The Economy Brief - Money talks: Von der Leyen’s winning pledges for Europe

Money talks: Von der Leyen’s winning pledges for Europe

Dear readers, please note this is our last Economy Brief before the Summer break – We’ll be back in time to smoothen your way back into Brussels talks in September!

Before Ursula Von der Leyen was confirmed for a second mandate at the Commission’s helm in Strasbourg on Thursday, her pre-vote speech indeed doled out many promises of “special purpose” funds, measures, and Commission capacity to be set up over the next four years, appeasing a wide range of political groups and sectorial interests.

However, these extensive pledges raised one overarching and cumbersome question: Where will the money come from?

As Brussels stakeholders will indeed be very keen to get answers from September onward, we’ve taken another look at the other big questions hanging over policymakers once they return to their offices – because these also are all about money.

No doubt the long-awaited competitiveness report by former ECB President Mario Draghi will be top of the list on everyone’s September agenda – with the Hungarian EU Council presidency having scheduled two competitiveness councils in September and December to discuss the report and draft a Council position on the topic by the end of the year.

While what the report will look like remains to be seen, efforts by both the policymaker as well as the business communities over the last few months to turn the word Competitiveness into the undisputed motto of the upcoming legislative agenda have been extremely successful.

To the point that different stakeholders have started using it as a buzzword that can be filled with very different meanings depending on their specific interests: One just needs to take a look at two rather diverging industry reactions to von der Leyen’s pledges as a case in point.

Von der Leyen wants new EU budget to be ‘reinforced’ but details remain vague. Ursula von der Leyen walked a fine line in her speech to the European Parliament plenary on Thursday (18 July), signalling support for an enlarged EU budget and looser competition rules whilst remaining vague enough to appease both sides of the political spectrum. “We need more investment capacity,” von der Leyen said, adding: “Our new budget will be reinforced.” On competition policy, she emphasised the need to “support companies to scale up”—echoing a Franco-German push to enable the emergence of “European champions” that can compete with global peers. Read more.

German industry expects marginal benefits from new government growth package. German industry association BDI expects only “marginal” growth effects from an economic package adopted by the country’s coalition government on Wednesday (17 July), including tax incentives to encourage foreign workers, bureaucracy reduction, trade deals plans and tweaks to existing EU measures. A total of 49 measures were adopted, ranging from tax incentives for private investments and skilled foreign workers to bureaucracy reduction and plans to build back-up capacity for fluctuating renewable energy. While Economy Minister Robert Habeck (Greens) said this should lead to a “strong impetus for growth,” BDI expects this to boost the country’s sluggish growth only “moderately”.

Reason for concern or premature obituary? Analysts divided on German economy. As the German economy navigates its second year of near-recession and fears about permanent deindustrialisation persist, bank analysts are split on whether gloomy insolvency numbers should be cause for further concern. On Friday (12 July), data released from the German statistics office showed hefty increases in the number of companies filing for insolvency in April and May this year – corporate claims were as much as 33.5% and 25.9% higher than a year earlier, respectively. Deutsche Bank’s global head of research called for “a more nuanced” and optimistic view, “which will help to attract foreign investors into the country.” Read more.

King’s Speech: UK vows to rekindle trade and investment ties with Europe. Hopes that Keir Starmer’s new Labour government will seek to rebuild closer ties with the EU gained momentum on Wednesday (17 July) as King Charles presented the incoming administration’s priorities at the House of Lords, with a focus on “resetting relations”. While succinct, the language on restoring the country’s cooperation with Europe provided strong reassurance to those industries hoping to benefit from improved business terms between the two sides, after more than five years of post-Brexit tensions and regulatory divergence. Read more.

Commissioner Ferreira, Germany’s Lindner go head-to-head on the future of the bloc’s cohesion policy after the German liberal Finance Minister suggested that cohesion policy might be “overfunded” due to its “sluggish” absorption rate. “It is a sad fact that cohesion policy is notorious for its absorption problems,” Lindner said, adding that these issues would have been “worsened by the parallel existence of cohesion policy and Next Generation EU.” Ferreira responded by stressing that cohesion policy is “more relevant today than ever”, adding that the EU “will not be able to win the global competition against China and the United States without mobilising the strength of every region.” At the heart of the conflict, the question of what cohesion policy should actually achieve is not solved. Read more.

New EU fiscal rules may require deeper-than-expected spending cuts in 2025, Eurogroup signals. Eurozone countries may have to cut net government spending by more than previously anticipated next year to comply with new EU fiscal rules, finance ministers from the 20-member states group said on Monday (15 July). In a statement published in the evening after the Eurogroup meeting in Brussels, the ministers said applying the bloc’s revised governance framework will “lead to a contractionary fiscal stance for the euro area as a whole in 2025”, subtly different from a previous Eurogroup statement published in March, which spoke of the need for a “slightly contractionary fiscal stance”. Read more.

German CSU warns against cohesion funds cuts ahead of Lindner visit, EU finance chiefs summit. Ahead of a discussion on the future of cohesion policy with German Finance Minister Christian Lindner (FDP/Renew) in Brussels on Monday (15 July), the centre-right Bavarian party CSU (EPP) has warned against centralising the funds – as considered by the European Commission – or cutting them – as wanted by Berlin. The CSU’s warnings were well-timed, as the bloc’s finance ministers arrived in Brussels on Monday for two days of discussions around thorny budgetary issues. Read more.

More private investment needed for Ukraine’s ‘enormous’ reconstruction effort, top EU official warns. European governments must step up efforts to incentivise the private sector to invest in Ukraine to fund the war-torn country’s significant recovery and reconstruction needs, a senior EU official said on Tuesday (16 July). Pierre-Arnaud Proux, deputy head of the inter-institutional unit coordinating Ukraine’s relief and reconstruction at the European Commission, noted that the €50 billion in funds pledged by the EU under the bloc’s Ukraine Facility to support Kyiv’s reconstruction falls well short of the country’s estimated investment needs, which hover right below the $500 billion mark. Read more.