The President of the European Council, Charles Michel, believes that instead of awaiting the outcome of the debate on creating new European financing instruments, the Europeans should be concentrating on “other very powerful tools” such as completing the Capital Markets Union (CMU), or even recapitalising the European Investment Bank (EIB), to give the European Union a competitive edge over its foreign economic rivals.
“There is a democratic debate on the issue of ‘Eurobonds’ and joint borrowing, with arguments on both sides of the table. I don’t want to prejudge the debate”, Mr Michel said in an interview on Wednesday 10 April with a group of European journalists, a week ahead of the European Council of Wednesday 17 and Thursday 18 April at which he plans to make a proposal to the Twenty-Seven for a “European Competitiveness Pact” (see EUROPE 13387/1). “As a Belgian, I take a pragmatic view of things: it is going to be very difficult to get an agreement any time soon”. But in view of the US Inflation Reduction Act (IRA) and Chinese subsidies to its businesses, “if we do not act now, we will be making a grave mistake”, he stressed.
Mr Michel spoke in favour of deploying “realistic, practical and solid” tools, stressing the renewed political will within the European Council in favour of the CMU. “I intend to take a firm line on this”, he warned.
He went on to argue that this political will among the heads of state or government will be sufficient to overcome the “technical difficulties” around an increased integration of the capital markets, such as harmonising national insolvency regimes and European supervision of financial players, as made clear by the recent discussions of European finance ministers (see EUROPE 13368/3).
In keeping with his liberal economic vision, Mr Michel listed several advantages of the capital markets union. Such a project would help to stem the “race to subsidies” triggered by the American IRA scheme whilst taking over from the current EU State aid regime, the hyper-flexibility of which developed in response to the Covid-19 pandemic and the energy crisis carries the risk of leading to a fragmentation of the single market if it mainly benefits those member states with high budgetary resources, such as Germany.
The President of the European Council is also of the opinion that “sooner or later, the recapitalisation of the EIB will be on the table”, but declined to be drawn on specifics at this stage.
At the end of March, the European Council called upon the world’s largest multilateral bank to amend its lending policy, gearing it more towards lending in the fields of security and defence (see EUROPE 13376/3). In Luxembourg today, the EIB will present European finance ministers with new options.
Switching the EU into ‘wartime economy’ mode
Echoing earlier statements, the former Belgian Prime Minister called for a paradigm shift in the way Europeans view their economic development. “It is my view that we should be looking towards a wartime economy”, he said, calling for perspective in response to what could seem an alarming concept.
“That said, I am well aware of the need for careful attention because for one thing, we need to make it clear to the citizens that we are entering a new chapter of European history, following the dividends of peace time and fall of the Berlin Wall, that we must increase our defence and security capabilities in order to protect that peace. Because we want peace, we need more capacity in the military domain”.
Mr Michel went on to praise the complementarity between the military and civilian industries. “This is good for the economy in general. The links between the military and civil industries are very real. It is not one at the expense of the other”.
Referring to the reports on the single market to be presented to the EU leaders by two former Italian Prime Ministers, one by Enrico Letta next week and the other at the end of June by Mario Draghi, the President of the European Council called for a return to the cornerstones of Europe’s economic success.
In recent years, “the single market has been neglected; it has not been treated with care and ambition”, he said. He warned that Europeans are behind the curve compared to their American and Chinese rivals, with particular reference to patent deposits. “We need to make the rules smarter and cut red tape” to create a framework that will give businesses the freedom to do business, he added.
Preserving entrepreneurship
Mr Michel is not dismissing the work that is being carried out in the framework of the ‘European Green Deal’ aiming to make the European Union the first climate-neutral continent. However, he noted, the rules put in place require “greater coherence and capacity for agility”.
Referring to a meeting the same day with representatives of the automotive industry, he argued in favour of greater emphasis being laid within the EU on “technological neutrality”. “We must set the objective, provide the freedom to do business and move away from the mindset that, democratically speaking, there is one technology that is superior to the others”, he said.
The importance of trade in the EU’s economic dynamism was another issue raised by the Belgian Liberal. “I am personally in favour” of the deal between the EU and Mercosur, he said, going on to acknowledge “doubts, fears in some member states”.
The agreement remains at stalemate as certain countries, such as France and Ireland, have refused to sign it until it incorporates more robust environmental considerations, a position that has been dismissed as protectionism by the Latin American side, led by Brazil.
Even so, Mr Michel feels that the way in which free-trade agreements are negotiated is due for reform. Giving the European Commission a mandate without regularly involving the stakeholders creates the risk of a “lack of transparency” in the negotiations, he argues.
Coordination towards member states’ recognition of the State of Palestine
On the conflict in the Middle East between Israel and Hamas, the President of the European Council was asked about the movement among several European countries, such as Spain, to recognise the State of Palestine (see EUROPE 13377/19).
This is a “national decision”, a “powerful tool” that can be used just once and I am not ruling out the possibility that in the future, there could be “some coordination at EU level, at least among member states ready to move on this topic” and “even with countries outside the EU”, he remarked. “This is powerful leverage” that could help to move forward towards a political solution to the Israeli-Palestinian conflict with the creation of two states living side by side in peace.
Mr Michel observed that the EU is an important economic partner to Israel, “maybe the most important”. The EU/Israel association agreement contains clauses on respecting the rule of law and international law, he reiterated. Furthermore, he added, “the European Commission has a responsibility to assess if this is respected or not. If not, it can make a proposal related to this association agreement”. (Mathieu Bion)