EU Economy: Weekly Commentary – February 16, 2026

European Market Review

Bond yields fell. European stocks mostly rose, the euro weakened and Brent crude dropped amid potential OPEC+ supply increases, ongoing U.S.–Iran negotiations and growing doubts over Chinese energy demand.

Last week, bond yields declined. Bunds posted their strongest weekly performance since April, supported by strong safe-haven demand and expectations that softer U.S. inflation could curb future rate hikes. The 10-year French-German spread stands at 58.8 basis points, while the German-Italian 10-year spread remains near 60 basis points. European equities mostly advanced, except for Spain, which fell 1.51%, and Italy, which dropped 0.97%. The euro weakened 0.43% against the dollar. Brent crude declined 0.54%, marking its first consecutive weekly loss this year amid potential OPEC+ supply increases, U.S.-Iran nuclear talks, and signs of global economic softness, alongside rising scepticism over the anticipated surge in Chinese energy demand.

Europe View Synopsis

The Dutch may tax unrealised gains at 36%. This risks capital flight. Italy’s industrial recovery is gradual. Pharma, electronics, and capital goods lead growth.

The Dutch House of Representatives has advanced a controversial proposal to impose a 36% tax on unrealised capital gains from savings, cryptocurrencies, equities, and interest-bearing assets, excluding real estate. Passed with 93 votes, the bill would tax gains regardless of asset sales, raising concerns over reduced long-term investment incentives, erosion of compounding benefits, and potential capital flight to more favourable jurisdictions, with implementation expected in 2028 if approved by the Senate. Meanwhile, Italy’s industrial production fell 0.4% MoM in December after a 1.5% gain in November, though yearly output rose 3.2%, led by pharmaceuticals and electronics, while consumer goods, textiles, and transport equipment lagged. Full-year 2025 production declined 0.2%, with a 0.9% Q4 gain supporting 0.3% GDP growth and a 0.7% carryover into 2026. Early 2026 indicators point to cautious improvement, particularly in capital goods, and Italy’s industrial rebound is expected to benefit from German infrastructure and defence investments, supporting modest near-term GDP growth.

Dutch Tax

The Dutch House advanced a 36% unrealised capital gains tax on savings, crypto, and equities, raising concerns of investment disincentives and potential capital flight before 2028.

The Dutch House of Representatives has advanced a highly debated proposal to impose a 36% tax on unrealised capital gains, encompassing savings, cryptocurrencies, equity investments, and interest-bearing financial instruments, while excluding real estate. The bill, which passed Thursday with 93 votes in favour, surpassing the 75-vote threshold required, aims to tax gains irrespective of whether assets are sold. Critics warn that such a measure could undermine long-term investment incentives, erode the benefits of compounding, and prompt significant capital flight to jurisdictions with more favourable tax regimes, echoing patterns observed in other European countries that previously abandoned similar approaches. The legislation now awaits approval from the Dutch Senate and, if enacted, would take effect in the 2028 tax year, with investors, particularly in the cryptocurrency sector, already expressing concern over the potential exodus of wealth.

If approved and implemented in the economy, we expect significant capital flight and a decline in purchasing power.

Italian Industrial Production

Italy’s industrial output fell 0.4% MoM in December, marking a gradual recovery. Pharmaceuticals and electronics led growth, while consumer goods lag, with modest 2026 expansion expected.

Italy’s industrial sector showed a modest contraction in December, with seasonally adjusted output declining 0.4% MoM, following a 1.5% gain in November. On a yearly basis, working‑day‑adjusted production rose 3.2%, reflecting a gradual recovery after three consecutive years of decline. Monthly losses were concentrated in consumer and intermediate goods, while energy and capital goods expanded. For 2025 as a whole, industrial production fell 0.2%, with manufacturing down 0.5%; pharmaceuticals and electronics led growth, whereas textiles, transport equipment, and chemicals posted the steepest declines. The fourth quarter saw a 0.9% rise over Q3, supporting a 0.3% GDP expansion and leaving a 0.7% statistical carryover into 2026. Early 2026 indicators suggest a cautious recovery: manufacturing confidence improved but inventories remain elevated, with capital goods showing stronger momentum than consumer segments. Looking ahead, Italy’s industrial rebound is expected to benefit from Germany’s infrastructure and defence investment programs, which present limited implementation risks, while geopolitical uncertainties appear less threatening to near-term growth.

We expect Italy’s industrial sector to strengthen in 2026, supported by pharmaceuticals, electronics, and capital goods, with gradual improvements in manufacturing confidence and a modest positive impact on GDP growth.