Donald Trump, China and the political crises and their economic derivatives in France and Germany. They are, broadly speaking, the main challenges that the European Union will have to face from 2025 at a time when the machinery is to a certain extent seized and the lack of competitiveness is one of the great concerns of Brussels and the European governments, which have been debating for some time how to overcome this situation. There is a consensus that investment needs to be multiplied, but discrepancies arise in how to finance it, and also in the technical details of the banking union that does not come to fruition.
“There are external and internal factors that we must incorporate into the risk matrix,” explains Gonzalo López Molina, senior economist at Analistas Financieros Internacionales (Afi), who cites the political crises in France and Germany as the main challenges within the EU. The political instability of Emmanuel Macron adds to the delicate situation of the country’s public finances, to which Brussels has opened an excessive deficit procedure and which will end this year above 6% of GDP, double what the rules require. community. But López Molina recognizes that the crisis in Germany is “more worrying”, which beyond the collapse of the tripartite chaired by Olaf Scholz, faces economic turbulence: “It has structural weaknesses related to an industrial model based on cheap energy from Russia, they are not capable of lifting the debt brake, they accumulate a significant investment deficit and are late in making some strategic decisions about their automobile industry.”
Without pulling the ‘locomotive’ of Europe and with Scholz and Macron pending domestic issues, the push for the decisions that the EU has to make in a complicated geopolitical context is complicated, with the uncertainty generated by the crisis in Ukraine, but economically, especially with the tightening of the trade war between the United States and China. “I am concerned about the tariff decisions that Trump may adopt,” acknowledges Alicia Coronil, chief economist at Singular Bank. The Afi expert also mentions the confrontation between these two powers and the fit that the EU may find, which seeks its own autonomous relationship with Beijing after decades orbiting around Washington. His fear is that this will lead “to a vicious circle and a protectionist escalation that will be globally detrimental.”
“When we talk about Europe having a competitiveness problem compared to China and the US, we do an analysis in which we do not take into account that there are two Europes: we have some Nordic countries that are capable of maintaining competitiveness with a fiscal level and with budget stability, and other countries in which there is a problem of budget stability,” explains Coronil, who emphasizes that “Europe needs to advance in the integration process to overcome its leadership crisis.”
The size problem
“We Europeans will do more by doing things in common if we want to compete in this geoeconomic and geopolitical order,” adds Coronil, who highlights, among the measures that should be implemented, progress in the banking union, which encourages “larger banks, more robust”, as well as the promotion of ‘European champions’ such as Airbus, also at the banking level, and the development of the capital market to promote “alternative financing sources”. “In the US, 35% of business financing is via banks and the rest through venture capital or stock markets and Europe has not known how to create that market, but we have it at the national level and the cost is uneven and in many cases It is not competitive,” reflects the Singular Bank expert.
Another of the measures that it points to is the reduction of “bureaucratic burdens”: “If Germany manages to reduce them and bring them to the level of Sweden (…) 140,000 million euros per year could be released. “This would be a greater capacity for the business community to expand and create jobs.”
And the investment
All of these approaches appear in the recipes that both the European Commission and the capitals have on the table to try to get the EU out of lethargy and, above all, the need to boost investment. The report that Ursula von der Leyen commissioned from former ECB president Mario Draghi estimates the mobilization needs for the EU to emerge from the “slow agony” in which it finds itself at 800 billion a year.
“The annual investment needs that are identified are very powerful, practically 5% of GDP over the next decade,” says López Molina, who precisely believes that one of the debates in the coming months will be what will happen to the current funds. Next Generation that were launched after the pandemic and expire in 2026. “I do not see that European countries are capable of agreeing on a fund of that magnitude, although they can advance in legislative and regulatory aspects,” says the economist about the divisions within of the EU on the forms of financing, a debate in which the possibility of issuing Eurobonds has been reopened, but which collides with the ‘no’ of Germany and the frugal at a time when, furthermore, the right-wing of the continent is already a reality .
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