Issue 13 – January 2025
The Finder | Our monthly Insights | Issue 13 – January, 2025
Speeches, speed, unity, competitiveness and geopolitics: the European Union at the beginning of the second von der Leyen Commission
On Wednesday 29th of January 2025, Ursula von der Leyen’s press appearance alongside Vice-President Stéphane Séjourné for the presentation of the ‘Competitiveness Compass’ provided an outline for the second von der Leyen Commission. This new policy initiative is intended to serve as a ‘guiding star’ for the coming years, outlining key economic actions the European Commission plans to propose. The new policy tool draws upon selected recommendations from both the Letta and Draghi reports, signalling a strategic direction for European economic policy, but not only.
As several observers have reiterated, 2025 is a crucial year for the European Union, coinciding with the start of a new European Commission mandate, the formation of a fresh European Parliament, a rapidly shifting economic and geopolitical landscape, and a new US administration in charge. Actually, compared to the beginning of the previous EU legislative term, both the global and European contexts have changed significantly.
Recent developments have also heightened the relevance of this period. These include the anticipation of Germany’s elections, the political fragility of France, the rise of democratic backsliding in certain EU member states, the cessation of Russian gas supplies to the EU through Ukraine, and, perhaps most notably, Donald Trump’s victory in the US presidential election, along with the ongoing evolutions in the wider Middle East. This very setting will serve as a critical ground test of the European Union’s ability to adapt to the new global realities.
Within this complex landscape, the publication of the Competitiveness Compass and the forthcoming Clean Industrial Deal, which is set to be presented at the end of February, reflect one of the core messages of the Draghi Report. Namely, the idea that the European Union must not only enhance coordination between industrial, competition, and trade policies – which, in Mario Draghi’s words, should “interact closely and must be aligned as part of an overall strategy” – but must also act in the most unified manner possible. Prior to the report’s release, Mario Draghi had advocated for institutional reforms. However, he later concentrated his efforts on more economic-related questions, perhaps acknowledging that, for the time being, institutional reforms are politically and/or diplomatically not viable.
The EU’s relationship with the United States is also widely recognised as one of the most pressing challenges of this new Commission’s mandate. In journalistic terms, the focal point is the newly elected President Donald Trump. The “divide et impera” motto has become particularly widespread as EU officials express growing concerns over Trump’s tactics. These include the strategic use of tariffs and exemptions as political leverage, which, it must be noted, could (further) undermine European unity.
These concerns have intensified following last week’s threat of fresh US tariffs on both the EU and China, as well as Trump’s accusations in Davos that the EU has treated the United States “very, very unfairly“. Additionally, his dismissal of economic pressure on Denmark to cede Greenland – which he claims to be vital for the US global security – has added to anxieties. On these grounds, analysts have also warned that Trump’s well-documented scepticism towards multilateral institutions, such as the World Trade Organisation (WTO), also evidenced by previous US withdrawals from the World Health Organisation (WHO) and the Paris Climate Agreement, suggests that the newly-elected US president may seek to bypass EU institutions altogether in favour of direct negotiations with single member states.
Against this backdrop, Ursula von der Leyen used her keynote address at the World Economic Forum in Davos – one of her first major non-institutional policy speeches since Trump’s inauguration – to take an unexpectedly confident stance. Despite avoiding direct criticism of Trump, she drew clear some contrasts between the EU and the United States. She reaffirmed the EU’s commitment to the Paris Climate Agreement, which Washington has sidelined, and projected an optimistic vision of the EU as a robust economic power. She also expressed openness to deepen trade with key regions, such as South America and the larger Asia-Pacific area, despite ongoing trade disputes and concerns over the so-called “second China shock“. This approach is in evident contrast with Trump’s confrontational stance on trade and unveils the European Union’s melancholy for a rule-based international arena.
This unexpected assertiveness from von der Leyen may be explained by the fact that the EU has been preparing itself for some time for the possibility of Trump’s tariff policies, and that EU institutions feel that they are now in a position to play their cards strategically. The recent entry into force of the Anti-Coercion Instrument is a further evidence that the EU feels ready for both negotiations and potential retaliatory measures.
As von der Leyen herself stated regarding the Competitiveness Compass: “Europe has everything it needs to succeed in the race to the top. But, at the same time, we must fix our weaknesses to regain competitiveness. The Competitiveness Compass transforms the excellent recommendations of the Draghi report into a roadmap. So now we have a plan. We have the political will. What matters is speed and unity. The world is not waiting for us. All Member States agree on this. So, let’s turn this consensus into action”.
Indeed, the European Union stands at a pivotal juncture. The launch of the second von der Leyen Commission, combined with significant global political and economic shifts, has created a moment of reckoning for the EU’s strategic direction. The challenges ahead are formidable: maintaining unity in the face of external pressures; defining, fine-tuning and tailor-making its industrial and trade policies in an increasingly protectionist world, whilst responding to a possible period of volatility in transatlantic relations under Trump’s presidency.
Von der Leyen’s confidence in Davos also suggests that the EU is not willing to play merely on the defensive. Rather, it seems intentioned to position itself as an actor ready to assert its economic and, to a lesser extent, its wider political interests. However, the success of its strategy will ultimately depend on how effectively the EU can translate its vision of speed and unity into tangible actions and whether it can find solid common ground, with special regard to external policy principles and approaches. Indeed, the year ahead will reveal whether the European Union is truly prepared to navigate this new era of global competition and geopolitical turbulence.
Regarding the year ahead for the European Union, in a Project Syndicate Commentary, Ana Palacio remarks that an unpredictable geopolitical landscape, the loss of the United States as a dependable ally, democratic regression in certain member states, and waning economic competitiveness are just few of the challenges the EU will face in 2025. How Brussels will tackle these issues will shape its future as a global player, she noted. Indeed, according to the author, this year was always set to be significant for the European Union, with the commencement of a new EU Commission mandate, a relatively fresh European Parliament, and a leadership change at the European Council. However, recent events – including the collapse of the German government, the start of coalition talks led by the far right in Austria, the cessation of Russian gas supplies to the EU via Ukraine, and Donald Trump’s victory in the US presidential election – have considerably heightened the stakes.
Whereas, on the question of trade and industrial policies, in an IFRI Paper, Sebastian Jean highlights that a closer look at international trade data challenges that international trade is fracturing. Rather than a widespread trend, the author insists that geoeconomic fragmentation is concentrated in specific “hotspots”, arguing that the most striking examples are Russia’s foreign trade and the economic tensions between China and the United States. Beyond these isolated cases, there is little indication that global trade is being carved into competing blocs. Nor is there substantial proof of nearshoring, while the opposite appears to continue happening. Moreover, Sebastian Jean acknowledged that fears that industrial policies are reshaping trade patterns seem unfounded. As governments place greater emphasis on economic security and manufacturing, managing this imbalance has become a pressing challenge for international coordination. According to the author, the following question remains: will the world truly fragment, or are we witnessing a more complex and uneven economic transformation?
On a similar note, in a CER Publication, Aslak Berg highlights that Europe’s shrinking share of the global economy threatens its influence, even as its role in global trade remains steady due to an increasingly trade-intensive economy. The “Brussels effect” has allowed EU regulations to shape global standards, but whether this can offset its economic decline is uncertain. As US dominance fades, Berg affirms that rising competition between major powers creates instability, thus posing a serious risk for Europe’s trade-dependent economy. However, over-reliance on regulation could also backfire, especially if EU rules become too complex or costly as they may deter trade and weaken Europe’s influence. To remain competitive, the EU must ensure regulations are strategic and targeted, the author notes, whilst emphasising that stronger cooperation with the US, particularly through the Trade and Technology Council, could help manage trade disputes and align policies. Meanwhile, the EU must navigate its relationship with China carefully by seizing economic opportunities whilst protecting strategic interests. Aslak Berg eventually argues that, to safeguard stability, Europe should expand its free trade agreements and integrate neighbouring countries into its regulatory sphere. By taking a pragmatic and balanced approach, the EU can sustain its global influence despite economic shifts.
A CEPS Study conducted by Iain Begg, Francesco Corti and Alessandro Liscai investigates performance-based budgeting focuses on evaluating public spending based on “what works” rather than merely ensuring that funds are spent correctly. The study assesses how the approach has been applied within the EU, particularly in the multiannual financial framework (MFF) and the Recovery and Resilience Facility (RRF). It also places particular emphasis on the role of the European Parliament and how its involvement in the budgeting process could be strengthened. By drawing on lessons from national implementations of performance-based budgeting, it examines how the EU could improve its approach. The findings suggest that, while progress has been made, there is still room for improvement. Enhancing the European Parliament’s role and adopting best practices from national experiences could make EU budgeting more efficient and results-driven.
Whereas, an SWP Commentary elaborates on the international role of the EU green transition by stating that, with the Green Deal, the European Union (EU) has not only raised the ambition of its climate policies in recent years, but has also incorporated a global aspect into its domestic climate agenda. Many of the new legal measures adopted now have direct or indirect implications for international partners. However, the commentary emphasises, the internal and external aspects of climate policy are not yet effectively connected within the new European Commission, and there is a lack of strategic diplomatic support for these initiatives. Given the growing significance of competitiveness and shifting geopolitical dynamics, there is an opportunity to develop a new strategic approach. Such a process could help EU institutions and member states better align the external dimension of climate policy and drive significant progress in advancing European climate objectives.
Regarding EU defence-related matters, Antonio Sobrino, in a Finabel Publication, tackles the question of how to implement a culture of strategic autonomy. The author argues that the European Union (EU) has long struggled to develop a unified strategic culture which, in turn, has hindered its ability to assert a coherent political autonomy on the global stage. This challenge has become especially evident in the wake of the war in Ukraine, a conflict that has highlighted the EU’s internal divisions. Despite the Union’s shared values and goals, a disconnection remains there between the strategic interests of its member states, making it difficult to forge a collective European stance.
As per the EU institutional calendar, Poland is now at the helm of the Council of the EU. Observing from this very aspect of the EU institutional architecture, Piotr Buras, in an ECFR Commentary, emphasises that Poland’s presidency of the EU Council marks a pivotal moment in European politics, with the ideological divide between Donald Tusk and Viktor Orban increasingly shaping the continent’s future. This conflict at the heart of Europe highlights the challenges faced by the EU, particularly in terms of its political direction and unity, the author argues. As Tusk takes the lead, Piotr Burkas highlights that he is also tasked of steering the EU through crises whilst defending its core values, including democracy, which are under threat from autocratic forces within the Union.
An ECDPM Commentary remarked that, in recent years, the EU has increasingly adopted a geoeconomic strategy in its trade and investment policies, using economic measures to achieve foreign policy goals, enhance security, and promote sustainability. The Union has introduced a range of new unilateral trade and investment tools aimed at boosting its competitiveness against strategic rivals, addressing security concerns, and supporting its transition to a greener economy. This shift reflects wider global trends, including growing tensions between the US and China, concerns over the vulnerability of supply chains, and the pressing need for climate action. However, this geoeconomic turn brings risks with itself. The EU could risk isolating itself internationally by implementing these “autonomous measures” without broad support. Developing countries, in particular, may face disproportionate challenges, especially those that heavily rely on exports to the EU for certain products, notably those linked to sustainability. Looking ahead, the EU must consider how its geoeconomic approach impacts its global standing. The introduction of new unilateral tools may exacerbate tensions between trade and development objectives. Greater attention to how European laws affect non-EU countries would align with the political priorities outlined by European Commission president Ursula von der Leyen for the 2024-2029 Commission mandate.
In line with the current geopolitical trends, a Clingendael Report called “Food, power and politics” analyses the political economy of wheat value chains in fragile settings. The report found that the Russian invasion of Ukraine has led to record increases in wheat prices on global markets; yet there has been little focus on how food price hikes are influenced by political and economic factors that go beyond simple supply and demand. This report examines how the political and economic dynamics of both international and local food markets impact food security in vulnerable nations.
This editorial is authored by Massimiliano Gobbato, Communications Director. Contributions by PubAffairs Communications Team’s Nicole Finucci, Kristina Vilenica and Jacopo Bosica to the drafting of ‘The Finder’ are gratefully acknowledged.
From our Editorial Partners
Europe’s year of fundamental choices | Project Syndicate
A volatile geopolitical environment, the loss of the US as a reliable partner, democratic backsliding in some member states, and declining economic competitiveness are just some of the challenges the EU will have to confront in 2025. How it addresses them will determine its future as a global actor.
How geopolitical tensions reshape trade patterns: Geoeconomic fragmentation, or China’s big manufacturing push? | Institut français des relations internationales (Ifri)
A data-based analysis shows that widespread geoeconomic fragmentation of world trade is not visible, at least so far. In contrast, the geopolitically-motivated challenges to international coordination are striking, notably in relation with China’s surging surplus in manufactured goods trade.
Europe and the global economic order | Centre for European Reform (CER)
The mood in Europe is glum. Growth in Europe has been mediocre and slower than in the US and Asia. As a result, Europeans fret over declining purchasing power. At the same time, the global order put into place after the Cold War is now increasingly fracturing under the pressure of renewed great power rivalry. For Europe, a trade-intensive economy that relies heavily on exports for economic growth, this is a particular concern.
The international dimension of European Climate Policy | German Institute for International and Security Affairs (SWP)
With the Green Deal, the European Union (EU) has not only significantly increased the ambition of its climate policy in recent years, but it has also added an international dimension to European domestic climate policy.
Performance and mainstreaming framework for the EU budget | Centre for European Policy Studies (CEPS)
Performance-based budgeting by focusing on ‘what works’, as opposed to whether money has been properly spent, aims to improve the quality of public spending. This study examines how successful the approach has been in the EU, looking at the multiannual financial framework and the Recovery and Resilience Facility. The study looks, in particular, at the role of the European Parliament and how it could be enhanced, drawing on lessons from use of the approach in national settings.
The quest for a common strategic culture in the EU: Challenges for the development of a coherent political autonomy | Finabel
This paper explores the challenges of the European Union (EU) in developing a common strategic culture and, consequently, a coherent political autonomy on the international stage. By examining the evolution of the Union’s security narratives and the challenges these pose to its political autonomy, particularly in light of the war in Ukraine, the paper highlights that certain institutional mechanisms of intergovernmental nature and the discordance between the strategic interests of member states hinder the development of a collective European position.
New protagonists: Why the EU’s future will be decided in central Europe | European Council on Foreign Relations (ECFR)
Poland has taken over presidency of the EU Council. Donald Tusk’s approach to Europe could not be less aligned with his predecessor, Viktor Orban; the new ideological struggle playing out in central Europe may define the continent’s future.
How the EU’s geoeconomic shift is adversely affecting developing countries | ECDPM
In recent years, the EU has increasingly embraced a geoeconomic approach to trade and investment, leveraging economic tools for foreign policy objectives, security and sustainability. The EU has created various new unilateral trade and investment instruments that seek to improve its competitiveness vis-à-vis strategic rivals, address security concerns or facilitate its transition to a green economy.
Food, power and politics | Clingendael
The Russian invasion of Ukraine has been accompanied by unprecedented rises in the price of wheat on international wheat markets, yet little attention has been paid to how rising food prices depend on political economic dynamics that are more complex than supply and demand factors. This report explores how the political economic dynamics of both international and domestic food markets affect food security in fragile states.