The next EU leader will need money more than trade wars

BRUSSELS, Oct 10 (Reuters Breakingviews) – Ursula von der Leyen’s unofficial bid to hold on to the European Commission’s top job began with the outbreak of an anti-subsidy investigation and a series of exhortations to rally Ukraine, Moldova and the Western Balkan countries. . What she dodged was how to find more cash and convince member states to pay. Without credible plans to raise more funds, the European Union will not be able to build a strong future.

The war on the bloc’s eastern border has raised the stakes. Midway through the second year of war after the Russian invasion, Ukraine needs $411 billion in reconstruction funds, according to World Bank estimates, while the Commission plans financing of 110 billion euros gap by 2027. It’s unclear where the money will come from. The EU’s seven-year budget of 1.8 trillion euros, mainly from national contributions and customs taxes, is already exhausted.

While the bloc managed to agree on a historic joint investment of 900 billion euros, loan During the pandemic, Brussels has so far failed to sustain its public debt capacity, and even less to find new sources of income. Proposals to mobilize even a modest amount of new “own resources” – dedicated funds that go directly into EU coffers – have failed. A trio of measures proposed in December 2021 achieved nothing and would only add 17 billion euros in revenue per year anyway, even at full power. A similar size proposal proposed in June seems just as blocked.

Whoever leads the Commission once von der Leyen’s current term ends in mid-2024 will therefore face budgetary problems which, if not resolved, risk jeopardizing the entire European project. Yet budgetary concerns will be difficult to discuss honestly during the byzantine process of choosing a leader for the powerful EU executive.

The President of the European Commission is not directly elected. Candidates generally need to win the support of their own political group – whether Liberalsthat of von der Leyen ConservativesTHE Socialists or the Green vegetables – then engage with the European Parliament, which is holding EU-wide elections in mid-2024, and learn about member states’ machinations over how top jobs are distributed.

Unusually, von der Leyen, 64, owes his first term not so much to his home country of Germany, or even to his political party, as to support of French President Emmanuel Macron, who aligns himself with European liberals. It remains to be seen whether he will back her for a second term or push for a national wild card like industrial policy commissioner Thierry Breton, whose brash support for corporate handouts has proven both charismatic and which divides. To complicate matters further, von der Leyen herself could be in the running to succeed Norway’s Jens Stoltenberg at NATO, whose mandate was extended until October 2024 because member countries failed to step up. agreement on who should replace him.

Von der Leyen, or his successor, will have to figure out how to finance enlargement. Ukraine officially became an EU candidate alongside Moldova and Bosnia and Herzegovina, joining Montenegro, Serbia, Albania and North Macedonia in the purgatory of EU membership. Kosovo is waiting in the wings. Turkey and Georgia are also on the list of candidates for membership, although their prospects are less. Joining will require new entrants to commit to making improvements on fundamental issues such as the rule of law, human rights and democratic accountability. It will also cost money.

(Click on here for an interactive version of the chart.)

And if the Union expands, countries accustomed to being net beneficiaries of European funds could suffer. A report Carlo Bastasin of the Brookings Institution predicted that some EU members would face huge cuts if the new arrivals joined and the overall budget did not increase. Spain, for example, would see its share of EU financial aid fall from almost 10% to zero. Poland, which receives almost a third of these funds, would see this share drop to 13%.

(Click on here for an interactive version of the chart.)

The EU must also finance the transition to a “greener” economy and follow what could become a global subsidy race with the United States and China. Von der Leyen exploited trade frustrations by pledging to investigate and potentially punish Chinese subsidies to auto and battery makers. But tariffs cannot close the EU’s investment gap compared to other major economic blocs, especially given how difficult it is to compete with the new United States. documents in last year’s Inflation Reduction Act.

During his first term, von der Leyen successfully connected the EU to bond investors through the €800 billion NextGenerationEU project. loan program. A former doctor and German defense minister, her strategy generally involves taking a broad policy stance while leaving plenty of room to make concessions to member states. A second term will require even more finesse to convince EU member states to raise funds not only from the markets, but also from themselves.

Among the proposals currently pending, the most practical is an overhaul of corporate taxation that could increase 4 billion euros per year and would allow the EU to better comply with the Organization for Economic Cooperation and Development’s global tax agreement. The EU hopes that on September 12 relaunch will find a way forward if budgetary needs can convince skeptics like Ireland and the Netherlands to reconsider their long-standing opposition, given that tax issues require unanimous approval of member states.

For greater impact, the EU could remove exemptions on air and maritime fuel taxes, which could have raised €34.2 billion in 2022 alone, according to clean energy lobby group Transport & Environment. Even if the EU split continues among member states, which collect most taxes domestically, such changes would still bring substantial new funds.

Enlargement is the biggest carrot in the pantry of the EU’s neighborhood policy, even if the deadlines are vague and subject to decades of delay. As well as considering the financial implications, the EU will want to take a strong stance towards potential new entrants when it comes to the rule of law, both domestically and in relation to the rules set by Brussels, in order to ‘avoid news dead ends like the current battles with right-wing governments in Hungary and Poland.

For any of these bids to succeed, current EU members will need new agreements on how decisions are made, how countries compare to their peers, and how Europe will pay for all this. Whether von der Leyen stays or a new leader takes over, they will not be able to simply extol European values ​​and hope for the best. They will need a plan that makes money.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

BACKGROUND NEWS

European Commission President Ursula von der Leyen gave a speech on September 13 announcing an anti-subsidy investigation into Chinese-made electric cars and proclaiming that Ukraine, Moldova and Western Balkan countries should join the EU in the future.

Von der Leyen’s term ends in 2024 after the European Parliament elections. She has not officially announced that she will seek a second term. The mandate of European Council President Charles Michel ends in November 2024 and that of NATO Secretary General Jens Stoltenberg was recently extended by one year, until October 2024.

The World Bank in March estimated Ukraine’s reconstruction needs at $411 billion in public and private financing over 10 years.

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