EU leaders vow to make bloc more competitive in face of Trump threat

EU leaders meeting in Budapest have signed a declaration aimed at boosting the bloc’s ailing competitiveness – a task given added urgency by the threat of “America first” protectionist trade policies promised by the US president-elect, Donald Trump.

The bloc has too many barriers to innovation and must drastically reduce red tape, especially for startups; ramp up investment; make access to capital easier; and raise productivity, the European Commission president, Ursula von der Leyen, said on Friday.

“There is broad consensus that this is the basis on which to move forward,” von der Leyen said, highlighting a planned “single rulebook” for startups across the bloc as well as steps to cut energy prices that are three or four times higher in the EU than in the US.

European officials are alarmed by Trump’s impending return not just because of his hostility to Nato and ambivalence on Ukraine but also the economic consequences of his threat to make the EU “pay a big price” for not buying enough US imports.

The summit host, the Hungarian prime minister, Viktor Orbán, a Trump ally routinely at odds with Brussels and many of his fellow EU leaders, said there had been “no sharp disagreements” because “we are in full agreement on competitiveness”.

Faced with growth levels lower than the US and China, inferior productivity and a shrinking share of world trade, the common aim was to “make Europe great again”, Orbán said, adding that competitiveness was “not ideological – it’s just pragmatic”.

The Italian prime minister, Giorgia Meloni, said as the meeting got under way: “Don’t ask what the US can do for you, ask what Europe should do for itself. Europe must find a balance. We know what we have to do.”

The European parliament president, Roberta Metsola, said competitiveness was “not just a buzzword … If we’d had the same growth as the US since the turn of the century, Europe would have 11m more jobs. We can’t just react to the US elections, we must act.”

The basis for the leaders’ discussions was a hard-hitting report by the former Italian prime minister and European Central Bank chief, Mario Draghi, who warned the bloc faced a “slow and agonising decline” unless it acted to end years of stagnation.

Saying the Covid pandemic and Ukraine war had changed the rules of international trade, Draghi’s report called for as much as €800bn a year in additional investment in the bloc’s economy – equivalent to about 5% of the EU’s annual economic output.

Draghi’s proposals for funding the urgently needed extra investment include the controversial option of more common borrowing – a prospect that is anathema to the traditionally more “frugal” nations in the bloc such as Germany and the Netherlands.

Draghi, who presented his report in detail to the 27 EU heads of state and government attending the summit, said on Friday that the bloc could no longer stave off vital decisions, adding that the “sense of urgency today is greater” than it was a week ago.

“We have postponed too many important decisions in order to find consensus [among EU member states],” Draghi told reporters. “That consensus did not come, and as a result we have suffered lower economic growth, and now stagnation.”

He said common borrowing, first undertaken by the bloc to finance its pandemic recovery funds, would be indispensable but the priority should be “a true single capital market” to get investment and savings flowing across all member states.

The summit approved a four-page “new European competitiveness deal” recognising the broad conclusions of Draghi’s report and calling for efforts to deregulate, boost key sectors such as defence, biotech and artificial intelligence, secure a level trade playing field, and “explore” new public and private financing options.

Analysts were not impressed. “There is no sense from this initial statement from EU leaders that they have grasped the scale of the challenges presented by Trump’s second term,” said Mujtaba Rahman of the Eurasia Group. Ludovic Subran, chief economist at Allianz, said: “Europe is not ready for this.”

Orbàn, reiterating a line he took on Thursday, said Europe would need to rethink its support for Ukraine – another urgent issue facing the bloc after Trump’s victory. “The Americans will quit this war; first of all they will not encourage the war.

“Europe cannot finance this war alone … Some still want to continue sending enormous amounts of money into this lost war, but the number of those … who cautiously argue that we should adjust to the new situation is growing,” he said.

The EU’s response to its economic woes – and to Trump’s re-election – is hampered by political crises afflicting its two biggest members: Germany’s coalition government collapsed on Wednesday, while France’s president, Emmanuel Macron, has had no parliamentary majority since losing a snap election in July.

Germany’s chancellor, Olaf Scholz, insisted the EU would nonetheless be able to deal with any trade war launched by Trump. “I don’t think we should speculate too much on this issue with the US. The EU has the competencies to do what is necessary.

“But we should all very clearly seek talks,” he said. Von der Leyen said the bloc’s approach to any change in US trade policies when Trump returned to the White House in January would be to “engage, look at common interests, then negotiate”.

Diplomats and analysts saw an upside and downside to Germany’s government crisis, triggered when Scholz fired his liberal finance minister, Christian Lindner, collapsing the three-party coalition.

Many were heartened by the departure of the fiercely frugal Lindner. “With Lindner there, there was no way to have a discussion about a more ambitious long-term budget or strengthening defence financing on an EU level,” one diplomat said.

Others held out the hope that even if a new German government took months to emerge, it should prove more constructive on the European stage than the current coalition, whose constant internal disagreements and in-fighting has often led Berlin to abstain on key votes.