ATHENS — The country that almost got kicked out of the eurozone is now running the powerful EU body that rescued it from bankruptcy. Greece’s finance minister, Kyriakos Pierrakakis, on Thursday beat Belgian Deputy Prime Minister Vincent Van Peteghem in a two-horse race for the Eurogroup presidency. Although an informal forum for eurozone finance ministers, the post has proved pivotal in overcoming crises — notably the sovereign debt crisis, which resulted in three bailouts of the Greek government. That was 10 years ago, when Pierrakakis’ predecessor described the Eurogroup as a place fit only for psychopaths. Today, Athens presents itself as a poster child of fiscal prudence after dramatically reducing its debt pile to around 147 percent of its economic output — albeit still the highest tally in the eurozone. “My generation was shaped by an existential crisis that revealed the power of resilience, the cost of complacency, the necessity of reform, and the strategic importance of European solidarity,” Pierrakakis wrote in his motivational letter for the job. “Our story is not only national; it is deeply European.” Few diplomats initially expected the 42-year-old computer scientist and political economist to win the race to lead the Eurogroup after incumbent Paschal Donohoe’s shock resignation last month. Belgium’s Van Peteghem could boast more experience and held a great deal of respect within the eurozone, setting him up as the early favorite to win. But Belgium’s continued reluctance to back the European Commission’s bid to use the cash value of frozen Russian assets to finance a €165 billion reparations loan to Ukraine ultimately contributed to Van Peteghem’s defeat. NOT TYPICAL Pierrakakis isn’t a typical member of the center-right ruling New Democracy party, which belongs to the European People’s Party. His political background is a socialist one, having served as an advisor to the centre-left PASOK party from 2009, when Greece plunged into financial crisis. He was even one of the Greek technocrats negotiating with the country’s creditors. The Harvard and MIT graduate joined New Democracy to support Prime Minister Kyriakos Mitsotakis’ bid for the party leadership in 2015, because he felt that they shared a political vision. Pierrakakis got his big political break when New Democracy won the national election in 2019, after four years of serving as a director of the research and policy institute diaNEOsis. He was named minister of digital governance, overseeing Greece’s efforts to modernize the country’s creaking bureaucracy, adopting digital solutions for everything from Cabinet meetings to medical prescriptions. Those efforts made him one of the most popular ministers in the Greek cabinet — so much so that Pierrakakis is often touted as Mitsotakis’ likely successor for the party leadership in the Greek press. Few diplomats initially expected the 42-year-old computer scientist and political economist to win the race to lead the Eurogroup after incumbent Paschal Donohoe’s shock resignation last month. | Nicolas Economou/Getty Images After the re-election of New Democracy in 2023, Pierrakakis took over the Education Ministry, where he backed controversial legislation that paved the way for the establishment of private universities in Greece. A Cabinet reshuffle in March placed him within the finance ministry, where he has sped up plans to pay down Greece’s debt to creditors and pledged to bring the country’s debt below 120 percent of GDP before 2030.

BRUSSELS — The European Commission on Tuesday slapped a red flag on Finland for spending too much and warned others to tighten their belts to avoid getting the same treatment.  The EU executive unveiled the full list of countries that are overspending, as part of the Commission’s biannual “European Semester” that checks whether governments are within the EU’s rules for public spending.  Red flags, known as excessive deficit procedures (EDPs), signal concerns about countries’ financial health to investors. Brussels can impose a fine if governments refuse to adopt measures to bring their finances back in line. Brussels reintroduced the EU’s rules for public spending last year after the Commission gave capitals free license during the pandemic, which plunged the EU’s economy into the worst recession since the Second World War. While the bloc’s economy has picked up this year, many governments are struggling to comply with the EU’s rules amid trade tensions with the U.S. and mounting defense budgets to deter Russian aggression. One of the countries on Russia’s doorstep, Finland, was reprimanded for exceeding the EU’s cap on budget deficits, which limits how much a country can spend beyond what it collects in taxes.  Economy Commissioner Valdis Dombrovskis. | Thierry Monasse/Getty Images The rules limit the deficit to 3 percent of a country’s economic output. Recent tweaks to the rules allow governments to spend an additional 1.5 percent of GDP on defense. But the numbers still don’t add up for Helsinki. “The deficit in excess of 3 percent of GDP is not fully explained by the increase in defense spending alone,” Economy Commissioner Valdis Dombrovskis told reporters in Strasbourg. Germany narrowly avoided the same punishment. Separately, the Commission checked whether governments’ expected spending in 2026 complies with their five or seven-year plans that were approved by Brussels. So far, Croatia, Lithuania, Slovenia, Spain, Bulgaria, Hungary, the Netherlands, and Malta aren’t doing enough. Failure to act could see Brussels reprimand the eight countries at the next European Semester in June.  POLITICO took a deeper look at some of the key countries and graded their current performances. FINLAND: E The Nordic state got a slap on the wrist from Brussels as its deficit is set to exceed the EU’s limit for the next two years. Once a paragon of fiscal stability, Finland is now in the same EDP basket as the indebted nations of France, Italy, and Belgium. As a result, Helsinki will have to reduce the deficit. That’s a tall order for a country facing overstretched social and health budgets, as well as a ballooning defense bill. ROMANIA: D+ Romania can breathe a sigh of relief after today’s announcement. Dombrovskis praised the country’s recent economic reforms and ruled out triggering the nuclear option — a suspension of the country’s payouts from the EU budget, which are worth billions.  But the country is not out of the woods. At 8.4 percent of GDP, its 2025 deficit remains by far the highest in the EU, and painful domestic reforms will be required to reduce it significantly in the years to come. GERMANY: C The country’s budget deficit is expected to reach 3.1 percent of GDP this year. That’s technically a breach of the rules. But Brussels refrained from punishing the bloc’s economic powerhouse, because the breach is “fully explained by the increase in defense spending,” the Commission said in a statement. But there is trouble ahead. Germany plans to continue its spending spree next year to juice growth, only curbing expenditure later. That won’t be easy, as China threatens the country’s export-driven economy and Chancellor Friedrich Merz’s grand coalition needs to deliver reforms to revive growth. Berlin is taking a huge gamble. Brussels too. FRANCE: C- France is in the middle of a budget crisis and is not even sure that it will manage to adopt the 2026 budget by the end of this year. That doesn’t seem to worry Brussels too much for the time being, especially considering that France received its EDP red flag in 2023. The Commission found that the French budget plans for next year are compliant with its recommendations and encouraged Paris to continue on this path.  But not even France’s prime minister knows what his budget for next year will look like. Sébastien Lecornu has pledged to bring the deficit down to 5 percent of GDP. But that goal is at risk, as contradictory amendments to the draft budget in parliament undermine the chances of a deal before Christmas. HUNGARY: F  Hungary is facing a worrying situation because it’s not making the necessary cuts in 2026 to exit the EDP. For now, the Commission has merely warned Hungary to cut spending in 2026. But if Budapest ignores such calls, Brussels might threaten to issue fines during its next budget review in Spring. Hungarian Prime Minister Viktor Orbán is unlikely to heed Brussels’ calls as the country is heading to the polls next spring and he faces the risk of losing power after almost a decade.  ITALY: B- Has Europe’s perennial fiscal bad boy turned good? That’s what it looks like, with Italy’s deficit set to fall to 2.6 percent of GDP next year, while government spending is forecast to stay below the limits imposed by the EU’s fiscal rules. That puts it on track to exit its EDP, if it can prove that debt is set to trend lower in the long term. Other good news: Rome’s tax take is trending above economic growth, helping to fill its coffers and pay down debt.  It’s not all good news. Italy remains the second-most indebted country in the EU. That isn’t changing next year, with government debt expected to increase to 137.9 percent of GDP. But any positive change is welcome, especially when it’s the class clown who is finally hitting the books.

It’s the political battle of the year: Germany vs. Brazil! German Chancellor Friedrich Merz said he and his nation’s press were oh-so happy to return home from U.N. climate talks in Belém, Brazil, in remarks that triggered a political firestorm. “We live in one of the most beautiful countries in the world. Last week I asked some journalists who were with me in Brazil: Which of you would like to stay here? No one raised their hand,” Merz said upon returning from Brazil. “They were all happy that, above all, we returned from this place to Germany.” Brazilian President Luiz Inácio Lula da Silva didn’t take that slight lying down. “He should have gone dancing in Pará,” Lula said about the state where Belém is situated. “He should have tasted Pará’s cuisine. Because he would have realized that Berlin doesn’t offer him 10 percent of the quality that the state of Pará offers.” But which is the better country? POLITICO took (an entirely unscientific) look at five key areas to see whether it’s Berlin or Rio de Janeiro, Beckenbauer or Pelé, and currywurst or feijoada that ultimately comes out on top. FOOD AND DRINK Vegetarians are the biggest losers here. Germany’s meat-driven cuisine is known for Sauerbraten, a heavily marinated dish usually made with beef and served with Knödel (potato dumplings, since you asked). They’ve also got Currywurst (sliced sausage covered in ketchup and curry powder) and Schnitzel (a thin, breaded slice of fried meat), along with countless ways to prepare potatoes, and also breads. Don’t forget the breads. Would you rather go for a Schnitzel with beer or a feijoada with fresh orange juice? | Ferdinand Knapp/POLITICO Brazil’s cuisine is, somehow, even more meat-heavy. Brazilians love a good churrasco (barbecue) and their daily feijoada (a stew of black beans with pork and beef, served with white rice). The South American country also offers a dazzling array of fresh juices, made from tropical fruits most tourists have never heard of — and, of course, delicious Caipirinhas if you’re looking for something with a bit more punch. Germany can match that, however, with its world-renowned beer culture (more on that later). On the dessert front, German cakes are great, but Brazil’s açai bowls — a dish made of frozen and mashed fruit of the açai palm — have made it to European stores and hipster brunch cafés. It’s a narrow win for Brazil, but they do lose points for putting banana and chocolate on pizza. Brazil: 8 out of 10 Germany: 6 out of 10 SPORTS Brazil and Germany are two of international football’s heaviest hitters, and the Seleçao edges Die Mannschaft in the number of FIFA Men’s World Cups won, by 5 to 4. Brazil also beat Germany 2-0 in the 2002 World Cup final in Japan. But (and it’s a big but) in the 2014 World Cup semifinal, Germany crushed Brazil 7-1 at home in Belo Horizonte. The game was a major embarrassment for Brazil, and the national football team has arguably never recovered. After decades of iconic Brazilian players, from Pelé to Jairzinho to Sócrates to Zico to Romário to Ronaldo to Ronaldinho, the talent pipeline has run somewhat dry. Germany has produced some iconic players of its own — see Gerd Müller, Franz Beckenbauer, Lothar Matthäus and Manuel Neuer — but Brazil edges it here. Germany has also won two Women’s World Cups, to Brazil’s zero. While the countries don’t directly face off too often in other sports, two of the most legendary drivers in Formula One history — Ayrton Senna and Michael Schumacher — hail from Brazil and Germany, respectively. World famous Maracanã Stadium in March 2014, just months before the World Cup in Brazil. | Ferdinand Knapp/POLITICO Senna won three world championships before his untimely death in a crash in 1994, while Schumacher won seven titles before retiring in 2012. He suffered a serious brain injury in a skiing accident in 2013 and has been in private treatment ever since. On the tennis court, German stars Steffi Graf and Boris Becker won a combined 28 individual grand slam titles, which dwarfs the three won by Brazil’s best-ever player, Gustavo Kuerten. Brazil: 8.5 out of 10 Germany: 9 out of 10 CULTURE In the battle of the carnivals, Rio de Janeiro has the clear advantage over Cologne, not just in terms of the number of participants and visitors, but also in that you’re unlikely to have to wear your winter coat under your colorful costume in Rio. Brazil’s northeastern city of Salvador also boasts of having the world’s largest street carnival. However, carnival is important in both countries and is even dubbed “the fifth season” in Germany. Germany scores strongly because of Oktoberfest, which is of course mostly held in September (who said German efficiency was a myth?) and is the biggest celebration of beer, sausages (and flatulence) on the planet. It also gives us the annual sight of the chancellor raising aloft a massive festbier. In the battle of the carnivals, Rio de Janeiro has the clear advantage. | Ferdinand Knapp/POLITICO Not to be outdone, Brazil has its own Oktoberfest in Blumenau, a city in Santa Catarina state. Local authorities say it’s the second-biggest Oktoberfest in the world. Don’t forget Germany’s famous Christmas markets, although the impact has been dulled by the fact that you can now find them across Europe. Brazil: 9 out of 10 Germany: 7 out of 10 ECONOMY The shine has faded off what was once Europe’s superstar economy. Germany’s famed industry has been battered by the twin shocks of soaring energy prices in the wake of Russia’s invasion of Ukraine and China’s turn toward high-tech manufacturing. The Asian country, Germany’s largest trading partner, is increasingly becoming a competitor and was the world’s largest exporter of cars in 2023. As a result, the German economy has barely grown since 2020, making it the worst-performing major economy in the EU. Brazil shines by comparison, having registered brisk growth of around 3 percent the last two years, and this year gross domestic product is expected to expand by around 2.2 percent. The South American country is an agricultural powerhouse and the world’s largest exporter of soybeans. It also holds the distinction of being one of the few developing countries to grow a domestic aerospace industry, with the world’s third-largest civilian airplane maker, Embraer. Brazil: 6 out of 10 Germany: 2 out of 10 NATURE Germany has diverse landscapes, from the pine woods of the flat north to the famous picture-postcard Black Forest in the hilly south. Brave tourists can take a swim in the (always refreshing!) North and Baltic Seas or hike and ski in the beautiful Alps. But none of this can match the biodiversity of Brazil’s massive Amazon rainforest (often called the “lungs of the world”) and the coast’s long, panoramic sandy beaches. And don’t forget Iguazu, the largest waterfall system in the world. The vibrating city of Rio de Janeiro alone combines natural contrasts you won’t find in Germany: The world-famous Copacabana and Ipanema beaches and the lush rainforest of Tijuca National Park are right next to each other, with Christ the Redeemer rising from the hills as Brazil’s iconic landmark. Brazil: 10 out of 10 Germany: 7 out of 10 Starnberg Lake in Bavaria, Germany | Ferdinand Knapp/POLITICO FINAL SCORE Brazil: 41.5 out of 50 Germany: 31 out of 50 It’s official (sort of), Brazil is better than Germany! Perhaps Merz should take Lula’s advice and go back so he can appreciate more of what Brazil has to offer.

BRUSSELS — The EU’s economy is set to expand by 1.4 percent this year, driven in large part by Poland’s and Spain’s growth. That’s according to the European Commission’s forecasts, presented on Monday. Outperforming most European countries, Warsaw and Madrid are set to grow by 3.2 percent and 2.9 percent in 2025. The EU’s economic outlook is a slight improvement from last spring’s forecast at 1.1 percent. The Commission expects the bloc’s economy to continue growing at a rate of 1.4 percent next year, despite the U.S.’ slapping 15 percent tariffs on European exports. In further good news, the unemployment rate is set to remain below 6 percent through 2027, while inflation will shrink to 2.2 percent within the same time period. Economy Commissioner Valdis Dombrovskis urged the bloc to capitalize on the momentum. “Now, given the challenging external context, the EU must take resolute action to unlock domestic growth,” such as “simplifying regulation, completing the Single Market, and boosting innovation,” Dombrovskis said in a statement. In a striking reversal, the poster boys of the eurozone crisis — Portugal, Greece, Cyprus, Ireland, and Spain — are set to outperform countries such as Germany, Finland, and Austria that were once seen as economic models. In a worrying sign for Europe, its three largest economies — Germany, France, and Italy — are set to experience weak growth over the coming years. Once the engine of European growth, Germany is set to expand by 0.2 percent in 2025 and 1.2 percent in 2026 and 2027. Italy is estimated to grow at an even more sluggish pace — 0.4 percent in 2025 and 0.8 percent in 2026 and 2027 — despite being the main beneficiary of the EU’s post-COVID recovery program. This stands in contrast to the strong economic growth in 2025 in Southern and Eastern countries such as Malta (4 percent), Bulgaria (3 percent), Lithuania (2.4 percent) and Croatia (3.2 percent).

VIENNA — Donald Trump’s trade war has been less damaging for Europe’s economy than widely feared, and there is a hope that a stable recovery is underway, European Central Bank governing council member Martin Kocher said.  “We have not seen the strong reduction in growth rates and the inflationary effects of the trade conflicts that were anticipated in March and April,” the Austrian National Bank governor told POLITICO in an interview on Wednesday. On the same day that a closely-watched business survey pointed to an unexpected and marked pickup in activity in October, Kocher suggested there were emerging signs of an economic pickup. Kocher, who served as economy minister before joining the central bank in September, nonetheless warned against complacency. “I don’t want to sugarcoat what we are seeing,” he said. “This is the highest level of tariffs since the 1930s, and there will be effects on the world economy.” The impact on the eurozone will be exceptionally difficult to predict because we have not experienced anything similar in nearly 100 years, Kocher said, adding that this was the primary reason for diverging views about the ideal monetary policy path ahead on the ECB’s governing council. Falling inflation has allowed the ECB to cut its key deposit rate eight times since the middle of last year, bringing it down from a record-high 4 percent to 2 percent currently — a level that the Bank says is no longer restricting the economy. A behavioral economist rather than a monetary one, Kocher is one of the newest faces on the governing council, having succeeded Robert Holzmann earlier this year. Most analysts expect a more moderate approach from him than from the veteran hawk Holzmann, who was often the lone dissenter on the rate-setting body. The governor’s office leaves no doubt there is a change in style underfoot — the wooden desk replaced by a modern, height-adjustable table and new, colorful paintings by Austrian artists Wolfgang Hollegha and Hans Staudacher on the wall. While policymakers unanimously agreed to keep interest rates on hold last week, ECB President Christine Lagarde revealed that “there are different positions and different views” on whether the Bank may yet have to cut them one more time. “The difficulty is to assess whether most of the effects of the trade conflicts have already materialized or whether we will see them trickle down in the economy over the next couple of months and perhaps even years,” he said. “I’m convinced that we’ll see more effects over time. But whether they will be overall inflationary, or rather disinflationary in the euro area, is difficult to tell.” RISKY OUTLOOK Kocher explained it’s reasonable to expect deflationary pressure from the rerouting of trade from China to Europe that was flowing to the U.S. before the trade conflict began, but it’s equally plausible that geopolitical conflicts may hamper supply chains and boost prices. And things can change very fast. “Last week’s APEC summit with some interim agreement between the U.S. and China might have changed the outlook again,” he noted. While policymakers unanimously agreed to keep interest rates on hold last week, ECB President Christine Lagarde revealed that “there are different positions and different views” on whether the Bank may yet have to cut them one more time. | Nikolay Doychinov/AFP via Getty Images At the summit, the U.S. and China committed to lowering the temperature in their trade and tech rivalry. The so-called “Gyeongju Declaration” called for “robust trade and investment” and committed leaders to deepen economic cooperation. In this environment, “we have to wait and see to what extent [risks] materialize” as it’s difficult to take rate decisions “primarily based on the risk outlook,” Kocher said. As things stand, he said, the ECB would need to “see some risk materializing that would reduce … the GDP projection to a significant extent, and that would lead perhaps to some disinflationary effects” before it discussed cutting again. The governing council next meets in December, when a new set of forecasts will include estimates for growth and inflation in 2028 for the first time. Kocher warned against placing too much emphasis on the 2028 numbers, which many economists and investors focus on as an indication of whether the Bank is on track to meet its medium-term inflation target. While the forecast will offer more certainty about the outlook for 2026 and 2027, that for 2028 will be little more than “indicative,” he argued. “You always have to take projections with a grain of salt. And the further away the projection horizon, the larger the grain of salt.” GREEN BATTLE CONTINUES Kocher was speaking on the day that a majority of the EU’s 27 governments decided to water down their collective target for pollution reduction, seen by many as a sign that political momentum has swung after half a decade of green victories on climate policy. But Kocher fiercely defended the ECB’s commitment to green central banking. “Whatever is decided today, there’s no significant change in the targets of the European Union to become climate neutral in the near future,” Kocher said. And so long as it does not interfere with the ECB’s inflation-targeting mandate, the ECB has the “freedom” to support those objectives. He said the governing council had reaffirmed the view, even in the last couple of months, that it is essential to take climate risks into account in its projections, citing the massive impact that extreme weather events can have on growth and inflation. In contrast to his predecessor, Kocher also backs the inclusion of a climate criterion in the Bank’s collateral framework, a step that could one day make it more expensive for polluting companies than for green ones to borrow money. Critics of green central banking have argued that it is up to elected politicians, rather than central bankers, to create incentives for green business. But Kocher, a former downhill racer who has seen Austria’s key tourism sector struggle with an ever-shorter ski season, is unconcerned. “As long as it does not create a trade-off with our inflation target, I am perfectly fine with it,” he said.

Andrea Dugo is an economist at the European Centre for International Political Economy. In the late 1400s, Italy was the jewel of Europe. Venice ruled the seas; Florence dominated art and finance; and Milan led in trade and technology. No corner of the Western world was more advanced. Yet, within decades, both its political independence and economic primacy were gone. Europe today risks a similar fate. Once the envy of the world, the bloc’s lead has eroded. The EU isn’t just politically divided, it’s also falling behind in industries that will define the rest of this century. Young talent is fleeing for the U.S. and Asia, while its economy increasingly resembles an open-air museum of past achievements. Whether in growth, technology, industry or living standards, Europe is in jeopardy of becoming a province in a world defined by others. And it stands to learn from Italy’s decline. The warning signs are unmistakable: Since 2008, the EU’s GDP expanded by just 18 percent, while the U.S. grew twice as fast and China grew nearly three times bigger. Tourism across the continent is still booming, of course, but the millions chasing their Instagram-able escapes aren’t enough to offset stagnation, and also bring costs. The bloc’s fall in living standards echoes Renaissance Italy as well. Around 1450, Italy’s income per person was 50 percent higher than Holland’s. A century later, the Dutch were 15 percent richer, and by 1650, they were nearly twice as rich. Modern Europe is slipping even faster than that. In 1995, Germany’s GDP per capita was 10 percent higher than America’s, whereas today, the U.S. is 60 percent higher. At this pace, Germany’s prosperity levels could shrink to a third of its transatlantic partner’s within a generation. Much like in Renaissance Italy, this economic malaise reflects a deep technology gap. Once the queen of the seas, Venice clung to old technology and paid the price. Its galleys, superb in calm Mediterranean waters, were no match for the ocean-going caravels that carried Spain and Portugal across the world. Modern Europe is now doing the same: On artificial intelligence, the EU invests barely 4 percent of what the U.S. does. Today, OpenAI is valued at $500 billion, while Europe’s biggest AI startup Mistral is worth just $15 billion. And though it pioneered the science in quantum, Europe trails behind in commercialization — a single U.S. startup, IonQ, raised more capital than all the bloc’s quantum firms combined. Even when it comes to batteries, Sweden’s much-touted Northvolt collapsed in March, only to be snapped up by a Silicon Valley startup. Traditional industries are faltering too. Taken together, Germany’s top three carmakers are worth just an eighth of Tesla. Ericsson and Nokia, once world leaders in mobile network technology, lag behind Asian rivals in 5G. And France’s Arianespace, once dominant in satellite launches, now hitches rides on tech billionaire Elon Musk’s rockets. The problem isn’t invention, though — it’s scale. Despite its top engineers and universities, nearly 30 percent of the bloc’s unicorns have transferred to the U.S. since 2008, taking its most entrepreneurial spirits with them. It seems the continent sparks ideas, while America fuels them and profits — yet another pattern that mirrors Italy, which supplied talent as others built empires. Its greatest explorers like Columbus, Cabot, Vespucci and Verrazzano had also trained at home, only to sail under foreign flags. The prescriptions are known. Former Italian Prime Minister Mario Draghi detailed them in his report on the EU’s future. | Thierry Monasse/Getty Images The fundamental issue in both cases is political. Like Italy’s warring city-states in the 1500s, today’s Europe is divided and feeble. Capitals quarrel over energy, debt, migration and industrial policy; a common defense strategy remains only an aspiration; and ambitious plans for joint technology spending or deeper capital markets get drowned in debate. This disunity is what doomed Italy as it fell prey to foreign powers that eventually carved up the peninsula. And the bloc’s current divisions leave it similarly vulnerable to global competitors, as Washington dictates defense; Russia menaces the continent’s east; China dominates supply chains; and Silicon Valley rules the digital economy. But is this all fated? Not necessarily. The EU has built institutions Renaissance Italy could never have dreamed of: a single market, a currency, a parliament. It still hosts world-class research institutions and excels in advanced manufacturing, pharmaceuticals, aerospace, green energy and design. The continent can still lead — but only if it acts. Sixteenth-century Italy had no such chance. Geography trapped it in the Mediterranean while trade routes shifted to the Atlantic, and commerce stagnated. New naval technologies left its fleets behind, and its brightest minds sought their fortunes abroad. But Europe faces no such limit. Nothing is stopping it other than its own political timidity and fractiousness. The bloc needs to accept costs now in order to avoid the greatest of costs later: irrelevance. It needs to invest heavily in frontier technologies like AI, quantum, space and biotech, while also building real defense and creating deep capital markets so that start-ups can scale up at home. The prescriptions are known. Former Italian Prime Minister Mario Draghi detailed them in his report on the EU’s future. What’s missing is political will. Once Europe’s beating heart, Italy eventually became a land of visitors rather than innovators. And history’s lesson is clear: Its culture endured, but its power withered. The EU still has time to avoid that destiny. Europeans can either wake up or resign themselves to becoming a continent of monuments and echoing memories.

Listen on * Spotify * Apple Music * Amazon Music Ein Montag mit zwei Baustellen für den Kanzler: Friedrich Merz kämpft parteiintern mit der Frage nach der Brandmauer zur Af – und industriepolitisch mit der schwächelnden Chemieindustrie. In Berlin präsentiert er seine Linie gegen Rechts, in Hannover spricht er beim Kongress der Industriegewerkschaft Bergbau, Chemie, Energie. Rasmus Buchsteiner analysiert beide Baustellen.  Im 200-Sekunden-Interview fordert Michael Vassiliadis, Chef der Chemiegewerkschaft, einen echten Chemie-Gipfel, sinkende Energiepreise und mehr Verantwortung von deutschen Managern: Standortflucht ist keine Lösung, sagt er. Und Hans von der Burchard berichtet über das bevorstehende Treffen der EU-Außenminister: neue Sanktionen gegen Russland, Ungarns Blockade und Deutschlands Botschafter-Rückruf aus Georgien. Das Berlin Playbook als Podcast gibt es jeden Morgen ab 5 Uhr. Gordon Repinski und das POLITICO-Team liefern Politik zum Hören – kompakt, international, hintergründig. Für alle Hauptstadt-Profis: Der Berlin Playbook-Newsletter bietet jeden Morgen die wichtigsten Themen und Einordnungen. Jetzt kostenlos abonnieren. Mehr von Host und POLITICO Executive Editor Gordon Repinski: Instagram: @gordon.repinski | X: @GordonRepinski.

BRUSSELS — After three years of reasoning, pleading and conceding, the EU has had enough. On Monday, the bloc’s 27 member countries are expected to back a new bill that will permanently cut Russian gas supplies to Hungary and Slovakia — whether they like it or not. Since Moscow launched its all-out war in Ukraine in 2022, the EU has weakened the Kremlin’s long-held grip over the bloc’s energy supply, all but eliminating its imports of Russian oil, coal and gas. But throughout that bitter energy divorce, Budapest and Bratislava have stubbornly refused to play ball. Repeatedly arguing that they have no real alternative, their Russia-friendly governments complained that quitting Moscow would mean exploding prices for consumers. Experts largely dispute those claims. And in any case, EU capitals are ready to overrule them. While Russia repeatedly pummels Ukraine’s energy infrastructure, “billions of euros have been paid … by Hungary and Slovakia to Russia,” said Lithuanian Energy Minister Žygimantas Vaičiūnas. “They are using this for their war machine … this is really not acceptable.”  “Now, it is time to demonstrate … political will on the EU level,” he told POLITICO. NO MORE EXCEPTIONS Since Vladimir Putin first ordered troops into Kyiv, Brussels has slapped an embargo on Russian crude, fuel and coal entering the bloc; it’s imposed a $47.60 per barrel price limit on Moscow’s global oil sales, below the market rate; and it’s whittled down the Kremlin’s share in the EU’s gas market from 45 percent to 13 percent.  But Hungary and Slovakia have repeatedly dug their heels in and held up sanctions, winning carve-outs that have allowed them to keep importing Russian crude via the Druzhba pipeline through Ukraine, and blocking efforts to target Moscow’s gas and nuclear sectors. In fact, the two countries are steadily increasing their fossil fuel payments to Moscow, according to Isaac Levi, Russia lead at the Helsinki-based Centre for Research on Energy and Clean Air think tank. Budapest and Bratislava have paid Russia €5.58 billion for fossil fuel imports so far this year, he said, already beating the €5.56 billion they forked out last year. Realizing its consensual approach had hit a wall, the European Commission in June decided to change tack. The EU executive unveiled a legal proposal that would impose a ban on Russian gas, starting from next year for short-term contracts and ending in late 2027 for long-term deals. Unlike sanctions, which require unanimity from all EU countries, the proposal — billed as a trade measure — only needs a qualified majority of capitals to approve it, effectively removing Hungary and Slovakia’s veto power over the draft law. Since Vladimir Putin first ordered troops into Kyiv, Brussels has slapped an embargo on Russian crude, fuel and coal entering the bloc; it’s imposed a $47.60 per barrel price limit on Moscow’s global oil sales, below the market rate; and it’s whittled down the Kremlin’s share in the EU’s gas market from 45 percent to 13 percent.  | Contributor/Getty Images On Monday, EU energy ministers will rubber-stamp the bill, sending a signal that they are ready to override both nations before they enter final negotiations with the European Parliament. “We’ll reach an agreement despite their opposition,” said one senior EU diplomat, who, like others for this story, was granted anonymity to speak freely on closed-door discussions. “It’s not an easy subject, but I believe we’ll get there.” LANDLOCKED, NOT BLOCKED In the run-up to the vote, the two countries have pulled out all the stops in a bid to scupper a deal. Slovak Prime Minister Robert Fico has vowed to block the EU’s 19th sanctions package against Russia unless he wins concessions on the gas ban, otherwise known as REPowerEU. But EU countries are holding strong. “That’s always the case, that they are finding ways to make their exit strategies,” Vaičiūnas said, “but now we have to really take a strong [stance] on … REPower.” In the meantime, the two countries have continued to argue the law threatens their energy security, will raise prices for consumers and hurt their heavy industry. Slovak Prime Minister Robert Fico has vowed to block the EU’s 19th sanctions package against Russia unless he wins concessions on the gas ban, otherwise known as REPowerEU. | Contributor/Getty Images Hungary’s state-owned energy firm MVM currently has a long-term contract with Russia’s Gazprom until 2036, as well as shorter-term seasonal deals. Slovak firm SPP is bound by its deal with the Kremlin-controlled export monopoly until 2034.  After MEPs agreed on their negotiating stance on the bill last week, Budapest’s Foreign Minister Péter Szijjártó called the text “a direct attack on Hungary’s energy security.”  It “sets back our economic performance, and threatens the low utility costs of Hungarian families,” he wrote on social platform X. “We won’t let this happen!!” “REPOWER IS A NONSENSICAL IDEOLOGICAL MOVE,” Fico fumed earlier this month. The Hungarian foreign ministry and the Slovak economy ministry did not respond to POLITICO’s requests for comment. But the industry isn’t as vociferous. The proposal is “probably not cataclysmic,” said one Hungarian oil and gas sector insider. “The government and politicians do cry wolf — let’s see if this wolf really comes.”  It is true the bill will likely raise prices in the region by “5 to 10 percent” in the midterm, said Tamás Pletser, an oil and gas analyst at Erste bank. But if the Commission works with countries to lower gas transit fees, that could eliminate “up to 40 percent” of the price hike, he added. Meanwhile, MVM is quietly signing new gas deals, Pletser added. Hungary can also find alternatives via liquefied gas from Western Europe and Greece, he said, as well as a new drilling project in Romania from mid-2027. The industry is “absolutely” ready, he said. The EU executive is nonplussed, too. “The measures have been designed to preserve the security of the EU’s energy supply while limiting any impact on prices,” said one Commission official. Whether or not it leads to price increases, EU capitals are ready to pull the trigger.  “They didn’t do much to diversify, sabotaged sanctions and had quite a lot of time,” said a second EU diplomat. “There is no other way [than] to make them.” “It’s not yesterday that we started talking about phasing out Russian gas,” said a third EU diplomat. “Russia is not a partner — it’s a problem. It’s time to stop pretending it is not.”

The European Commission is considering tying pension reform to cash payouts from the EU’s next €2 trillion budget as it attempts to protect member countries’ finances from a looming demographic crisis. Three EU senior officials told POLITICO that the EU executive’s economic and finance legislative arms are looking into buttressing countries’ creaking state pension systems by recommending retirement savings policies to individual countries. If EU capitals ignore these country-specific recommendations, or CSRs, then they might not get their full share of the EU’s seven-year budget from 2028. “Our job in the Commission is to help countries do the difficult stuff,” said a senior Commission official, who, like others quoted in this story, spoke on the condition of anonymity to speak freely. “CSRs would be well suited to do it” by “linking reforms to investment.” The EU faces a toxic cocktail of high debt, an aging population and declining birthrates. Combined, they will cripple any public “pay-as-you-go” pension system that relies on taxpayers to provide retirees with a source of income. That’s a problem today as well as tomorrow. Over 80 percent of EU pensioners relied on a state pension as their only source of income in 2023. That overreliance has left one in five EU citizens above the age of 65 at risk of poverty, the equivalent of 18.5 million people. Brussels’ goal is twofold: Alleviate the pressure on the state coffers to keep pensioners afloat, and help create a U.S.-style capital market by putting people’s long-term savings to work. The idea, while well-intended, would be politically difficult and has deputy finance ministers wincing at the thought. Pension policy lies well outside of the EU executive arm’s legal reach. Even then, the risks of tying EU funds to politically toxic issues could spell disaster for governments, especially when democracy’s most loyal participants are above the age of 50. “You can’t buy pension reform,” said a deputy finance minister. “It’s going to hit the nerve of what democracy is about.” Over 80 percent of EU pensioners relied on a state pension as their only source of income in 2023. | Dumitru Doru/EPA Pension reform also has a habit of bringing protesters onto the streets. In Brussels, police clashed with trade unions on Tuesday, who were demonstrating over austerity measures that include raising the age of retirement from 65 to 67 by 2030. Belgium got off lightly when compared to France, which witnessed months of protests in 2023 when President Emmanuel Macron raised the retirement age from 62 to 64. Even then, France’s recently reinstated prime minister, Sébastien Lecornu, announced Tuesday that he’d put Macron’s pensions reforms on ice to overcome a parliamentary crisis that’s made it impossible to pass a budget. Postponing the reforms could cost Paris up to €400 million next year at a time when the government tries to tighten its belt and reduce the country’s ballooning debt burden. The Commission’s focus would stop short of setting retirement age or mandating monthly payouts to pensioners. Brussels’ reform plans instead home in on incentivizing citizens to save for retirement and encouraging companies to offer corporate pension plans to employees. CSRs are part of an annual fiscal surveillance exercise that the Commission uses to coordinate economic policies across the bloc. These recommendations are negotiated with EU capitals in a bid to fix a country’s most pressing economic problems. The Commission doesn’t consider this coercion, just sound economics. “If it’s on pensions, then so be it,” a second senior Commission official said. POST-PANDEMIC CARROTS AND STICKS EU capitals have had a habit of ignoring CSRs in the past. That could change if the Commission adds cash incentives, an idea that was born out of the EU’s €800 billion post-pandemic recovery fund. The Commission also saw an opportunity to incentivize governments to enforce costly reforms to modernize the bloc’s economy by setting targets that’d unlock EU funds in tranches. For countries like Spain, these included pension reform. The carrot and stick strategy proved such a hit within the Berlaymont that it wants to use the same system in the next EU budget, especially if it helps add teeth to CSRs. Not everyone’s a fan. The mountains of paperwork that governments had to amass to prove they’d met the Commission’s demands slowed progress, leaving hundreds of billions of euros on the table. “We don’t know why the Commission is so fond of this model,” said another deputy finance minister, who poured cold water on the idea. “[Pension reform is] hugely controversial. I highly doubt anyone’ll do it.” Giorgio Leali contributed reporting from Paris.

LONDON — For years, Labour didn’t want to talk about Brexit. It’s changed its mind. As the 10th anniversary looms of Britain’s vote to the leave the European Union, senior ministers in the ruling center-left Labour Party are going studs up — daring to pin the U.K.’s sluggish economic performance on its departure from the trading bloc. “There is no doubting that the impact of Brexit is severe and long-lasting,” Chancellor Rachel Reeves said in an interview broadcast on Wednesday. “I’m glad that Brexit is a problem whose name we now dare speak,” Health Secretary Wes Streeting, another staunch ally of Keir Starmer, told a well-heeled literary festival audience in the leafy county of Berkshire on Monday. Senior government officials insist the reason for this week’s interventions is simple — rolling the pitch for bad news in Reeves’ Nov. 26 budget. Britain’s productivity over the last 15 years is expected to be downgraded in a review by the Office for Budget Responsibility watchdog. Officials expect it to say explicitly that Brexit had a larger impact than first thought — leaving Reeves with no choice but to talk about the issue. Others in Starmer’s government, though, also spy a link to the prime minister’s wider strategy to challenge Reform UK leader Nigel Farage in a more muscular way. Labour ministers are seeking to paint Tory leaders and Farage — one of Brexit’s biggest champions — as politicians who took Britain out of the EU without answers, contrasted with the (still-limited) deal that Labour secured with Brussels in May. But these strategies, and particularly the way they are voiced, create a tension within government. Some aides and MPs fear they will be perceived to blame Brexit voters, reopening the bitter politics that followed the 2016 vote and driving them further toward Farage. This risk rises, argued one Labour official, when the government line strays beyond a narrow one of attacking the implementation or Farage and into the consequences of Brexit itself. The official added: “You can’t just go around blaming Brexit, because it’s saying voters are wrong.” LAYING THE GROUND Reeves’ intervention this week did not come out of the blue. “I’m glad that Brexit is a problem whose name we now dare speak,” said Health Secretary Wes Streeting, another staunch ally of Keir Starmer. | Dan Kitwood/Getty Images Nick Thomas-Symonds, Starmer’s minister negotiating post-Brexit trading rules with the EU, pointedly turned up at the Spectator — a magazine once edited by Boris Johnson — in August to make his pitch for a new relationship. Armed with statistics about the Brexit hit to exports, he said: “Behind every number and statistic is a British business, a British entrepreneur, a British start-up paying the price.” Starmer (who campaigned for a second referendum in 2019) is said to have liked what he heard. In his party conference speech in September the PM went a step further, attacking politicians “who lied to this country, unleashed chaos, and walked away after Brexit,” while also hitting out at those responsible for the “Brexit lies on the side of that bus.” The shift in No. 10 over recent months has been informed by focus groups and polls that show many Britons think Brexit was implemented badly, said one minister. “I think it’s very risky,” the minister added. “But it’s a gamble they’ve decided to take because they can see which way the wind is blowing.” It has also been encouraged by some campaign groups and think tanks. The Labour-friendly Good Growth Foundation shared a report with the government in May saying 75 percent of Labour-to-Reform switchers (out of a sample of 222) would support co-operation with the EU on trade and the economy. One Labour MP added: “It’s totally the right strategy. Just look at the maths. It’s, like, 70-30 for people saying Brexit was a bad idea. It’s just where people are.” (A July poll by More in Common found 29 percent would vote to leave and 52 percent to remain if the 2016 referendum was today. The rest would not vote or did not know.) Supporters of Starmer’s strategy believe the May deal — which will ease some trade barriers and sand off the hardest edges of Boris Johnson’s Brexit — allows the government to sound more positive. The government is “in a really confident position on this” and “actively negotiating” solutions, a second minister argued. Labour officials also believe they can hammer Farage as a man without the answers to complex problems such as returning migrants to Europe. One argued the Reform leader promised to leave the EU for stronger borders and a better NHS, but did not “do the work” to show how it would happen. Labour aides also note that Farage did not mention Brexit directly in his recent conference speech — instead focusing on issues such as net zero, government waste and immigration. (Challenged on this criticism, a Reform spokesperson texted a statement with the party’s nickname for Reeves: “Labour can try any excuse they like, but they can’t escape the reality that Rachel from accounts has the U.K. economy flatlining.”) PITCH TO THE LEFT One group that will lap up any anti-Brexit noise is Starmer’s own party. The first minister quoted above said the pivot had gone down well with their local Labour members, many of whom have long viewed Brexit as a mistake. “There’s been a feeling in the party and in government that we have been alienating our own members a bit by trying to appeal to Reform voters,” the minister said. “It’s not gone unnoticed by our faithful — it’s been seen as something finally for them.” Anti-Brexit activist Steve Bray holds a ‘Stop the Brexit mess’ placard during a protest in Parliament Square calling on the government to rejoin the European Union. | Vuk Valcic/SOPA Images/LightRocket via Getty Images Some in Labour also believe that talking about the harms of Brexit could slow a drift of left-wing voters towards the Green Party and Liberal Democrats. The minister added: “If you are looking at younger voters, the polls are saying we’re losing them in their droves to more progressive parties.” But worried Labour strategists want to keep the messaging tight and nuanced, not drift back into a pro-EU comfort zone. This means keeping the focus on jobs, the cost of living and borders — bread-and-butter issues touched by Brexit. “Nobody is suggesting we relitigate 2016,” said the second minister quoted above. This is especially true now that Labour has implemented policies that could not have been done inside the EU, such as economic deals with the U.S. and India — and even the controversial 20 percent Value Added Tax on private school fees. A second Labour MP said: “We’re not going to rejoin, but we can at least say that it went badly and has harmed the economy.” A third Labour MP added: “I think now it’s happened, we can discuss if it was done well. It’s certainly felt like an elephant in the room while there was a general consensus that our economy was amorphously fucked. There is always a danger — but this pretence it was without impact was treating the public like fools.” Nuance can become lost in a world of partisan social media, though. One person who speaks regularly to No. 10 said: “I was surprised that they took that on as a new narrative … it is a risky strategy. You’ve got to be careful about how you frame that — to blame what people voted for, not them.” Farage could also try to turn Labour’s strategy on its head. Luke Tryl, Executive Director of the More in Common think tank, said Brexit voters in focus groups often believe it has gone badly — but tend to blame politicians “rather than saying it could never have worked.” This exposes a flaw in Labour’s policy of attacking Farage, Tryl argued: “It leaves Farage able to say ‘if I am in charge, I will do a proper Brexit and get the benefits.’” OUR FRIENDS IN EUROPE Labour’s stance may, at least, go down well in Brussels. Many in the EU (naturally) also think Brexit has gone badly, and showing a willingness to open up about problems might help Thomas-Symonds — who is in the process of negotiating a deal to smooth the trade of food, animals and plant products across the channel by aligning with EU rules, the boldest step back into Brussels’ orbit yet. Anand Menon, director of the UK in a Changing Europe think tank, said: “[U.K. ministers] are ramping up the rhetoric, saying we’ve got this, we need to implement it fast … There’s a lot of deadlines coming up, and they want movement, and they want to show a sense of enthusiasm.” But Menon was skeptical about whether it will make any difference. He added: “For all this newfound enthusiasm, actually, the EU aren’t going to let them get much closer. “So it’s probably a doomed strategy anyway.” Bethany Dawson and Jon Stone contributed reporting.