The European office for economic planning –


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DG Grow, the European Commission’s directorate-general responsible for the internal market, is trying to guide the EU economy towards the future with much more interventionist tools than what would have seemed possible some years ago.

This part of the Commission used to be boring, setting some standards for the single market, suggesting the removal of trade barriers within the EU and making sure that member states followed through with it.

Set standards, remove barriers, and let the market rip – that’s how DG GROW was to earn its name. But things have changed.

“Before, there was free trade, that was the basic assumption. You get whatever you need, whenever you need it,” Kerstin Jorna, the director-general of DG GROW, told journalists on Wednesday (7 June).

“Well, we learned this was not the case, really.”

Medical equipment shortages, energy shortages, chips shortages, raw materials shortages, – none of these problems could have been solved by unilaterally following the canon of free markets, hoping they would solve the problem by means of the invisible hand.

The hand is visible now and it sits in a rather drab Brussels office.

Its most dramatic moment in the spotlight was probably during the ramp-up of vaccine production in 2020 and 2021, when the Commission took charge, coordinating every little detail in the vaccine supply chain, from the ingredients to the glass bottle, from the needle to the extra clean plastic bags.

“We learned how the supply chain works at a very granular detail,” Jorna said of that effort.

This hands-on approach is also visible in other policy fields now, for example in the chips act, and, maybe most notably, in the policies that should bring about Europe’s green transition.

Not only did the EU set emission reduction targets, but it is also trying to act on every part of the supply chain to achieve this goal, with the Critical Raw Materials Act and the Net-Zero Industry Act.

From the permitting process to open a new mine in Europe over the ramping up of refining and recycling capacities for raw materials, to domestic production capacities for net-zero technologies and public procurement criteria that should favour them, DG GROW wants to act on every step of the way to establish the critical industry.

It is in the business of economic planning, which only five years ago would have been unthinkable.

While part of the transformation is due to the power of the circumstances, the role of the Internal Market Commissioner Thierry Breton cannot be underestimated. Before his Commission job, he was a corporate executive and minister in France – one of the few EU member states in which economic planning never became a taboo.

Most recently he toured factories of the European defence industry to ramp up the production of ammunition in the EU.

DG GROW will, however, have to watch out to make sure it does not lose sight of the member states, which have not yet made the mental switch towards a more planned transformation of the economy, or which simply do not trust Brussels with too much power.

The directorate-general would love to have some more money that it could use to advance the build-up of a home-grown net-zero industry, for example by means of the European Sovereignty Fund that should be presented towards the end of June.

But, as EURACTIV’s  Théo Bourgery-Gonse wrote this week, this fund is unlikely to have the necessary means to make a difference.

Jorna argued for more investments at an EU level as these would be aligned with the EU instead of national priorities. “But member states don’t want to replenish our budgets, so we have to align national spending,” she said.

Another setback for the ambitions of DG GROW came on Wednesday when member states took an axe to the most far-reaching provisions of the Single Market Emergency Instrument (SMEI) the Commission had proposed last year to better prepare the single market for emergencies like the COVID pandemic.

These setbacks notwithstanding, DG GROW’s transformation towards a true European office for economic planning is likely to go on, as neither the need for a planned transition nor Thierry Breton are likely to fade away soon.

Child poverty is a problem in Europe. About a quarter of all children and teenagers under 18 are at risk of poverty or social exclusion, according to Eurostat data. This is more than the average population and much more than the older generation of people who are 65 or more years old.

Eurostat’s risk of poverty or social exclusion indicator adds up people living in poverty, people who are “severely materially deprived”, and people who live in a household with low work intensity.

The graph above shows how child poverty has declined quite significantly since 2016, but has bounced back up somewhat in the pandemic years of 2020 and 2021.

The risk of poverty or social exclusion for children also varies a lot across the continent, Romania being the sad backmarker with a child poverty rate of 41.5% in 2022.

In a report released today (8 June), the European Fundamental Rights Agency called on member states to act against child poverty, as Silvia Ellena reported.

Charts by Esther Snippe.

You can find all previous editions of the Economy Brief Chart of the week here.

EU Commission proposes €189.3 billion for 2024 EU budget: On Wednesday, the Commission proposed the EU budget for 2024, which is nominally higher than the 2023 budget but lower in real terms due to the inflation over the past year. Moreover, the budget proposal includes €3.96 billion to account for the rising borrowing costs for the pandemic recovery fund. Read more.

EU prolongs trade restrictions for Ukrainian agriculture. On Monday, the Commission decided to extend the trade restrictions for Ukrainian wheat, maize, rapeseed, and sunflower seed until 15 September. The trade restrictions mean that these goods cannot circulate in Bulgaria, Hungary, Poland, Romania, and Slovakia unless for transit to their countries. The restrictions had been implemented as farmers in these countries lamented that low Ukrainian prices would drive them out of business. Read more.

EU member states slash Single Market Emergency Instrument (SMEI): The provisions of the SMEI, designed to help the EU better confront future supply chain issues in times of crises, were severely cut on Wednesday compared to the European Commission’s ambitions by negotiators of EU member state governments. For example, the requirement for member states to build up strategic reserves for some materials and products, as well as the power of the Commission to issue priority-rated orders to companies in an emergency, were removed from the text. The European Parliament has not yet finalised its position, but it is expected to include more ambitious language than the member states.

EU Commission wants closer ties to Latin America in quest for economic security and trade diversification. On Wednesday, the Commission presented its new strategy for Latin America and the Caribbeans. Unsurprisingly, the Commission prioritises the long-delayed trade deal with Mercosur, which is still blocked due to agricultural and environmental concerns in several member states. Moreover, the EU hopes to reduce its raw materials dependency on China by trading with resource-rich Latin American countries.

Finance industry rebels against retail investment strategy: The finance and insurance industry is not happy with the proposal for the retail investment strategy that the Commission unveiled on 24 May. In a joint industry statement, eight financial industry associations criticised the Commission for being “too far-reaching.” They especially criticise the restrictions on the payment of sales commissions for financial products and the proposal’s focus on the cost of financial products. Consumer organisations, meanwhile, are unhappy about the proposal because it does not go far enough in protecting retail investors from biased financial advisors.

Final trilogue agreement on Anti-Coercion Tool: On Tuesday, EU Council and EU Parliament negotiators agreed on the last technicalities of the Anti-Coercion tool, which should help the EU take measures more easily in case third countries try to use economic coercion against the EU or a member state. While the most important aspects had already been agreed on in March, some procedural details were only hashed out now. Pending the formal approval by the EU Council and the European Parliament, the tool should enter into force this autumn.

OECD updates guidelines on corporate due diligence guidelines: While EU negotiations on new corporate accountability rules are ongoing, the OECD released its updated guidelines for responsible business conduct on Thursday (8 June). The update to the guidelines – last updated in 2011 – mainly concerns due diligence recommendations related to climate, technology, the use of services and products and the protection of at-risk people. Read more.

French MPs approve six-year €413bn military budget bill. The French National Assembly approved a €413 billion military budget bill for 2024-2030 at first reading on Wednesday, with extra lines of credit for nuclear and ammunition to Ukraine. Read more.

Scholz to enforce spending cuts in ministries amid coalition clashes. German Chancellor Olaf Scholz will reportedly enforce spending cuts across the federal ministries, unless ministers justify their opposition, after the Social Democrats’ Green and liberal coalition partners clashed over the topic. Read more.

Friends with (metal) benefits. Kate Mackenzie and Tim Sahay take a look at Australia’s trade policy in light of the tensions between the US and China. Its vast raw material deposits make it a very attractive trading partner but the overreliance on raw material export has also held back Australian manufacturing.

EU efforts to decarbonise trade must avoid unintended impacts on Africa. The LSE’s David Luke warns of the costs that the EU’s Carbon Border Adjustment Mechanism (CBAM) will have on developing nations, particularly in Africa, where the CBAM’s impact as a share of GDP is larger than in all other regions.

What if we’re thinking about inflation all wrong? Well, you are probably not, since you are reading the Economy Brief that has tried to give you a nuanced view of the inflation that we have been experiencing. Nevertheless, this portrait of economics professor Isabella Weber and her ideas about inflation, which were so severely criticised one and a half years ago, is well worth your time.

Additional reporting by Silvia Ellena.

[Edited by Zoran Radosavljevic]

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