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Fraught with divisions, European leaders bicker over plethora of issues

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Natale Labia writes on the economy and finance. Partner and chief economist of a global investment firm, he writes in his personal capacity. MBA from Università Bocconi. Supports Juventus.

While never straightforward, discussions at the European Council last week were particularly heated.

Everyone knows the feeling of being passed over for a dinner invitation. How to respond is the tricky part — does one feign indifference or succumb to the temptation of attempting a barbed riposte?

Clearly, Italian Prime Minister Giorgia Meloni tends to err on the latter side. Having been benched for Ukrainian President Volodymyr Zelensky’s late-night dinner last week at the Élysée Palace with the leaders of France and Germany, she sparked a fresh row between Rome and Paris by calling the hastily organised soirée “inappropriate”, adding caustically that it undermined European solidarity and was a stunt by French President Emmanuel Macron to deflect from his political woes at home.  

Just eight months ago her predecessor, Mario Draghi, shared a train compartment to Kyiv with Macron and Germany’s Olaf Scholz, showcasing European solidarity with Ukraine. Now, Italy’s new leader was absent and seemingly dispensable. Meloni could not conceal her irritation. 

Dinner party invitations are, however, not the only thing that Meloni and her other European counterparts are bickering about. While never straightforward, discussions at the European Council last week were particularly heated. 

First was the perennially tetchy topic of migration. Asylum applications in the EU exceeded 100,000 in November for the third consecutive month, while irregular arrivals hit their highest last year since 2016. The surging numbers have put EU governments under pressure to deliver a response. Meloni was once again in the midst of the fracas, saying that if movements of migrants across EU borders were banned, Italy would simply become a country of refugees.


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No less animated was the discussion on how to respond to US President Joe Biden’s great green spending splurge. Brussels is essentially unsure as to how to come up with enough cash to compete with the US’s estimated $800-billion green-tech investment package that forms part of the ironically named Inflation Reduction Act. With European corporates being seduced by attractive US subsidies and tax breaks, Europe needs to react. The question is how. 

The European Commission’s “Green Deal Industrial Plan” outlines three options. First, increasing investment in green technologies by relaxing state aid rules to let member states subsidise their own industries. Second, spending as yet unused money from existing investment programmes. Or third, the EU could create new jointly funded schemes.

As usual in the EU there is a complicated mosaic of coalitions on these issues. Germany likes the idea of relaxing state aid because — with its budget surplus and low sovereign debt — it can afford to. Northern liberal countries such as Sweden are wary of more state aid because it risks distorting the common market, but because (like Germany) they’re fiscally prudent (or, as some would argue, stubbornly wrong-headed) they are not big fans of joint borrowing either. Dirigiste France is basically in favour of all three.

Then there is the question of Ukrainian succession to the block. Zelensky’s visit to Brussels last week made clear the expectations gap, claiming that talks will start this year with the aim for Ukraine to join before 2025. With the last successful applicant, Croatia, having needed 10 years to tick all the boxes, this seems hopelessly optimistic.

Commission President Ursula von der Leyen and Council President Charles Michel can try to beckon Ukraine into the fold as quickly as possible but they are not likely to be in office when the full effects of admitting a huge, poor and massively corrupt country into the EU become fully apparent. Some member states, such as the Netherlands, urged caution, but no one really wants to look like the bad guy refusing to let war-torn Ukraine in.

Finally, this week negotiations start on the urgently needed rewriting of the “stability and growth pact” of fiscal rules. Germany, the Netherlands and other “frugal” northern countries are resisting large-scale changes, while Italy and other southern nations argue that the northerners cannot suspend state aid rules while enforcing budget cuts on those members with less fiscal breathing room.

How and when consensus on all of this will be reached is unclear. One senior diplomat compared it to “one of those logic puzzles where you have to get a hen, a fox and a sack of grain across a river in a boat that can only take two at a time. They’ll make progress, more slowly and joltingly than one would hope but faster and more smoothly than one would fear.” It is the EU, after all. DM/BM

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