Week Ahead (9 September)

Monday, 9 September – Mario Draghi’s report on the future of EU competitiveness to be published 

Today, Mario Draghi’s much-anticipated report on the future of EU competitiveness will be published.   A year ago, the European Commission tasked the former Italian Prime Minister and former ECB chief with writing a report on how the EU can maintain the competitiveness of its greening economy and remain capable of competing with China and the US amidst growing global protectionism. 

Last Thursday, Draghi met with the leaders of political groups in the European Parliament and the EU ambassadors representing Member States for a briefing serving as a preview of his incoming 400-page report. Among the key challenges facing the EU, Draghi cited limited innovation capacity, particularly in high-tech sectors, high energy costs, skills shortages, and dependencies on critical raw materials and technologies, especially from countries like China. In his briefing Draghi stressed that Europe is falling behind China and the US in several key sectors and argued that the bloc must act urgently, advocating for comprehensive reforms to boost productivity, enhance digital and defence industries, combat climate change, and achieve greater economic resilience. This was also echoed in his public speeches earlier this year. 

In his April speech, Draghi stressed the need for "radical change" to restore Europe's competitiveness. He particularly highlighted that the EU has often focused on addressing internal competition between its own Member States rather than common interests in crucial sectors like defence and energy. In June, spent a large part of it discussing competition policy, innovation, and the need to scale up European firms and ramp up digital infrastructure, particularly highlighting that Europe’s productivity growth has been lagging since the early 2000s, with per capita GDP at PPP consistently "about one-third lower than the US", largely due to lower productivity. 

Nevertheless, Draghi refrained last week from going into detail about his specific policy proposals. While he hinted that his report would provide recommendations for ten key economic sectors, he stopped short of elaborating on funding mechanisms, including the potential extension of the multibillion-euro recovery fund or more controversial topics like common borrowing or tariffs on external competitors. 

The report was initially scheduled to be released ahead of the EU elections, however, it was eventually pushed back to September in order to receive greater attention.  It will most likely be used by von der Leyen as a blueprint of her policy agenda for the second term. Its official publication today will set the stage for discussions among the Commission, European Parliament, and the Council to advance the recommendations. Over the coming months, EU institutions and stakeholders will discuss the financial and political instruments needed to implement the competitiveness goals, including the deepening of the Capital Markets Union (CMU).  

W/C Monday, 9 September – Spanish Prime Minister Pedro Sanchez visits China 

This week, Spanish Prime Minister Pedro Sanchez is visiting Beijing and Shanghai to meet with a series of high-level officials, including China’s leader Xi Jinping accompanied by his deputy trade minister. His visit comes at the backdrop of ongoing trade disputes between China and the EU.  

On 4 July, the Commission’s provisional tariffs of up to 38.1% on imported Chinese electric vehicles (EVs) entered into force, following the launch of an EU anti-subsidy investigation aiming to address potential unfair subsidies received by Chinese EV manufacturers. Last month, the Commission announced its finalised tariff rates targeting BYD (17%), SAIC (36.3%) and Geely (19.3%). These rates were only marginally lower than the originally announced ones. Negotiations between EU and Chinese officials are underway with the aim of finding an agreement which can see the tariffs reversed; however, there are so far little indications of a breakthrough. 

Earlier this year China retaliated by launching anti-dumping investigations into EU brandy, dairy, and pork products. Notably, Spain, the EU’s largest pork exporter, is particularly vulnerable, having supplied 22% of China's imported pork in 2023, worth €1.2 billion.   In July, EU capitals expressed broader support for the originally announced duties in their non-binding vote, despite fears of further Chinese retaliation, with the exclusion of countries like Austria, Romania, Sweden, and most importantly, Germany. On the contrary, Spain, along with France and Italy, has been particularly supportive of the tariffs. 

A final vote on whether to keep these provisional tariffs in place for five years will take place before 30 October.  Despite scepticism in certain EU capitals, including Berlin, about further retaliatory risks, a qualified majority of 15 countries representing 65% of the EU’s population would be required in order to overturn the tariffs.  China is lobbying EU member states to oppose further duties on Chinese EVs. Hence, the Chinese government will likely aim to seize Sanchez’ visit as an opportunity to lobby Spain for a potential U-turn, albeit with dubious prospects. 

Tuesday, 10 September – CJEU to rule on Google Shopping case 

Tomorrow, the European Court of Justice (CJEU), the EU’s top court, will rule on a case (C-48/22) involving Google and its bid to overturn its €2.42 billion EU fine for its shopping platform practices, imposed by the European Commission in 2017. Google’s appeal follows the EU's General Court in 2021 that upheld the Commission’s findings. 

More specifically, the EU imposed this penalty in June 2017, stating that Google had unfairly leveraged its dominant search engine to divert traffic to its Google Shopping service, which allows users to compare products and prices from online retailers, gaining an unfair advantage over smaller European competitors. Despite an initially unsuccessful launch in 2004 under the name Froogle, the Commission claimed that Google began systematically favouring its shopping service in search results from 2008 onward, ultimately achieving a dominant position in search results. Google had previously appealed to the EU’s General Court, which upheld the Commission’s fine in November 2021. The judges found no "objective justifications for Google's conduct" and concluded that the company had favoured its own Google Shopping service through more favourable display and positioning, while simultaneously demoting rivals through ranking algorithms. Subsequently, Google lodged an appeal in 2022 with the CJEU arguing that certain aspects of the case require further legal clarification from the highest EU court while repeatedly denying favouring its own service. 

In her legal opinion, published last year, the EU Court of Justice (CJEU) Advocate General Juliane Kokott sided with the General Court’s ruling in 2021, arguing that Google’s ‘’self-preferring’’ for its own services in search results ‘’constitutes an independent form of abuse’’. The legal opinion also alleged that Google imposed unreasonable access conditions on competing shopping services, leading to an exclusionary impact on the market for specialised product searches.  Google’s legal representatives responded that ‘’irrespective of the appeal, we continue to invest in our remedy’’, reaffirming their intention to ‘’work constructively with the European Commission. Although the Advocate General’s ruling is not legally binding the Court tends to follow their recommendations.  

Tuesday, 10 September – CJEU to rule on Apple tax state aid case in Ireland 

Also on Tuesday, the CJEU will issue its judgement on the European Commission’s appeal in the Apple/Ireland state aid case (C-465/20). This appeal follows the EU's General Court ruling in 2020 that overturned the Commission's finding that Apple had underpaid €13.1 billion in tax owed to Ireland between 2003 and 2014. 

In 2016, DG COMP assessed that Apple had concluded illegal deals with the Irish government to avoid taxation on profits from the sales of its technology products within the EU. The amount owed in back taxes over the last decade to the Irish state, according to the DG COMP ruling, was approximately €13.1 billion. Both Apple and the Irish government appealed this decision and in July 2020, the General Court annulled the Commission's findings, stating that DG COMP had not demonstrated to the required legal standard that Apple enjoyed illegal state aid. 

The Commission appealed the General Court finding and a hearing took place in May 2023. At this hearing, the European Commission lawyer Paul-John Loewenthal told the Court that the case “is of the utmost importance for the future of fiscal state aid” and whether some EU governments “can continue to grant multinationals substantial tax breaks in return for jobs and investment”.   

Ireland’s legal representative, Paul Gallagher, said that all Ireland could do “was apply its tax rate and it applied the full tax rate to the profits it was entitled to tax” arguing that the two units that were taxed in Ireland carried out “routine functions but not the critical functions” in developing Apple’s products. He said it would be astonishing if two companies in Cork performing these routine functions were responsible for earning all of Apple’s intellectual property profits worldwide outside the Americas. 

Apple’s representative Daniel Beard argued that its profits were taxable in the US, as that’s where the value of its products is generated and that it is paying €20 billion in tax to the US on the same profits that the European Commission argues should be subject to back taxes of €13.1 billion in Ireland.  It said its Irish tax structure used the possibility of deferring US tax on foreign earnings and did not aim to avoid taxation entirely.   

Last November, the CJEU’s Advocate General Giovanni Pitruzzella opined that General Court’s annulment of the fine ‘’should be set aside’’, arguing that the EU’s lower court had ‘’committed a series of errors in law’’ and ‘’failed to assess correctly the substance and consequences of certain methodological errors”. Despite its non-binding legal character, his opinion will be certainly taken into account in this week’s ruling, potentially resulting in a blow to both Apple and Ireland. The Irish government and authorities have consistently maintained that no special agreements were made with individual companies, including Apple.  

Wednesday, 11 September – Von der Leyen to present final list of nominees for the next European Commission

Last week, it was confirmed by a spokesperson of the European Parliament that President von der Leyen will present MEPs on Wednesday with the final list of nominees for the next European Commission, including their proposed portfolios such as competition, trade, and defence. The list features prominent names such as current Internal Market Commissioner Thierry Breton, Spain’s climate minister Teresa Ribera, and Austria’s finance minister Magnus Brunner.  

EU governments largely ignored von der Leyen’s request to submit one male and one female candidate. The final lineup of nominees for the new European Commission reveals a gender imbalance, with 16 countries putting forward male candidates and only 10 nominating women. Bulgaria is the only country that fully complied with Ursula von der Leyen’s initial request by proposing both a man and a woman. It remains to be seen whether ignoring von der Leyen’s requests for gender parity would impact the allocation of portfolios. 

This week’s presentation is a necessary step for Parliament’s committees to prepare for confirmation hearings.  Although von der Leyen herself is exempt, all the other nominees must receive approval from the European Parliament before taking office.  The most challenging phase will follow: each Commissioner-designate is expected to undergo intense confirmation hearings before the European Parliament. These sessions typically last several hours, during which nominees will face rigorous questioning. Historically, it is not uncommon for some candidates to be rejected; in the last cycle, three failed to pass. However, these hearings, originally planned to start at the end of September, are now more likely to begin in mid-October, which would push the official launch of the new Commission from 1 November to December. 

Thursday, 12 September – ECB Governing Council to meet, expected to cut rates 

In June, the Governing Council of the European Central Bank (ECB) announced its first rate cut in five years, from an all-time high of 4% to 3.75%. Even though rates remained unchanged in its previous meeting in July, a rate cut by 25 basis points is widely priced in in this week’s meeting of the GC.  

Flash inflation data released last Thursday will likely reinvigorate the doves as it eased to 2.2% in August, down from 2.5%, reaching its lowest point in three years. Excluding food and energy, core inflation in the euro area decreased from 2.9% year-on-year in July to 2.8% in August, also in line with expectations. In Q2 2024, the euro area grew by a sluggish 0.3%. The latest inflationary easing, along with weakening wage growth and economic activity increase the likelihood of a cut on 12 September. According to a Reuters survey conducted between 30 August-5 September, 85% of a total of 77 economists expect two more cuts this year. 

In past months, the ECB’s President Christine Lagarde has consistently stressed that the GC will stick to a data-dependent approach in its monetary policy, refraining from committing to a fixed timeline for future rate cuts. Despite the positive inflationary trend, this approach is likely to continue in Q4 2024 due to high wage growth, elevated selling price expectations and geopolitical volatility. In addition, the new ECB macroeconomic forecasts to be presented this week could also play a key role in rate decisions beyond September, making further easing more contentious than current market pricing suggests.