EU-India Trade Deal: European Commission President Ursula von der Leyen said negotiators had made substantial progress, with only final steps remaining before both sides can seal what she described as a potentially historic agreement.

The European Union (EU) and India are moving closer to finalising a free trade agreement, which could rank among the largest economic pacts ever attempted, hinted European Commission President Ursula von der Leyen at the World Economic Forum in Davos on Tuesday.

Her statements pointed to a deal, which has been years in the making and now appears to be approaching a decisive phase. “There is still work to do. But we are on the cusp of a historic trade agreement. Some call it the mother of all deals, one that would create a market of 2 billion people, accounting for almost a quarter of global GDP,” she said, as describing the EU’s push to diversify trade ties and reduce strategic vulnerabilities.

Why This Agreement Carries Global Weight

The proposed pact carries a scale that few trade agreements can match. A formal economic bridge between one of the world’s fastest-growing major economies and a bloc that is central to global commerce would change supply chains at a moment when countries are re-evaluating how and where they trade.

For Brussels, India has emerged as a key partner in its effort to reduce dependence on China and broaden engagement with economies seen as reliable and long term. For New Delhi, access to the EU’s 27-member market, its second-largest trading partner, would support export growth and strengthen India’s push to climb higher in global manufacturing and services.

Talks Back In Fast Lane

Discussions on an India-EU free trade agreement began in 2007 and then lost momentum for almost a decade. The discussions were revived in 2022, backed by fresh political commitment on both sides. Since then, negotiations have advanced along with the India-EU Trade and Technology Council, a forum established to align cooperation on critical technologies, digital rules and supply-chain resilience.

This parallel engagement has helped narrow regulatory differences and expanded the scope of talks beyond tariffs, giving negotiators room to address newer economic realities.

Why The Deal Is Moving Fast

Geopolitical developments are adding urgency. The EU is moving to diversify away from concentrated dependencies, and India is positioning itself as a central player in redesigned global supply networks.

Trade numbers highlight the momentum. Goods trade reached 124 billion euro in 2023, and services trade, led largely by digital and IT services, is estimated at 60 billion euro. Officials on both sides believe a comprehensive agreement could unlock far greater potential, especially in clean energy, pharmaceuticals, advanced manufacturing and digital services.

Issues Still On The Table

Optimism from Davos has not erased the remaining challenges. European negotiators continue to seek tariff reductions on automobiles, wines and spirits, sectors India has traditionally protected to shield domestic industries.

India is pressing for improved conditions for the movement of skilled professionals, an issue that is sensitive within the EU because visa and mobility policies differ across member states.

Sustainability standards, access to public procurement and regulatory alignment are also under discussion. These issues are politically sensitive; and therefore, von der Leyen stressed that “there is still work to do”.

Her visit to India early next week is expected to be crucial. Diplomats view the trip as a chance to settle the most difficult questions at the political level and provide clear direction to negotiators. The timing is important, coming ahead of a planned India-EU leaders’ meeting later this month, where both sides aim to show tangible progress and possibly point to a breakthrough.

Why The Deal Matters

A final agreement would stand among the EU’s most consequential trade achievements in recent years and strengthen India’s integration into global supply chains.

It would strengthen flows of goods, services and investment, offer more predictable market access, expand cooperation on technology and standards and send a strong signal of strategic alignment at a time when global trade is being changed.

A combined market representing nearly a quarter of global GDP would immediately place the EU-India pact among the most influential trade agreements in the world, with ripple effects far beyond Europe and South Asia.

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American response

Stocks fell sharply while the bond market creaked amid ongoing tension and increased rhetoric over the future of Greenland.

The FTSE 100 index closed down 68.57 points, 0.7%, at 10,126.78 on Tuesday.

The FTSE 250 ended 153.94 points lower, 0.7%, at 22,957.87, and the AIM All-Share closed down 2.35 points, 0.3%, at 801.14.

The threat of tariffs from US President Donald Trump continued to weigh heavy on European markets, while screens on Wall Street were a sea of red as trading resumed following Monday’s public holiday.

In European equities on Tuesday, the CAC 40 in Paris closed down 0.6%, while the DAX 40 in Frankfurt ended 1.0% lower.

In New York, financial markets were lower at the time of the London equity market close.

The Dow Jones Industrial Average was down 1.3%, the S&P 500 was 1.4% lower and the Nasdaq Composite faltered 1.5%.

Mr Trump said at the weekend that, from February 1, Britain, Denmark, Finland, France, Germany, the Netherlands, Norway and Sweden would be subject to a 10% tariff on all goods sent to the US until Denmark agrees to cede Greenland.

The announcement drew angry charges from US allies who are pondering countermeasures.

“Trade concerns are now front and centre, with European leaders pushing back against Washington’s stance and reportedly discussing countermeasures,” said David Morrison, senior market analyst, at Trade Nation.

“The potential use of the EU’s Anti-Coercion Instrument has added to market unease, particularly for export-heavy sectors such as autos and luxury goods, which have already come under pressure.”

Mr Morrison pointed to apparent split over how Europe should respond to Mr Trump’s threats.

“While UK Prime Minister Starmer pursues a softly-softly approach, insisting that jaw-jaw is better than war-war, French President (Emmanuel) Macron favours a more aggressive approach and wants to fight US tariffs with European ones,” he said.

European Commission president Ursula von der Leyen cautioned that Mr Trump risked plunging US ties with the EU into a “downward spiral”.

While Mr Macron warned against US attempts to “subordinate Europe”, and blasted as “unacceptable” Mr Trump’s threats to impose tariffs of up to 25% on countries opposed to his Greenland plans.

Reports suggested Europe could consider retaliatory tariffs and also possibly a concerted strategy to offload US treasury bonds.

The yield on the US 10-year treasury was quoted at 4.28%, widening from 4.21% on Friday.

The yield on the US 30-year treasury was quoted at 4.91%, stretched from 4.82% on Friday.

The focus now switches to Davos, which Mr Trump is due to address on Wednesday.

“Escalation or softening in tone seems likely to set the direction for European risk assets in the days ahead,” said Mr Morrison.

Adding to the bond market angst was a sharp sell-off in Japan.

Kathleen Brooks at XTB Research said while the sell off in long end bond yields was global, the biggest move “by far” was in Japan.

The 30-year Japanese bond yield rose 26 basis points, as investors “fret about an expansionary fiscal policy if PM (Sanae) Takaichi wins the February 8 election,” she pointed out.

“The Greenland issue is taking the headlines today, however, in the long term, the insane rise in Japanese bond yields could have a bigger global effect,” Ms Brooks suggested.

“Japan is central to global capital flows, if there is disruption in Japanese financial markets then this could have a knock-on effect on global capital flows and overall risk sentiment,” she added.

Ms Brooks said the risk is that the sell off in bonds causes “something to break, either a Japanese bank or fund gets into trouble like Silicon Valley Bank back in 2023, which is why it is worth watching the Japanese bond market as well as the Trump show this week.”

The pound was quoted higher at 1.3462 dollars at the time of the London equities close on Tuesday, compared to1.3428 dollars on Monday.

The euro stood at 1.1733 dollars, higher against 1.1643 dollars.

Against the yen, the dollar was trading at 157.95 yen, lower from 158.11 yen.

In London, analysts weighed data which pointed to a cooling labour market and a slowing in average wage growth.

According to the Office for National Statistics, the jobless rate was 5.1% in the three months to November, unchanged from the three months to October.

This came slightly above the FXStreet-cited market consensus, which had pencilled in a slight fall in unemployment to 5.0%.

The ONS said pay-rolled employees in the UK fell by 155,000, or 0.5%, on-year in November, and fell by 33,000, or 0.1%, on-month.

Annual growth in regular earnings, excluding bonuses, was 4.5% in the three months to November, slowing from 4.6% in the three months to October.

Annual average regular earnings growth was 7.9% for the public sector and 3.6% for the private sector.

“Today’s labour market data showed easing wage pressures, weak employment and rising redundancies. We judge this to be consistent with our view that the labour market continues to ease and has further to go in coming months,” said analysts at Barclays.

Informa led the blue chip risers, up 4.6%, after reporting “strong trading” in the fourth quarter.

The London-based events, digital services, and academic publishing business expects revenue of at least £4.0 billion in 2025, up 13% from £3.55 billion in 2024, representing underlying revenue growth of 6.3%.

On the FTSE 250, the weak labour statistics weighed on PageGroup, down 3.8%, and Hays, down 0.3%.

Morgan Stanley reiterated an ‘underweight’ stance on both recruitment firms and cut share price targets.

Elsewhere, Funding Circle jumped 14% as it reported stronger-than-expected revenue and profit growth in 2025, achieving its financial 2026 revenue target a year earlier.

The London-based lending platform focused on small and medium enterprises said revenue for the year was about £204 million, up 28% from a year earlier, beating market expectations of £191 million.

Profit before tax rose to around £20 million from £3 million in 2024, also ahead of consensus of £17 million.

Wise Group jumped 15% as analysts raised profit forecasts amid strong third quarter trading.

The London-based money transfer services provider expects full-year underlying income to be around the middle of its guided range of 15% and 20% growth, and expects underlying pre-tax profit margin for financial 2026 to be “towards the top” of the guided 13% to 16% target range.

JPMorgan analyst Craig McDowell said the underlying income forecast was better than consensus at 16.3%, while the underlying pre-tax profit margin projection was ahead of consensus at 14.3%.

McDowell predicted 9% to 12% pretax profit upgrades for financial 2026, while Bank of America was more bullish, raising numbers by 20%.

Brent oil traded higher at 64.89 dollars a barrel on Tuesday, down from 64.13 dollars late on Monday.

Gold was quoted at 4,742.56 dollars an ounce on Tuesday, up from 4,671.76 dollars on Monday.

The biggest risers on the FTSE 100 were Informa, up 39.8 pence at 912.2p, Haleon, up 11.8p at 372.9p, Endeavour Mining, up 112.0p at 4,208.0p, Rentokil Initial, up 8.0p at 461.7p and Melrose Industries, up 9.0p at 625.8p.

The biggest fallers on the FTSE 100 were Mondi, down 41.2p at 845.4p, Beazley, down 44.0p at 1,126.0p, Pershing Square Holdings, down 134.0p at 4,442.0p, Land Securities, down 19.0p at 635.0p and Bunzl, down 57.0p at 1,989.0p.

Wednesday’s global economic calendar has UK inflation figures and Canadian producer price inflation data.

Wednesday’s UK corporate calendar has trading statements from luxury goods manufacturer Burberry, sports retailer JD Sports, electrical retailer Currys and pub chain JD Wetherspoon.

– Contributed by Alliance News