The Spanish Leadership of the EU: A Challenging Presidency
March 30, 2023
Spain will assume the next presidency of the Council of the European Union in the second half of 2023. This change will arrive at a key moment, as the EU will undoubtedly still be facing great economic, energy-related, military and geostrategic challenges.
However, the proximity of the European Parliament elections is complicating the new presidency, which are scheduled for May 2024. Without a doubt, the European Commission will want the 450 million inhabitants of the EU to respond to this challenging period with agility. Therefore, it will be essential for the decision-making process that its president, Ursula von der Leyen, and Pedro Sánchez, head of the Spanish Executive, be in tune. Moncloa will embark on this delicate mission in July 2023, after the local and regional elections and before the general elections at the end of the year, which will heighten the political tension in Spain and increase media scrutiny.
While fears about a possible return of COVID-19-related economic disruptions in Europe persist, the drums of a trade war continue to sound due to the rise of protective nationalism in the great powers (the United States and China).
Europe must seek its place in a new world trade configuration, despite the threat of internal fragmentation driven by political factors that endanger globalisation. Europe’s various trading blocs operate without internal tariffs, but they often work in opposition to each other. However, free trade is as vibrant as ever despite the negative predictions of so many international organisations; after exports to all trading partners fell in 2020 (-5.6 percent), they recovered in 2021 (+13 percent), and global trade closed 2022 at a record US$32 trillion —10 percent more in goods and 15 percent more in services, according to the United Nations Conference on Trade and Development. However, there are also bad omens for this year, with heightening geopolitical tensions and tightening financial conditions, but it is still too early to be certain how these will affect trade.
Pending the official agenda being prepared by the National Office of Foresight and Strategy (Oficina Nacional de Prospectiva y Estrategia del Gabinete de la Presidencia del Gobierno) together with more than 20 organisations of different affiliations at the European level, the central axes of the Spanish presidency likely will be the promotion of industrial strategic autonomy, with special attention given to the development of green, digital, biotech and artificial intelligence companies, as well as continuing with the welfare state social measures.
In a recent statement on Spain Investors Day, President Sánchez said that his road map would work “to define and detect where are the weaknesses, the vulnerabilities of Europe for the next decade, and where we have to build that strategic autonomy in order not to experience again what we went through during the grimmest months of the pandemic, when Europe, not only Spain, did not have the ability to manufacture such a basic element as masks.” The head of the Executive, who will take over the presidency from Sweden, said that the industrial modernisation of Europe will be enhanced “in this energy context so difficult, in this very complex year, and there being trade allies as important as the United States, that are looking after themselves with the economic policies that are putting in place.” With these words, Sánchez appears to be focusing on placing the EU in a prominent position in the race between the great powers for leadership in key energy and digital transition technologies, as well as in the defence industry. Von der Leyen made it clear at Davos that the EU has a specific plan for meeting the new regulatory regime established by the United States and China, which are supporting subsidies for non-polluting companies as long as they establish themselves in their respective countries.
This programme, known as the Green Deal Industrial Plan, is based on four principles related to clean technology manufacturing: streamlining bureaucratic procedures and access to the resources needed to advance clean tech, setting up financing schemes, training workers and establishing trade guarantees, and, finally, advocating for fair international competition. These principles involve very intensive regulation, which has since been superseded by the United States’ Inflation Reduction Act, whose rules are now shaping the international agenda. This situation shows that being a pioneer in regulation is not as important as having the ability to influence the international arena.
Among the strategic sectors at stake are semiconductors, pharmaceuticals and batteries. The latter is of special importance for Spain given its production of lithium, an essential component in electric batteries, and a very precious commodity in the European Union, whose dependence on imports of this metal exceeds 85%.
Undoubtedly, this scenario — so plagued with uncertainty — will make it more complex for the Spanish presidency to be successful and significant. One way or another, the European decisions coordinated from Madrid will be marked by one last ace von der Leyen has up her sleeve: the creation of a sovereign fund to help finance companies that can tout “made in EU” on their product labels. Von der Leyen announced that, simultaneously with the introduction of this fund, the rules on state aid will be “temporarily” relaxed so European industry can better compete with the United States, China and other regions. Here Spain must be vigilant in order to avoid letting this aid go primarily to the two great EU powers, Germany and France; Spain must also make sure that these subsidies do not become too long-lasting, thereby making Europe less competitive.
Undoubtedly, the Spanish government is in tune with this policy of public aid, as it has shown over the past three-plus years with its expenditure of 45 billion euros to combat COVID-19, inflation and the economic crisis caused by the Russia-Ukraine War. There are many who recognise that this spending has been necessary to avoid the social crises and large job losses experienced in past upheavals, but some also criticise the government for the worsening of the public deficit and the increase in government debt, an Achilles heel for public financing in an environment of rising interest rates.
It’s to Sánchez’s advantage that he will reach the presidency of the EU coasting on his good relations with Emanuel Macron’s France and Olaf Scholz’s Germany (the agreement for green hydrogen interconnection having been just extended to the three countries). But at the same time, unless effective action is taken in the coming months, he bears the burden of the country’s slow allocation of Next Generation EU and PERTE funds. This track record is not likely to demonstrate to Brussels that Spain can capitalise on future public aid to businesses and the development of the next EU Sovereign Fund. The delay in the allocation of the NextGen EU funds, as well as the confusion about their final distribution, evidences the inability of the Spanish administration to manage the 70-billion-euro initial allocation, something that has not gone unnoticed before the EU. Many feel that the process is going slower than expected and that Spain is lagging behind France and Germany, whose injections of funds into their respective industries have happened quickly.
In this next chapter of the council, the leadership and persuasive ability of Nadia Calviño, Spain’s first deputy prime minister, will be essential. Calviño, a former EU budget director-general, has spent 12 years in relevant positions in Brussels, is fluent in four languages, and will now need to use her extensive contacts and management skills to drive the most important decisions and prevent the migration of European industrial and technology companies to parts of the world with more favourable conditions.
On the other hand, in the face of emerging climate nationalism, the government can also count on the leadership of Teresa Ribera, Spain’s third deputy prime minister and minister for the ecological transition and demographic challenge. After her success establishing an Iberian gas price cap, Rivera has captained the European gas price pact after a long negotiation in which she did not hesitate to firmly and tactfully take on her counterparts in Germany and France until she achieved her goal.
The challenges for the Spanish presidency of the Council of the European Union are urgent and of the utmost importance. The presidency’s efforts to address these challenges should have the support of the mainstream political parties as a matter of state, but with the Spanish Parliament election and traditional confrontation, we do not foresee a smooth collaboration between government and opposition. This, inevitably, will detract from the mandate. This is the fifth time Spain has presided over the EU; the most recent was in 2010, and the country will not preside over it again for more than 13 years. If we are to take advantage of this clear opportunity for Spain — the fourth largest economy in the EU — to regain political weight before Brussels and displace Italy now that it is at an economic and political ebb, it is time to appeal to the Partido Popular’s European pragmatism. Spain is seen as a reliable leader for many small countries, and this opportunity to prove its mettle is a unique one; the two mainstream parties should be aware of this situation and work together to support the presidency. In a multipolar world, the contest for economic future, well-being and security is increasingly being waged in Europe.