Europe Is Getting Ready For Trump II
But also — EU Banks, Automobiles, Deforestation, Commission Hearings
Hello! Today is November 13, 2024, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
The Briefing
Donald Trump’s imminent return to the White House in January presents the European Union with a number of challenges.
MAKE EUROPE GREAT AGAIN • For Viktor Orbán, the stunning victory of Donald Trump could not have come at a better moment. Days after the US presidential election, the Prime Minister of Hungary welcomed European leaders to Budapest, for a meeting of the European Political Community (7 November) and an informal meeting of the European Council (7-8 November).
During the past few months, Mr Orbán has spared no effort to signal his support for Donald Trump. Hungary chose the slogan ‘Make Europe Great Again’ for its Presidency of the Council of the EU, which runs until the end of December. Isolated among European leaders by his stance on Russia and his surprise visit (or ‘peace mission’) to Moscow on 5 July, Mr Orbán will feel vindicated by the election of his friend and ally as the 47th President of the United States.
The EU politicians who might be expected to devise a common response to a second Trump term are in a much weaker position. Olaf Scholz arrived late in Budapest, mere days after the ignominious collapse of his ‘traffic light coalition’. Emmanuel Macron has been politically weakened by the results of the parliamentary elections earlier this year. And Pedro Sánchez was unable to attend the European summits at all, forced to stay at home in the wake of the deadly floods in the Valencia region.
PAX AMERICANA • On the campaign trail, Donald Trump promised to end the war against Ukraine within 24 hours. It is not clear, however, what kind of peace deal he envisages. In September, J.D. Vance suggested that an acceptable peace deal might involve freezing the conflict along current lines and forcing Ukraine to extend a ‘guarantee of neutrality’.
The European Council decided to open accession negotiations with Ukraine in December 2023. The outcome of this process remains uncertain, especially if Ukraine will have to adopt a position of geopolitical neutrality.
In Budapest, Viktor Orbán stated that the US will ‘quit the war’ and that the EU should adjust its position accordingly. Orbán emphasised that ‘Europe cannot finance this war alone’. Some fear that Trump may halt military aid to Ukraine if Zelensky does not agree to open peace negotiations with Russia.
The US has allocated more than $174 million in aid to Ukraine since the start of Russia’s large-scale invasion in February 2022. The recent $50 billion loan granted by the G7 countries, of which $20 billion has been pledged by the US, has so far not been called into question.
TARIFF MAN • Beyond the war in Ukraine, European policy-makers worry about Trump’s embrace of protectionism. The imposition of across-the-board tariffs of 10% to 20% on imported goods from Europe, as envisaged by Trump, would be a major blow for the EU. Analysts estimate that its direct impact would erode the GDP of the Eurozone by 0,5% to 1%.
Still, the EU believes that it is better prepared for Trump II than it was for Trump I. A special ‘Trump task force’ in the Secretariat-General of the European Commission has been working for months on retaliatory measures to be employed in a possible EU-US trade war. The aim of such measures would be to bring the US to the negotiating table as quickly as possible.
On the campaign trail, Donald Trump singled out the German car industry as a future target for tariffs, complaining that Europeans ‘don’t take our cars’. The US trade deficit with Germany reached a record high this year.
The inflationary effect of Trump’s protectionist measures and tax cuts should lead to a surge in the value of the dollar. This is likely to increase the EU’s energy bill, given that Europe imports almost 50% of its liquefied natural gas (LNG) from the United States.
The primary target of American tariffs would be China, with Trump threatening to hit the country with an across-the-board tariff of 60%. In response, Chinese industries are likely to redirect exports to Europe, where tariffs would be lower.
DRILL BABY, DRILL • Donald Trump will place fossil fuels back at the heart of US energy policy. The Trump campaign has signalled that the 47th President will withdraw from the Paris agreement — as he did previously in 2017. An increase in America’s production of fossil fuels could lead to a fall in energy prices in the US domestic market, which would undercut the EU’s industrial competitiveness.
Trump has also announced his intention to wind down the Inflation Reduction Act (IRA), a massive plan to boost green technologies through direct investments and tax cuts. Although the second Trump administration is unlikely to cancel the IRA entirely, it could divert unspent funds to other programmes.
WHATEVER IT TAKES • The United States is not the only major economy moving towards a policy of fiscal expansionism. On 8 November, China unveiled a stimulus plan worth around $1,4 trillion over three years. Although investors had hoped for a more radical package, the Chinese programme still demands a response from European policy-makers, who, as Mario Draghi has pointed out, are currently facing a €800 billion annual investment deficit.
EU leaders acknowledged the ‘new geopolitical realities, and economic and demographic challenges’ in the Budapest Declaration, adopted on 8 November. Referring to the ‘solid foundation’ provided by the Letta and Draghi reports, the leaders promised to ‘seize their wake-up call’ and ‘ambitiously advance’ their work to boost the EU’s common prosperity and competitiveness.
With the new European Commission due to take office in early December, negotiations on the EU’s long term budget (Multiannual Financial Framework, or MFF) for the period between 2028 and 2034 are expected to start in 2025.
Reflecting on the impact of Trump’s re-election, Thierry Breton revived age-old demands for a common debt instrument: ‘We need to stop deluding ourselves […] In order to implement the ambitious plan outlined in the Draghi report, I see no other solution than to have access to common debt, which will enable us to immediately free up resources. We can’t wait ten years.’
In Case You Missed It
LAGARDE • The President of the ECB, Christine Lagarde, threw her weight behind the creation of “truly European” banks during a speech in Frankfurt on November 6. This call for consolidation in the banking sector comes amid German opposition to Italy's Unicredit takeover bid on Commerzbank.
Christine Lagarde declared that "truly European banks can effectively diversify their risks across sectors and regions. They have the capacity to lend more at scale and thus handle cross-border financing projects that smaller locally focused banks cannot".
The day before, Christine Lagarde spoke on the occasion of the 15th anniversary of the French Competition Authority. She defended the benefits of competition policy, particularly in terms of inflation. Confronted with emboldened competition from the US and China, “the key challenge for Europe will be to construct a framework through which we can deliver on governments’ new policy goals without sacrificing the benefits of competition”, she said. The rest of her speech is available here.
AUTOS • “Manufacturers firmly committed to vehicle electrification should not have to pay fines,” said French Economy Minister Antoine Armand in an interview with the newspaper Les Echos (our translation). “The first consequence will be to weaken investment and, above all, to strengthen our Asian competitors,” he added.
This position was also supported by the Italian and Czech governments during the informal meeting of the European Council in Budapest on November 8.
They are requesting that the Commission delay the fines that will be imposed starting next year on car manufacturers who do not meet the electric vehicle sales targets as per the revised CO2 emission standards for cars.
But electric vehicle sales are declining in Europe, primarily due to the withdrawal of purchase subsidies, such as those in Germany, and increased competition from Chinese manufacturers. Despite the EU implementing tariffs on vehicles made in China, ranging from 7.8% to 35.3%, Chinese manufacturers have already secured a significant share of the market.
The declaration adopted in Budapest on November 8 sets the stage for a potential postponement. It outlines a “European industrial policy to ensure the growth of tomorrow’s key technologies, while paying particular attention to traditional industries in transition.”
DEFORESTATION • Fifty European companies, including Nestlé, Michelin, Unilever, Carrefour and Mars, have spoken out against the postponement of the EU’s Deforestation Regulation (EUDR).
The regulation, which prohibits the sale of products that have contributed to deforestation on the European market, was due to come into force on December 30, 2024. Following pressure from many of the EU's trading partners, the Commission proposed at the end of October that the implementation date be postponed by one year.
Some major companies have already taken steps to comply with the regulation. They warn that the postponement of the EUDR creates legal uncertainty, especially as more substantial amendments to the text could be voted on in Parliament during the vote on the postponement proposal.
The postponement still has to be approved by the European Parliament on November 14. The European People's Party (EPP) has already tabled fifteen amendments for this vote. These amendments propose increasing the deadline for application to 2 years, and exempting European countries and certain intermediary players.
HEARINGS • The parliamentary hearings of the Commissioners-designate came to a close yesterday, ending with some highly anticipated hearings, including those of Raffaele Fitto, Stéphane Séjourné and Teresa Ribera. Now all the hearings are over, MEPs will vote on the entire College of Commissioners at the plenary session at the end of the month.
Stephane Séjourné promised to set up an EU Competitiveness Fund to support European industry.
Following the devastating floods that claimed the lives of more than 200 people in Valencia, Teresa Ribera pledged to create a new European Climate Adaptation Plan to improve the EU’s ability to respond to extreme weather events.
Wopke Hoekstra asserted that the EU would not go backwards on ecological transition, while taking better account of the social cost of transition.
Olivér Várhelyi, current Commissioner for Neighborhood Policy and Enlargement and Hungarian candidate for Animal Health and Welfare, failed to win the approval of MEPs in the first round.
This was due to his strained relations with the Parliament, his “lack of clarity” on questions relating to vaccines and abortion (and, more generally, a close relationship with Viktor Orban). Várhelyi is due to answer further written questions, after which another vote will be taken.
What We’ve Been Reading
For the FT, Henry Foy, Paola Tamma and Andy Bounds ask ‘Can Europe’s unity survive as its sense of crisis grows?’
For the ECIPE, Hosuk Lee-Makiyama and Claudia Lozano compare the EU and California’s approaches to AI regulation.
This edition was prepared by Rogier Prins, Hana Rajabally, Lucie Ronchewski, Augustin Bourleaud, Léopold Ringuenet, Luna Ricci, Lidia Bilali, Elisa Zevio, Noé Piloquet, Antoine Langrée, Antoine Ognibene and Maxence de La Rochère. See you next week!