Storm clouds gather as European leaders meet

Business Times

5 hours ago

EUROPEAN Commission President Ursula von der Leyen had planned for her second term of office, which began last December, to focus squarely on the competitiveness agenda to boost the EU economy. However, geopolitical challenges are fast crowding out her freedom of action.
This stark fact will be shown, yet again, this week (Jun 26-27) at the latest European Council meeting of 27 presidents and prime ministers from across the bloc. Economic competitiveness is last but one (item six of seven) on the agenda following adoption of the agenda; Ukraine; Middle East; European defence and security; and the EU in the world.
As European Council President Antonio Costa has highlighted, the goal of building a more competitive Europe has not become less important for von der Leyen. This economic agenda remains key to her political legacy and she would still like to deliver on much more of the agenda highlighted in last September's major competitiveness report released by former Italian prime minister and ex-European Central Bank chief Mario Draghi.
In his welcome letter to Europe's presidents and prime ministers ahead of this week's summit, Costa highlighted that 'the interplay between a challenging international context and our internal economic priorities, such as deepening the Single Market, is more important than ever. That is why I want us to discuss the geoeconomic challenges we are facing' at the meeting on Thursday and Friday.
Of course, it is not the case that the EU expected 2025 to be trouble-free. Especially following the election of US President Donald Trump for a second term last November, there was open acknowledgement in Europe of potential diplomatic fireworks to come.
Nevertheless, the scale of problems arising has taken many by surprise. The latest case in point is the challenges in the Middle East, following the US bombing of Iran last weekend.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
Lack of political influence
The EU is frustrated by the lack of political influence it has over events in Iran, as also in Gaza too, with Israel and the United States acting largely unilaterally. This is a significant shift from the era of a generation ago when Europe had much broader influence in shaping events, including through Israeli-Palestinian peace processes such as the Oslo accords. Today, however, the EU's preferred goal of a comprehensive, just and lasting peace based on the two-state solution is now very much in the political long grass.
Yet, while Europe has comparatively little political influence in the Middle East today, the economic impact of the elevated tensions there could significantly slow the EU's economy in coming months. This is particularly the case in respect to oil prices which, despite the Iran-Israel ceasefire announced by Trump on Monday, have risen since Israel's latest wave of bombing began in Iran.
Beyond the Middle East, the EU summit this week will also focus on the region's defence buildup which is fuelling the market capitalisation of the region's security-focused firms. The meeting will discuss building Europe's common defence readiness by 2030 with huge new security-related investments.
Ukraine is also on the agenda with European leaders increasingly concerned that the war with Russia will last for at least months more to come, potentially into 2026. Given the still-uncertain stance of Trump towards Kyiv, the EU is keen to help ensure that Ukraine is in a financial and military position to be able to continue to fight a protracted conflict as the nation continues on its path towards EU membership.
Amid this gathering storm of geopolitical factors, the EU is increasingly concerned that von der Leyen's second term could get blown off-course.
Von der Leyen's long-held belief is that it is critical for the more than 400 million population bloc to be ambitious, and further seize the initiative in coming years. The alternative, in her view, is more drift that has characterised EU affairs for so long, a danger that may be growing.
For while opportunities still exist on the horizon, there are growing risks too from not only international but also domestic challenges.
On the domestic front, there remains a significant rise of anti-EU, nationalist sentiment across the continent which has seen populist arguments coming to the fore as well as the perceived erosion of the fundamental values of liberal democracy. Only earlier this month, the presidential election in Poland was won by a populist nationalist, Karol Nawrocki, who is intent on frustrating the reformist policy agenda of Prime Minister Donald Tusk.
Yet, it is the international front that is the most prominent challenge for the EU, right now. Not only is there an increasingly assertive Russia, there is also massive uncertainty from the United States from Trump, not least with the 90-day pause period of his tariffs scheduled to expire in July with only one nation (the United Kingdom) having reached a tariff deal with the White House.
Skilful leadership
Amid all the gloom, the one potential upside of this crisis-driven environment is that, with very skilful leadership by top EU officials including von der Leyen, she finds a way to continue to deliver her reform agenda. There is significant historical precedent for this.
A good example is the Commissions of former president Jacques Delors whom von der Leyen is sometimes compared to in terms of the significant historical consequence of her presidency. Coming to office during a troubled period for the bloc in 1985, the presidency of Delors is seen by many as giving what is the modern EU a clear sense of direction, including as the founding father of the euro single currency. In his first term, he rallied the bloc to the call of the Single Market, and when appointed to a second term, he urged Europeans towards the ambitious goals of Economic and Monetary Union.
It remains to be seen if history will see von der Leyen's presidency as being as historically important as that of Delors, but she nonetheless still has a remaining window of opportunity to deliver a number of big achievements that could enhance the EU's competitiveness. This includes implantation of the new Clean Industrial Deal which aims to enhance the competitiveness of EU industries while addressing climate change by focusing on energy-intensive sectors and clean technologies which are crucial for reducing greenhouse gas emissions and fostering sustainable growth.
In this challenging context, the second term of the von der Leyen Commission faces gathering storm clouds that may yet grow worse in 2025. So the window of opportunity could be narrowing significantly to help define the EU's longer-term political and economic trajectory and forge a stronger, sustainable path for the continent.
The writer is an associate at LSE IDEAS at the London School of Economics