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

Europe got a sharp reminder of its energy fragility yesterday, when, at around midday, Spain and Portugal suffered a massive blackout, forcing millions to deal with life off the grid. For hours, the incident impacted public transport, airports and phone service, and left authorities scrambling to find the cause — even as the countries return to some semblance of normality this morning. A nationwide outage is very rare in Europe, but underscores major challenges ahead. While the exact cause of the Iberian blackout remains unclear, sharp swings in power may have caused the transmission network to collapse — a major concern as the EU tries to shift rapidly toward renewables. On a particularly sunny or windy day, cheap power can flood the system, putting pressure on an aging grid. Whatever the reason, it will serve as a strong reminder that the EU needs to modernize equipment, and fast.

— John Ainger and Jorge Valero 

What’s Happening

German Clapback | Speaking of electricity, Germany found itself at the center of a brewing storm over whether it should split its power market after a report by the EU’s grids operators said that the creation of five bidding zones would lead to a far more efficient system. Berlin was swift to denounce the findings, which it fears could add further burdens to its embattled industries. 

Hybrid Threats | Foreign ministers from Nordic and Baltic nations will continue talks for the second day in Denmark’s Bornholm with counterparts from Germany, France and Poland as the region grapples with possible attacks on underwater cables and the shadow fleet trafficking Russian oil. They’re also likely to reinforce their commitment to supporting Ukraine as President Donald Trump seeks to reach a peace deal.

Truce Offer | Russia declared a three-day ceasefire in its war on Ukraine to mark the 80th anniversary of the victory in World War II. It will start on May 8 and end on May 10. The proposal came as Moscow prepares to mark the May 9 Victory Day anniversary with a military parade.

Cash Influx | Defense spending surged last year by the most since at least the end of the Cold War, with European countries rushing to bolster their security in the face of threats from Russia. Military expenditure worldwide rose 9.4% from 2023 to just over $2.7 trillion, the Stockholm International Peace Research Institute said

Financial Risks | The ECB said that financial markets must be watched closely as trade tensions have triggered the biggest turmoil since the pandemic. “These developments warrant careful monitoring,” ECB Vice President Luis de Guindos said, adding that “sharp adjustments in financial markets could become disorderly.”

Around Europe

Right Money | French billionaire Pierre-Edouard Sterin has courted controversy at home with a deeply conservative project aimed at boosting right-wing parties. He’s the latest ultra-wealthy individual to turn over cash for political influence. But his very public agenda marks a break from France’s rich who mostly prize discretion in wealth and politics.

Close Scrutiny | Candidates for Romania’s presidential election rerun held the first of three debates this week ahead of their first round this weekend. While December’s shock winner — ultranationalist Calin Georgescu — was barred from standing again, authorities are looking into the finances of the country’s far-right candidate who seeks to capitalize on the absence of Georgescu.

Holy Secrecy | The Vatican’s conclave to pick the next pope will kick off on May 7. More than 100 cardinals will take part in the meeting, in a process that could take days in total isolation. Pietro Parolin, an Italian who serves as the Vatican’s secretary of state, and US-born Raymond Leo Burke, an ardent critic of Pope Francis, are among the contenders.

Gaining Control | Austria’s largest lender Erste is in discussions with Banco Santander about acquiring 49% of its Polish unit, the banks said, confirming our earlier report. The stake is valued at around €7.3 billion based on the most recent stock price in a move seizing an opportunity to expand in one of Europe’s fastest-growing markets.

Chart of the Day

The ECB will start considering an interest-rate hike by year’s end as the region’s defense spending risks heating up the economy, Franklin Templeton said. The $1.5 trillion asset manager’s view contrasts with many other traders, who predict more cuts with the deposit rate holding at 1.5% until the middle of next year. For governing council member Francois Villeroy de Galhau, the institution has room to lower borrowing costs, and his colleague Olli Rehn said there’s a danger that inflation will dip below the 2% target due to the fallout from US trade levies, giving grounds for a rate cut.

Today’s Agenda

All times CET

• 9.30 a.m.  European Court of Justice’s ruling  on Malta's golden passport scheme
• EU environment ministers meet in Warsaw
• EU trade chief Maros Sefcovic travels to London, meets with UK Trade Secretary Jonathan Reynolds
• EU economy commissioner Valdis Dombrovskis in New York

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