Welcome to the Brussels Edition, Bloomberg’s daily briefing on what matters most in the heart of the European Union.

As Europe waits anxiously for US President Donald Trump’s possible rollback of security commitments in Ukraine’s war against Russia, Germany wants to play more of a leading role. Speaking in Lithuania yesterday, Chancellor Friedrich Merz said Germany’s military is prepared to defend the Baltic region against “any threat.” The new German leader and his defense minister, Boris Pistorius, traveled to Vilnius to take part in the first ceremonial roll call of the Panzer Brigade 45. Since taking office earlier this year, the center-right chancellor has pledged to transform the German military into Europe’s strongest army. G-7 finance ministers meanwhile agreed to continue supporting Ukraine as it attempts to keep Russia at bay. For its part, the EU is also giving its dedicated defense fund a €40 million boost.

— Samuel Stolton

What’s Happening

China Ties | G-7 finance ministers and central bank governors pledged to address “excessive imbalances” in the global economy — a likely reference to China. French President Emmanuel Macron however wants to deepen economic ties with Beijing. 

Services Surprise | The euro zone’s private-sector activity surprisingly shrank in May as services recorded their worst performance in 16 months. Growth in the 20-nation economy is likely to be restrained in 2025, with the commission forecasting an advance of 0.9% in GDP. 

Euro Inflation | Euro-area inflation is slowly converging toward the 2% target, according to ECB Governing Council member Boris Vujcic. While he expects to reach that goal in early 2026, several of his colleagues have been more confident on reaching the target this year. 

Bank Rules | The commission is set to recommend a fresh delay to the adoption of new trading book rules that govern the trading activities of banks, we're told. Europe’s plans were derailed after the US failed to agree on its own version of a wider package of capital rules.

Heat Wave | Spain and Portugal are expecting a jump in temperatures next week. Europe has seen an unusual surge of high-pressure systems this spring, fueling seasonal heat records and drought while driving solar energy output. 

Around Europe

Game Plan | NATO needs to present clear steps to meet a defense spending target of 5% of economic output with a focus on “hard defense capabilities,” the US Ambassador to the alliance, Matthew Whitaker, told us. Member states are working to put together a deal that meets Trump’s demand.

Baltic Risk | The Baltic Sea is becoming “a new area of confrontation” with Russia, according to Polish Prime Minister Donald Tusk. Authorities earlier warned a Russian ship was acting suspiciously near the power cable connecting Poland and Sweden. 

Serb Isolation | France and Germany drafted a set of options to financially and politically isolate officials in Bosnia’s Serb-majority region whose bid to secede has plunged the Balkan country into crisis, according to a letter we’ve seen. The measures include sanctions. 

Northvolt Halt | Northvolt, Europe’s one-time hope for a homegrown battery champion, will stop making cells at its last remaining factory in Sweden at the end of June. The move effectively marks the end of the road for the Swedish manufacturer. 

Europa Hit | Following Manchester United’s loss to Tottenham in the Europa League final, the club’s shares suffered their steepest drop in more than eight months. Wednesday’s defeat marks a dire year for United, who have struggled domestically.

Chart of the Day

Worries over President Trump’s trade policy seem to be abating in Germany. An expectations index by the Ifo institute rose above the median estimate in a Bloomberg poll of analysts. The improved outlook of manufacturers “may reflect some hope that the hit from US tariffs will turn out smaller than anticipated,” according to Bloomberg economist Martin Ademmer.

Today’s Agenda

• Commissioner for crisis management Hadja Lahbib visits a GSK vaccine site in Wavre, Belgium
• EU ministers take part in a competitiveness council for research and space issues 
• EU foreign affairs chief Kaja Kallas visits North Macedonia and Kosovo
• European Parliament President Roberta Metsola participates in the NATO Parliamentary Assembly meeting in Dayton, Ohio from today to Sunday