly concerning in high-value, strategically important sectors.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of Free Lunch newsletter. Premium subscribers can sign up here to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGranted, since Donald Trump dropped his bombs on Iran’s nuclear facilities last weekend, it’s the military and not the economic policy choices of the US president that are most immediately reshaping the world. But those economic policy choices have not gone away. So, today, I report on the most comprehensive effort so far to make economic sense of Trump 2.0. And as I have promised before, I return (surely not for the last time) to the question of what this implies for how the rest of the world needs to act.The Centre for Economic Policy Research, a network of many of Europe’s best economists, has worked up quite a trade in producing “rapid response” economic insights into current affairs. It shone, for example, at the start of the Covid-19 pandemic when unprecedented lockdowns required an entirely new perspective on economic policy. The group’s “rapid response” programme has now produced a 40-chapter ebook, comprising almost 500 pages of analysis, on the economic fallout from the second Trump administration. Among other things, the analyses put numbers on views we have also developed here at Free Lunch. For example, even if you think it’s a good thing to expand manufacturing as a share of the economy, Michael Strain’s chapter shows that Trump’s radical trade policy is unlikely to boost US manufacturing output or jobs by much (a possibility I discussed here and here). The ebook also features a very important chapter by John Coates, which goes through the economic costs of undermining the rule of law (it was evident the Trump administration was doing so within days of taking office). Anna Maria Mayda and Giovanni Peri show how the crackdown on immigrants will shrink the US economy, a theme also addressed by my Free Lunch co-conspirator Tej last Sunday.Other chapters explore the prospects for groups that Trump’s policies are supposed to help, in particular the middle class and those in rural areas. The answer is: not well. Richard Baldwin highlights how many more middle-class Americans are working in services, not in manufacturing, and therefore stand to lose out in purchasing power when tariffs make manufactured goods more expensive and do nothing for service sectors. Mary Hendrickson and David Peters examine the fallout for rural areas from tariff retaliation against US agricultural exports (as well as immigration crackdowns and healthcare subsidy cuts). As they remind us, US farmers only got through the US-China trade war of the first Trump administration thanks to financial support from the federal government.But I want to home in on what insights the studies have for the rest of the world and, in particular, how the “rest of the west” — other liberal democracies — should respond to the US going rogue. There are three types of questions I think this work casts light on.One is how Trump’s tearing up of the global economy works itself out on the ground differently in different places. Here I can only refer you to the many country- and region-specific places. The book even includes a chapter about Greenland and the history of US-Danish relations over the island.The second is: how does the US-shaped hole in the global economic system actually look — that is to say, what are the ways in which the US used to anchor the governing edifice of cross-border economic efficiency but has now given up on. Barry Eichengreen’s chapter is excellent on the global public good of (usually) stable finance. That is not, of course, the only way in which Trump has pulled the rug out from under global governance as practised for the past 75 years or so. Another important aspect is the abandonment of most-favoured-nation status in its tariff policy, which Kevin Hjortshøj O’Rourke writes about. Finally, what can we say about how other countries ought to respond to Trump’s disruptions? Among the several chapters that estimate the cost of US tariffs, Marcelo Olarreaga and Sara Santander ask who will pay the cost they impose, by estimating the degree of pass-through of tariffs to final prices — and not just for the US but for the biggest trading partners. Two of their findings are particularly important for policymakers. (The three charts further down are reproduced from Olarreaga and Santander’s chapter.)First, the pass-through is far from complete in the US — 53 per cent for the median good, although with a lot of variation between sectors. Intermediate inputs have a higher pass-through, for example, meaning that US manufacturers will bear much of the burden. But still, on average, almost half the cost of tariffs will fall on foreign producers. That’s in line with theory — a very big economy should be able to force others to absorb more of the cost of the tariffs they choose to impose. It also means Trump is not entirely wrong to claim that foreigners will “pay the tariff”.Second, the pass-through from across-the-board tariffs is significantly higher in America’s main trading partners than in the US itself — from two-thirds for the EU to more than 80 per cent for Mexico. The implication for policy strategy is that other countries that are thinking of protecting themselves against trade diversion with tariffs of their own stand to lose more from their measures than Americans have from theirs. If retaliation is carried out purely bilaterally and not on a most-favoured-nation basis, however, the pass-through drops to about one-third. The authors take this as a reason to eschew broad tariffs and instead adopt ones narrowly targeted on sectors of greater political consequence and with more domestic alternatives. I would add more generally that the big difference in pass-through should focus countries’ minds on identifying the cost to themselves of the retaliatory measures they have to choose from. That does not mean not retaliating, but it does mean carefully selecting the measures that get the most political gain for the least economic pain. That should make policymakers look for responses against US exports of services — for example, through higher digital services taxes or, in the EU, the use of the bloc’s new “anti-coercion instrument”. This allows the European Commission a lot of latitude in selecting economic instruments to respond to economic bullying, far beyond traditional trade restrictions. The current discussion inside the EU seems to be opening a space for this. Beyond the specifics, there is a general assessment through many of the chapters that the challenges Trump has thrown at the global economy are here to stay. So while policymakers must be allowed to live in the hope of short-term improvement, and design their own immediate response accordingly, they clearly have a different long-term task. That is to refit their economies to thrive in a global economy from which America has permanently detached itself. How to do so is a question we will keep returning to in Free Lunch. Send us your ideas and reactions: [email protected] readables● A rouble-based stablecoin has emerged to circumvent sanctions on payments to and from Russia. My colleagues have the details.● Enrico Letta urges the EU to grasp the opportunity offered by the US’s detachment by boosting its own strength: turbocharging the single market through a common “28th regulatory regime” and providing a safe euro-denominated asset through more common borrowing.● How have Ukrainian refugees fared in Europe’s labour markets? Sarah O’Connor investigates. Recommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up hereTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up here More

Spain’s Prime Minister Pedro Sánchez left this week’s Nato summit with a smaller defence bill than the alliance’s other members, but Donald Trump warned the EU’s top leftwing leader that he would be made to pay in other ways.After Sánchez’s resistance to a new spending target riled many European colleagues, the US president accused Spain of seeking a “free ride” and threatened to “make them pay twice as much” in tariffs to the US as part of a trade deal.The Spanish premier on Thursday described Trump’s threat as “doubly unfair” and pointed to the fact that the bloc’s trade deals are negotiated by the European Commission. “Spain is an open country, a friend of its friends, and we consider the US a friend,” said Sánchez as he joined other EU leaders in Brussels for a summit. “These are two distinct areas of debate: one is the Atlantic alliance; the other is EU trade policy.”Even though the US cannot single out Spain in any trade deal it strikes with the EU as a whole, Trump’s words signalled that he had Madrid in his sights and could resort to a variety of tools to try to punish it.That begs the question of whether Sánchez, who is renowned as a wily political survivor at home, has miscalculated on the international stage and pushed his luck too far.“It was selfish and it was reckless,” said one European Nato diplomat. “We all have spending difficulties, but he tried to make it all about him.”Other allies complained that Spain could have quietly accepted the summit declaration’s ambiguity and long timelines, which in effect soften its 5 per cent of GDP spending target, without making a fuss.Before Trump’s comments, the Socialist prime minister thanked allies for respecting “Spanish sovereignty” by letting him claim an explicit opt-out from the 5 per cent goal. Accepting it, he said, would have been a “huge mistake” costing Spain €300bn over the next decade.The clash in The Hague came as Sánchez was weakened at home by a swirl of corruption scandals, which include his wife and brother as well as two former right-hand men accused of taking kickbacks on public contracts. All deny wrongdoing.The sense of crisis, including mounting calls from his critics for a general election, led to suggestions that Sánchez wanted to use the summit to change the subject. That process began when he told Mark Rutte, Nato secretary-general, in a public letter last week that he refused to accept the “unreasonable” spending target. He then announced in an impromptu television address on Sunday that Rutte had accepted his position.One conservative official said Sánchez was seeking a “Zelenskyy moment” with Trump, referring to the Ukrainian president’s Oval Office dust-up.Michael Walsh, a senior fellow at the Foreign Policy Research Institute, said: “A confrontation with Trump is going to get a lot of people’s attention, and in Spain there are a lot of voters who are not sympathetic with Trump nor his foreign policy.“I think there’s a possibility that this was an intentional move and Sánchez knew it would blow up. He decided the risk was worth taking because it would distract from things at home.”One Spanish official said Sánchez’s team was “unfazed” by Trump’s threat. Last week, when the prime minister sent his letter to Rutte, Madrid had already run the numbers on potential US retaliation and concluded that the tariff threat was not grave.Any US tariffs on goods that Spain produces in significant volumes, such as iron, aluminium and cars, would also hit the EU’s other 26 member states, including those that willingly signed up to Trump’s 5 per cent Nato target. The US could instead target products of which Spain is one of the few producers, such as Iberian ham and black olives, but their economic weight is limited.The Spanish official said that during the private meeting of Nato leaders, Trump had not mentioned Spain by name. He commented on it only when asked at a subsequent press conference, saying its refusal to commit to 5 per cent by 2035 was “terrible” and merited punishment in a trade deal.“You know they are doing very well. The economy is [doing] very well. And that economy could be blown right out of the water with something bad happening,” Trump said.By breaking ranks, Sánchez had drawn attention to the difference between Nato’s capability targets — real military gaps assessed by alliance experts — and the 5 per cent demanded initially by Trump and fashioned into an official target by Rutte.“We all knew that the only objective was to get through these days and then take stock. He couldn’t help himself,” said a second European Nato diplomat.German Chancellor Friedrich Merz said: “We will go through another review by 2029 at the latest and Spain will find out whether it can keep its promises with less financial spending.”It is possible that Trump will move on from Spain to other matters. In January he appeared to be unsure where it was when he called it a “Brics country”. But there was another interpretation of his words then: they were a put-down and a warning that he saw Spain as a bedfellow of certain enemies.Sánchez is not only at odds with the Trump administration on defence. He has tested its patience by slamming Israel’s assault on Gaza, attacking the Silicon Valley “techno-caste” and courting President Xi Jinping in China. He is also an advocate of immigration. As the EU’s most senior leftwing leader, he has made himself a convenient symbol of what the Maga movement dislikes.“I believe Trump is going to retaliate,” said Walsh. “He is going to put tremendous pressure on the Spanish government to conform to 5 per cent. There is already a good chance this government could collapse because of the corruption scandals — and Trump will hope he can make that happen.”Additional reporting by Paola Tamma in Brussels, Anne-Sylvaine Chassany in The Hague and Carmen Muela in Madrid More