Good morning. Turkey’s new government, appointed this weekend, has promised “rational” economic policies, while hundreds of thousands of protesting Poles marched through Warsaw yesterday in defence of democracy.
Today, our Brussels bureau chief explains how the EU blew a hole in its budget and how it could be plugged, while my colleague walks you through the bloc’s proposed new strategy to better engage with Latin America.
European sovereign debt markets have been a relatively tame affair lately when compared with the fireworks created by America’s self-induced debt ceiling crisis.
But that doesn’t mean there aren’t serious budgetary stresses evident on this side of the Atlantic. That applies not only to the EU member states, but to the European Commission itself, writes Sam Fleming.
Context: Brussels will this week present its proposals for next year’s EU budget, before turning its attention in the second half of June to a far-reaching review of the broader seven-year Multiannual Financial Framework. The MFF — the long-term EU budget running from 2021 to 2027 — amounts to €1.07tn, augmented by an unprecedented Covid-19 recovery programme worth €750bn in 2018 prices.
Despite its enormous size, the EU’s financial means are already getting badly depleted.
This is in part because of the exigencies of multiple crises, including the war and refugee influx from Ukraine, which has seen 5.1mn people register for temporary protection or the equivalent around Europe. Inflation and rising interest rates have imposed a further strain, with the interest bill associated with the EU’s massive NextGenerationEU project far surpassing commission expectations — as will be clear in the 2024 budget proposals.
And the EU’s demands for cash keep growing. Last week commission president Ursula von der Leyen said she wanted to boost pre-accession funding for the western Balkan countries in order to boost investment and better equip them to eventually join the EU. She gave no indications as to where the money will come from.
The commission is also working on a four-year financing programme for Ukraine worth tens of billions of euros to give Kyiv greater budgetary certainty.
The MFF review, overseen by budget commissioner Johannes Hahn, is due to be unveiled on June 20. Ahead of it, the European parliament has been agitating for an “upscaling” of the MFF to boost its capacity and make it more flexible. MEPs are also pushing for new so-called own resources, or bespoke EU funding lines, to cover the cost of repaying the EU’s growing debt pile.
But any bids for extra resources face a rocky ride among member states, where there is limited patience for demands for fresh EU cash at the best of times. That goes especially when their own budgets are under such hefty pressure.
Chart du jour: Cold war
The seven western Arctic nations are worried that China and Russia could try to exploit growing geopolitical tensions to increase their influence over the polar region and its abundant natural resources.
The EU’s foreign affairs chief Josep Borrell wants to organise more regular summits with Latin America — including bilateral meetings with Brazil and Mexico — to advance stalled trade relations between the two blocs, writes Ian Johnston.
Context: Strengthening ties with Latin America can help the EU “de-risk” from China and source critical raw materials for the green transition. But European demands on environmental standards and differences over Russia’s invasion of Ukraine show underlying tensions between two blocs Borrell describes as “natural partners”.
In July, the EU will hold a summit with CELAC, the bloc of Latin American and Caribbean states, the first such meeting since 2015. Ahead of that, a joint communication between the European Commission and Borrell has set out plans for a “renewed strategic partnership” between the two regions.
The draft text, expected to be approved at the college of commissioners this week, calls for more regular summits between the EU and CELAC, progress on outstanding trade deals and more investment through the EU’s Global Gateway strategy — a rival to China’s Belt and Road investment scheme.
“The conclusion of the EU-Mercosur agreement would mark a step change in strengthening EU-LAC relations,” the text states.
But there is little sign of imminent progress on the deal, which was signed in 2019 but has yet to be ratified. The EU wants Latin America to make further commitments on environmental protections in a side-letter to the agreement.
With some member states, including the Dutch and Austrian parliaments, firmly opposed to compromising on environmental standards, some fear further delays on Mercosur and other deals could push Latin America closer to China.
Pointing to a recent free trade deal between China and Ecuador “signed in very little time”, Spain’s trade secretary Xiana Méndez Bértolo said last month: “Taking so long makes us lose attractiveness and reliability as a partner.”
What to watch today
Danish prime minister Mette Frederiksen meets US president Joe Biden in the White House.
ECB president Christine Lagarde meets European parliament president Roberta Metsola.
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