EU’s crisis-proofing summit derailed by … another crisis

EU’s crisis-proofing summit derailed by … another crisis

Leaders had hoped to focus on the EU’s long-term competitiveness problem. Instead, they’re back to firefighting.

By NICHOLAS VINOCUR
in Brussels

Illustration by Natália Delgado/POLITICO

EU leaders were all set to finally hammer out how they will revive the bloc’s ailing economy and chart a path to independence from powers like China and the United States.

But Donald Trump had other plans.

Just as the U.S. president’s threats to seize Greenland had dominated a previous gathering of leaders in January (and his tariffs had overshadowed a meeting before that), the U.S.-Israeli war on Iran has hijacked the agenda of Thursday’s European Council, forcing leaders to focus on a short-term energy crisis — while sapping attention from the original aim of talking about long-term competitiveness.

“It is crucial that we reduce the price impact” from the war, European Commission President Ursula von der Leyen said in the run-up to the summit. “We must deliver relief now … [We need] a comprehensive look at how to reduce people’s energy bills.”

With oil prices hovering around $100 per barrel, EU leaders will spend much of their time at Thursday’s meeting weighing how to offset the impact of surging energy prices on European households and businesses, according to several diplomats ahead of the gathering, who were granted anonymity to discuss private summit preparations like others in this article.

While high energy prices have been a consistent theme in discussions among leaders for months, including at their gathering at Alden Biesen castle in Belgium last month, the volatility fueled by Iranian drone and missile attacks across the Middle East has turned an irritant into an emergency for leaders, who fear that surging inflation could fuel an upsurge in support for populist, anti-EU politicians.

“The focus will be very strongly on energy prices — we are expecting proposals from the European Commission,” said a senior EU diplomat. “The situation with energy prices was there before at Alden Biesen but now it is indeed acute.”

Then there’s the war itself, where Europe remains divided on how to respond to Trump.

One camp led by Spanish Prime Minister Pedro Sánchez is pushing for the bloc to use Council conclusions (the often dry-seeming language agreed by all 27 leaders at the end of the summit) to call for international law to be upheld, in what would amount to an indirect rebuke to Trump and Israeli Prime Minister Benjamin Netanyahu. But another group of nations, including heavyweight Germany, is wary of taking any steps that could irritate the U.S. president and imperil an EU-U.S. trade deal currently being examined by European lawmakers.

The risks of irking Trump are simply too great, said a second EU diplomat from a large country. “We don’t want trade escalation. We want the U.S. involved in Ukraine. We want them involved in NATO. Is it worth risking these objectives in order to be vocal about Iran? So far, not really.”

“Is it worth saying: you stupid fuckers, why did you do it? No, because we will pay a higher price for that,” added the diplomat.

The result is unlikely be a total missed opportunity. Leaders are still set to agree on ambitious deadlines for slashing EU red tape, as well as laying the groundwork for a more integrated European financial market. But their agenda is — once again — being dictated primarily by a leader who resides in Washington, not Europe.

Orbán, again

Oil prices surging past $100 per barrel last week have thrust Europe back into the dark days of 2022 when Russia’s full-scale invasion of Ukraine caused a massive spike in energy prices across the bloc.

Those price spikes, though offset thanks to a huge injection of EU cash, nonetheless helped far-right and far-left political movements, with Hungarian Prime Minister Viktor Orbán basing his current reelection campaign on the idea that the Ukraine war has been too costly.

Now Orbán is set to seek center stage again: His threat to veto a planned €90 billion EU loan for Ukraine looms as the major unsolved question of the summit, infuriating leaders. Frustration at Budapest is at a fever pitch, according to the senior diplomat, with governments taking on a “much more direct, even confrontational” tone with Budapest behind closed doors, the person said.

Orbán’s violating his promise to back the loan had made it possible for other countries to drag him before the European Court of Justice for violating the EU principle of “sincere cooperation,” the two diplomats said.

However, they acknowledged that any legal proceedings would take months or years to conclude — far too long for Ukraine, which needs the EU loan within months.

The alternative is to reach a deal on Thursday. The same two diplomats voiced optimism it could be done and said Orbán himself had shown openness to a deal, which could also include unblocking a 20th package of sanctions against Russia that is currently being held up by Budapest and Bratislava.

Leaders are also due to lock horns over the longer-term direction of Europe’s energy policies. A group of Nordic countries, plus Spain, wrote to the Commission before the summit to defend the bloc’s Emissions Trading System (ETS), arguing that greater use of renewable energy will make the EU more autonomous.

But they’re up against Italy’s Giorgia Meloni and Poland’s Donald Tusk, who are pushing for tweaks to the ETS to offset potential price spikes linked to the fact that Poland and Italy remain big consumers of fossil fuel.

“I don’t know if we go as far as removing ETS completely,” said the second EU diplomat, when asked about their country’s demands for next week’s leaders’ summit.

But the diplomat added: “If you have a [price] spike caused by an external shock, there has to be a mechanism where ETS doesn’t add to this shock.”

Iran and Ukraine

Another major concern is how the Iran war affects Ukraine, given that spiking oil prices have refilled Russian President Vladimir Putin’s coffers just as his army is losing control of the Dnipropetrovsk region in eastern Ukraine. Leaders are also concerned that demand for U.S. weapons for the Iran war will deprive Kyiv of much-needed arms, which in many cases are being purchased with EU money.

Diplomats say this could be a chance for Europe’s defense industry to step in while providing Ukraine with much-needed revenues given its production capacity. Indeed, Ukraine has announced it is sending anti-drone operators and counter-drone technology to assist the Gulf states.

The push to take advantage is reflected in a draft of the conclusions, dated March 9 and seen by POLITICO, where leaders call “for a step change” in strengthening the EU’s defense industry. A previous version did not include such strong wording.

But it remains unclear whether Europe’s defense industry can keep up with demand.

After the war in Ukraine, this is a new challenge for the industry — military conflicts are proliferating so fast that the sector can’t keep up with production demand, said the CEO of Italian defense giant Leonardo, Roberto Cingolani.

“There’s a big effort ongoing” to help countries in the Persian Gulf that are under attack from Iran, Cingolani told a company presentation in Rome last week.

But “to be honest,” he added, “the number of wars … is growing even faster than our Capacity Boost program,” he added, referring to a Leonardo initiative to increase production capacity in response to rising demand.

Jacopo Barigazzi contributed reporting.