The EU will on Thursday unveil plans to supercharge its finance industry, tearing up swathes of rules in a bid to take on Wall Street. The package, which is massive in scope and ambition, would amend at least 10 financial laws to crack down on protectionism and unclog the EU’s financial plumbing. But Brussels’ ambitions to create a U.S.-style financial market will reopen political wounds, especially its plan to create a powerful EU watchdog for financial markets. Despite the bloc’s urgent need for private investment, progress could be bogged down by political divisions over the strategy. “If we’re stuck in a never-ending discussion about how to organize supervision … that will not take us closer to our objective,” Swedish Minister for Financial Markets Niklas Wykman said. The Commission’s overarching goal is to remove barriers to investment in the bloc, allowing more money to flow to struggling businesses so the EU can better keep up with economic powerhouses like the U.S. and China. With national budgets under strain from a bruising pandemic and years of inflation, Brussels is hoping to unlock €11 trillion in cash savings held by EU citizens in their bank accounts to breathe life into the economy. It plans to do that by breaking down technical barriers and busting protectionism between the EU’s 27 national money markets, as well as by changing rules that create national barriers to finance flows and by creating a powerful EU watchdog for financial markets. The EU’s finance chief, Maria Luís Albuquerque, who has led work on the revamp, told POLITICO in an interview: “It’s going to be a difficult discussion, of course, but these are the ones worth having, right?” | Dursun Aydemir/Anadolu via Getty Images Some capitals, though, view the proposal as a power grab and are determined to keep oversight of financial markets at the national level. And there are other tweaks in the package that will dredge up painful recent debates over issues like crypto rules or trading data. Countries are already warning that the Commission should keep its nose out of their business. Sweden, the EU’s best-in-class country for financial markets, has warned the EU executive not to interfere with any rules but instead to focus on boosting the appetite of EU citizens to invest in products like stocks and bonds, rather than parking their cash in savings accounts. Supervision is “not the problem and it’s not the solution to the problem,” Wykman told POLITICO. Among other ideas the Commission was mulling ahead of the official publication — according to documents seen by POLITICO — are a stronger EU-wide public ‘ticker tape’ of trading data, an expanded pilot program for decentralized finance to include all products and crypto firms, and a reduction in paperwork to make it easier to sell investment funds across the EU. The plans are sure to please some industry players, like stock exchanges or central securities-depositary groups that operate in multiple EU countries. But they will also inevitably be opposed by others, such as asset managers who are reluctant to be subject to increased EU oversight, or stock exchanges that don’t want to see their pricey trading data services undercut by a stronger public EU ticker tape. The technical shifts, plus the idea of an EU-wide watchdog, are ambitious but are also reminders of how limited the Commission’s powers are compared those deployed by EU countries at the national level. The Commission can’t make game-changing reforms in areas like national pensions, taxation or insolvency law for businesses, all of which are major obstacles to a single money market. Nor will many national governments spend the political capital needed to make domestic reforms for the sake of the EU economy. Nonetheless, the Commission is sticking to its guns. The EU’s finance chief, Maria Luís Albuquerque, who has led work on the revamp, told POLITICO in an interview: “It’s going to be a difficult discussion, of course, but these are the ones worth having, right?”

EU parliamentarians, capitals and policymakers agreed on new rules on the treatment of cats and dogs on Tuesday, dodging the political limbo plaguing other laws on animal welfare. The new rules create uniform standards for how cats and dogs can be treated and housed in the EU, and introduce measures to trace them to combat illegal trade.  Proposed by the Commission in 2023, the new standards have now been provisionally agreed after political negotiations with the European Parliament and the Council — the EU’s co-legislators. In contrast, rules to update animal welfare standards during their transport, proposed in the same year, have not yet reached political negotiations between the institutions. Instead the file is drowning under thousands of amendments in the Parliament while member countries struggle to reach an agreement in the Council.  Nonetheless, Danish Agriculture Minister Jacob Jensen celebrated Tuesday’s agreement as “the first of its kind” and “an important step in the right direction for animal welfare in Europe.”  Similarly, European Conservatives and Reformists MEP Veronika Vrecionová, the Parliament’s lead negotiator, said the rules will “make it harder for abusive and illegal operators to hide” and will push back against “those who see animals as a means of quick profit.” MEP Tilly Metz, the Greens negotiator for the Parliament on the new rules, said the EU is now “finally reversing the trend of growing illegal trade and taking an important step forward.”  But getting to this point was not free of political dysfunction. Last-minute amendments made changes to the committee position on the new rules before it was put to a full vote in the legislature. While a huge majority of MEPs then voted in favor of the Parliament’s negotiating position, the lead negotiator’s own political group questioned how realistic the approach was going into talks. EU parliamentarians, capitals and policymakers agreed on new rules on the treatment of cats and dogs today, dodging the political limbo plaguing other laws on animal welfare. | Neill HallEPA Plans to make microchipping and registration mandatory for all dogs and cats across the bloc then ran into legal troubles in the Council — although the proposal eventually made it into the final agreement with minor caveats. Regardless, animal welfare activists are taking the win and lauding what Georgia Diamantopoulou, head of the European policy office of the Four Paws animal welfare organization, described as the “beginning of the end of the illegal trade in dogs and cats in the EU.”

Opponents of President Donald Trump’s “Liberation Day” tariffs are finally getting their day in the U.S. Supreme Court. And while the justices may not rule for some time, their lines of questioning could offer hints about which way they are leaning in the blockbuster case. On Wednesday, the high court will hear from the plaintiffs — a dozen Democratic-run states and two sets of private companies — and the Trump administration. Each side will have 40 minutes to make their arguments and then get peppered with questions from the nine justices. The court then has until the end of its term next July to issue a ruling, although some of the lawyers who brought the initial cases hope it will move faster given the real-world impact the decision will have. “It’s very reasonable to expect that this will be decided before the end of the year, if not much, much more before that,” said Jeffrey Schwab, senior counsel at the Liberty Justice Center, a constitutional rights law firm representing companies in the case.  Advertisement Three federal courts have ruled against Trump’s use of a 50-year-old emergency law to impose broad “reciprocal” duties that he then deployed to strike trade deals with the EU, Japan and other partners. The case does not address sectoral tariffs on products like steel, aluminum or autos, which have also been part of negotiations, but were imposed under a different legal authority that is not in dispute. If the Supreme Court rules that the tariffs Trump announced in April are illegal, will those deals fall apart? We analyze the risks: -------------------------------------------------------------------------------- United States European Union United Kingdom China Canada Mexico -------------------------------------------------------------------------------- UNITED STATES Risk assessment: Many legal experts think there is a strong chance the Supreme Court will strike down the duties that Trump imposed under the International Emergency Economic Powers Act (IEEPA), a 1977 sanctions law that empowers Trump to “regulate” imports but does not specifically authorize tariffs. Not all agree, arguing the conservative-led court is likely to back the Trump administration’s view that the president has broad authority to conduct foreign affairs and that imperative  outweighs any concerns about executive branch overreach that the court has expressed in previous cases. Coping strategy: In the worst-case scenario for the administration, the Supreme Court would strike down all the duties and order it to repay hundreds of billions of dollars in duties paid by companies and individuals.  But even in that scenario, Trump may be able to use other authorities to recreate the tariffs, including Section 122 of the 1974 Trade Act. That provision could allow the president to impose a 15 percent global import “surcharge” for up to 150 days, according to the Cato Institute, a libertarian think tank. Trump would have to get congressional approval to keep any Section 122 tariffs in place for longer — a tall order even in a Republican-led Congress. However, he might be able to use the provision as a stopgap measure while he explores other options.  Those include Section 301 of the 1974 Trade Act, which he used in his first term to impose extensive tariffs on Chinese goods and recently deployed against Brazil. Unlike IEEPA, which Trump believes merely allows him to declare an international emergency to impose tariffs, Section 301 requires a formal investigation into whether the United States has been harmed by an unfair foreign trade practice.  However, Trump could also just use those investigations — and the implied threat of tariffs — to pressure trading partners like the EU into reaffirming the trade deals they have already struck with him.  Trump could also launch additional sectoral investigations under Section 232 of the 1962 Trade Expansion Act, a provision that allows the president to restrict imports determined to pose a threat to national security. He has employed that measure in his first and second term to impose duties on steel, aluminum, autos, auto parts, copper, lumber, furniture and heavy trucks. In one variation, he’s used an ongoing investigation into pharmaceutical imports to pressure companies to invest more in the United States and to slash drug prices. He has also used the threat of semiconductor tariffs to prod countries and companies into concessions, without yet imposing any duties. The Commerce Department has other ongoing Section 232 investigations into processed critical minerals, aircraft and jet engines, polysilicon, unmanned aircraft systems, wind turbines, robotics and industrial machinery, and medical supplies. And, as Trump’s lumber and furniture duties demonstrate, the administration’s expansive definition of national security provides it with broad leeway to open new investigations into a variety of sectors. By Doug Palmer Back to top -------------------------------------------------------------------------------- EUROPEAN UNION Risk assessment: The European Union isn’t counting on the Supreme Court to save it from Trump’s 15 percent baseline tariff — knowing full well that if U.S. tariffs don’t come through the front door, they’ll come through the window. “Even a condemnation or a ruling by the Supreme Court that these reciprocal tariffs are illegal does not automatically mean that they fall,” the EU’s top trade official, Sabine Weyand, told European lawmakers recently. “There are other legal bases available.” Trump invoked IEEPA to impose the baseline tariff on the 27-nation European bloc. But Brussels is more worried about sectoral tariffs that Trump has imposed on pharmaceuticals, cars and steel using other legal avenues — chiefly Section 232 investigations — that aren’t the subject of the case before the Supreme Court. Advertisement Coping strategy: Brussels is in full damage-control mode, trying not to stir the pot too much with Washington and focusing on implementing the deal struck by European Commission President Ursula von der Leyen at Trump’s Turnberry golf resort in Scotland in July — and baked into a bare-bones joint statement the following month.  Crucially, the EU asserts that it has locked in an “all-inclusive” tariff of 15 percent on most exports — so even if the Supreme Court throws out Trump’s universal tariffs it would argue that the cap should still apply. “Even if all IEEPA tariffs are eliminated, the EU would have an interest in keeping the deal,” Ignacio García Bercero, who used to be the Commission’s point person for its trade talks with the U.S., told POLITICO. The Commission is also still in negotiations with the Trump administration to secure further tariff exemptions for sensitive sectors such as wines and spirits.  The European Parliament, which will need to approve the Turnberry accord, is taking a more hawkish line over what many lawmakers have criticized as the one-sided trade deal with the U.S.: It wants to add a “sunset” clause that would effectively limit the EU’s trade concessions to Trump’s term in office. EU countries have given that idea the thumbs down, however, saying deals that have been agreed must be respected. The EU has invited Commerce Secretary Howard Lutnick to a meeting of its trade ministers in Brussels on Nov. 24. The focus there will be on reassuring him that the legislation to implement the trade deal will pass, and on fending off U.S. charges that EU business regulation is discriminatory. By Camille Gijs Back to top -------------------------------------------------------------------------------- UNITED KINGDOM Risk assessment: Should the Supreme Court strike down Donald Trump’s universal tariffs, Britain won’t be off the hook. London may have secured a favorable, 10 percent baseline rate with Washington back in May — but that only goes so far.   That protection does not extend to Trump’s Section 232 steel and auto levies, which remain in place. Under the current deal, Britain gets preferential tariffs on its car exports, as well as a 50 percent reduction to the global steel tariff rate.  If Britain tried to renegotiate its baseline tariffs, the U.S. could quickly retaliate by withdrawing those preferential deals, and take a harder line in ongoing negotiations covering pharma and whisky tariffs. Coping strategy: The U.K. is pressing ahead with its negotiations with the Trump administration on other parts of the deal — despite the ongoing court case. British officials fly out to D.C. in mid-November to push forward talks, shortly before Trade Representative Jamieson Greer is due in London on Nov. 24. “I don’t think the U.K. or others would attempt to renegotiate in the first instance — we might even see some public statements saying we plan to honour the deal,” said Sam Lowe, British trade expert and partner at consultancy firm Flint Global. “There’s too much risk in trying to reopen it in the first instance, given it could antagonise Trump.” Meanwhile the U.K. is seeking to strengthen its trade ties with other nations. It struck a free trade agreement with India over summer, is renegotiating aspects of its trading relationship with the European Union and hopes to close a trade deal with a six-nation Gulf economic bloc including Saudi Arabia and the United Arab Emirates in the coming weeks. The U.K. is expected to maintain its current deal with the U.S., even if legal challenges were to weaken Trump’s wider tariff regime. By Caroline Hug Back to top -------------------------------------------------------------------------------- CHINA Risk assessment: Chinese leader Xi Jinping exited his meeting with Trump in South Korea last week with a U.S. commitment to cut in half the 20 percent “emergency” tariff imposed in March to punish Beijing for its role in the U.S. opioid epidemic. A possible ruling by the Supreme Court that overturns the residual “emergency” tariffs on Chinese imports — the remainder of the fentanyl tariff and the 10 percent “baseline” levy added in April — would leave Beijing with an average 25 percent tariff rate. The judges will test the administration’s position that its IEEPA tariffs are legally sound because they constitute a justified regulation of imports. But a blanket ruling on the levies on Chinese imports isn’t guaranteed. “The Supreme Court is likely to make a binary ruling — the court might decide the trade deficit tariffs are illegal, but the fentanyl tariffs are lawful,” said Peter Harrell, former senior director for international economics in the Joe Biden administration. The Chinese embassy declined to comment on how Beijing might respond to a SCOTUS ruling in China’s favor. But it would mark a symbolic victory for the Chinese government whose Foreign Minister Wang Yi has described them as an expression of “extreme egoism.”    Coping strategy: Celebration in Beijing about a possible revocation of any of these tariffs may be short-lived. That’s because Trump can wield multiple other trade weapons even if the Supreme Court deems the tariffs unlawful. His administration signaled that it’s priming potential replacements for the IEEPA tariffs with the Office of the U.S. Trade Representative’s announcement last week of Section 301 probes of Beijing’s adherence to the U.S.-China Phase One trade deal in Trump’s first term. It is also undertaking Section 232 probes — geared to determine national security threats — of Chinese-dominated imports including pharmaceuticals, critical minerals and wind turbines. “There’s ample opportunity for the Trump administration to use other legal instruments in the event that the IEEPA tariffs get struck down,” said Emily Kilcrease, a former deputy assistant U.S. trade representative during Trump’s first term and under Biden. The 301 investigation into the Phase One deal is already active, and “will allow them to be fairly quick in responding in the event that the Supreme Court rules against the administration,” Kilcrease said at a Center for a New American Security briefing. By Phelim Kine Back to top -------------------------------------------------------------------------------- CANADA Risk assessment: It’s a bit of a lose-lose situation for Canada.  Trump pre-emptively blamed a Canadian provincial government for weaponizing Ronald Reagan in an ad to influence the SCOTUS ruling. The 60-second spot launched on U.S. networks on Oct. 16 to bring an anti-trade war message to Republican districts rather than to nine Supreme Court justices. It riled Trump enough that he ended trade talks eight days later. Then he vowed to increase tariff levels by 10 percent in retribution. If the court sides with Trump, it will justify an impulse to use IEEPA to raise rates higher without a need for findings or an investigation. And if the court rules against the president — Ottawa will have to prepare for more of Trump’s fury over the ad. The U.S. increased the IEEPA tariff rate on Canada to 35 percent from 25 percent in July, citing a failure to crack down on fentanyl trafficking across the northern border. This 35-percent rate excludes the promised 10-percent retributive increase — an executive order hasn’t been released. It’s unclear which legal authority Trump will use if his stated reasoning is to punish Canada over an ad about Reagan’s warning about protectionism.  Advertisement Prime Minister Mark Carney has called the IEEPA tariffs “unlawful and unjustified.” And he’s been able to play down the threat, for now, by reminding Canadians that these “fentanyl tariffs” have a carve-out for goods covered under the United States-Mexico-Canada Agreement (USMCA). Carney regularly says 85 percent of Canadian exports enter the U.S. tariff free. Section 232 tariffs on industry have hit the economy harder than the IEEPA tariffs. Coping strategy: Canada is frantically pursuing trade diversification coupled with a high-level charm offensive while its trade negotiators try to limit the scope of the upcoming review of the USMCA to minimize U.S. tariff exposure. “Our priorities are to keep the review as targeted as possible, to seek a prompt renewal of the agreement, while securing preferential market access and a stable and predictable trading environment for Canadian businesses and investors,” Canadian Ambassador to the U.S. Kirsten Hillman recently told a parliamentary committee. Carney has, meanwhile, apologized to Trump for the Reagan ad. By Zi-Ann Lum Back to top -------------------------------------------------------------------------------- MEXICO Risk assessment: Trump has hit Mexico, the largest U.S. trading partner, with multiple tariffs since taking office. Those include a 25 percent duty imposed under IEEPA to pressure the country to do more to stop fentanyl and precursor chemicals — as well as illegal immigrants — from entering the United States.  Trump softened the blow by excluding goods that comply with terms of the U.S.-Mexico-Canada Agreement from the new IEEPA duties. That has encouraged more and more companies to fill out paperwork to claim the exemption.  About 90 percent of Mexican goods entering the U.S. now have the necessary USMCA documentation, compared to around 60 percent last year, said Diego Marroquín, a fellow in the Americas program at the Center for Strategic and International Studies. Still, U.S. customs officials report collecting $5.7 billion in IEEPA duties on Mexican goods between Mar. 4 and Sep. 23, according to the most recent data available. Trump also has threatened to raise the IEEPA tariff on Mexico to 30 percent, but reportedly recently agreed to delay that move for several more weeks to allow time for talks. Coping strategy: President Claudia Sheinbaum has stayed on Trump’s good side by declining to retaliate and working with the U.S. on fentanyl and illegal immigration concerns. She has kept that forbearance while Trump has piled new tariffs on Mexico’s exports of autos, auto parts and certain other products using Section 232. Mexico’s ultimate goal is to maintain the preferential access it enjoys to the U.S. market under the USMCA, which is up for review next year, when countries have to say if they want to continue the pact past July 1, 2036, its current expiration date.  Sheinbaum told reporters on Oct. 27 that she hopes to resolve U.S. concerns over 54 Mexican non-tariff trade barriers in coming weeks. While a return to tariff-free trade with the U.S. seems unlikely while Trump is in office, Mexico hopes to be treated better than most other trading partners, or at least no worse. That drama will play out in the first half of 2026. By Doug Palmer Back to top -------------------------------------------------------------------------------- Doug Palmer and Phelim Kine reported from Washington, Camille Gijs from Brussels, Caroline Hug from London and Zi-Ann Lum from Ottawa. Advertisement

The European Union is “struggling” to respond to the changing world order, former Italian Prime Minister Mario Draghi said late Friday, promoting “pragmatic federalism” as a way to overcome the bloc’s difficulties. “Almost all the principles on which the Union was founded are under strain,” Draghi said in a speech in Oviedo, Spain, after receiving the Princess of Asturias Award for International Cooperation. “We built our prosperity on openness and multilateralism, but now we are faced with protectionism and unilateral action” and the “return of hard military power,” he continued, arguing that the EU as it currently works is not equipped to address these challenges. The problem, Draghi said, is that “our governance has not changed for many years” and the European structure that exists today “simply cannot meet such demands.” To overcome the economic, social and security challenges facing the bloc, the EU urgently needs to reform itself and change its treaties, argued the former president of the European Central Bank and author of a landmark report on the EU’s competitiveness in 2024. “A new pragmatic federalism is the only viable path,” Draghi stressed. Such federalism would be “built through coalitions of willing people around shared strategic interests, recognizing that the diverse strengths that exist in Europe do not require all countries to advance at the same pace,” Draghi explained. “All those who wanted to join could do so, while those trying to block progress could no longer hold others back.” Concretely, that would mean a multi-speed Europe. Such coalitions could support the emergence of European champions in industrial sectors such as semiconductors or network infrastructure, cutting energy costs and pulling innovation efforts across the bloc, according to Draghi. But this federalist leap would require national governments to give up their veto power, something that has historically drawn resistance from smaller EU member countries which fear being sidelined by their larger counterparts. It’s not the first time Draghi has advocated for a more federal Europe. He made a similar push in 2022 while prime minister of Italy, calling on his EU colleagues to embrace “pragmatic federalism” and to put an end to national vetoes in order to speed up the bloc’s decision-making process.

BRUSSELS — Call it a digital love triangle. When EU leaders back a “sovereign digital transition” at a summit in Brussels this Thursday, their words will mask a rift between France and Germany over how to deal with America’s overwhelming dominance in technology. The bloc’s founding members have long taken differing approaches to how far the continent should seek to go in detoxing from U.S. giants. In Paris, sovereignty is about backing local champions and breaking reliance on U.S. Big Tech. In Berlin the focus is on staying open and protecting Europe without severing ties with a major German trading partner. The EU leaders’ statement is a typical fudge — it cites the need for Europe to “reinforce its sovereignty” while maintaining “close collaboration with trusted partner countries,” according to a near-final draft obtained by POLITICO ahead of the gathering.    That plays into the hands of incumbent U.S. interests, even as the bloc’s reliance on American tech was again brought into sharp focus Monday when an outage at Amazon cloud servers in Northern Virginia disrupted the morning routines of millions of Europeans.   As France and Germany prepare to host a high-profile summit on digital sovereignty in Berlin next month, the two countries are still seeking common ground — attendees say preparations for the summit have been disorganized and that there is little alignment so far on concrete outcomes. When asked about his expectations for the Nov. 18 gathering, German Digital Minister Karsten Wildberger told POLITICO he wanted “to have an open debate around what is digital sovereignty” and “hopefully … have some great announcements.”  In her first public appearance following her appointment this month, France’s new Digital Minister Anne Le Hénanff, by comparison, promised to keep pushing for solutions that are immune to U.S. interference in cloud computing — a key area of American dominance.   CONTRASTING PLAYBOOKS   “There are indeed different strategic perspectives,” said Martin Merz, the president of SAP Sovereign Cloud. He contrasted France’s “more state-driven approach focusing on national independence and self-sufficiency in key technologies” with Germany’s emphasis on “European cooperation and market-oriented solutions.”  A recent FGS Global survey laid bare the split in public opinion as well. Most French respondents said France “should compete globally on its own to become a tech leader,” while most Germans preferred to “prioritize deeper regional alliances” to “compete together.” The fact that technological sovereignty has even made it onto the agenda of EU leaders follows a recent softening in Berlin, with Chancellor Friedrich Merz becoming increasingly outspoken about the limits of the American partnership while warning against “false nostalgia.” The coalition agreement in Berlin also endorsed the need to build “an interoperable and European-connectable sovereign German stack,” referring to a domestically controlled digital infrastructure ecosystem.  The fact that technological sovereignty has even made it onto the agenda of EU leaders follows a recent softening in Berlin, with Chancellor Friedrich Merz becoming increasingly outspoken about the limits of the American partnership while warning against “false nostalgia.” | Ralf Hirschberger/AFP via Getty Images Yet Germany — which has a huge trade deficit with the U.S — is fundamentally cautious about alienating Washington.   “France has been willing to accept some damage to the transatlantic relationship in order to support French business interests,” said Zach Meyers, director of research at the CERRE think tank in Brussels.   For Germany, by contrast, the two are “very closely tied together, largely because of the importance of the U.S. as an export market,” he said.   Berlin has dragged its feet on phasing out Huawei from mobile networks over fears of Chinese retaliation, against its car industry in particular.   The European Commission itself is walking a similar tightrope — dealing with U.S. threats against EU flagship laws that allegedly target American firms, while fielding growing calls to unapologetically back homegrown tech. STUCK ON DEFINITION  “Sovereignty is not a clearly defined term as it relates to technology,” said Dave Michels, a cloud computing law researcher at Queen Mary University of London.   He categorized it into two broad interpretations: technical sovereignty, or keeping data safe from foreign snooping and control, and political sovereignty, which focuses on strategic autonomy and economic security, i.e safeguarding domestic industries and supply chains.  “Those things can align, and I do think they are converging around this idea that we need to support European alternatives, but they don’t necessarily overlap completely. That’s where you can see some tensions,” Michels said.  Leaders will say in their joint statement that “it is crucial to advance Europe’s digital transformation, reinforce its sovereignty and strengthen its own open digital ecosystem.” “We don’t really have a shared vocabulary to define what digital sovereignty is. But we do have a shared understanding of what it means not to have digital sovereignty,” said Yann Lechelle, CEO of French AI company Probabl. Berlin isn’t the only capital trying to convince Europe to ensure its digital sovereignty remains open to U.S. interests.   Austria, too, wants to take “a leading role” in nailing down that tone, State Secretary Alexandre Pröll previously told POLITICO. The country has been on a mission to agree a “common charter” emphasizing that sovereignty should “not be misinterpreted as protectionist independence,” according to a draft reported by POLITICO. That “will create a clear political roadmap for a digital Europe that acts independently while remaining open to trustworthy partners,” Pröll said.   Next month’s Berlin gathering will be crucial in setting a direction. French President Emmanuel Macron and Merz are both expected to attend. “The summit is intended to send a strong signal that Europe is aware of the challenges and is actively advancing digital sovereignty,” a spokesperson for the German digital ministry said in a statement, adding that “this is not about autarky but about strengthening its own capabilities and potential.” “One summit will not be enough,” said Johannes Schätzl, a Social Democrat member of the German Bundestag. “But if there will be an agreement saying that we want to take the path toward greater digital sovereignty together, that alone would already be a very important signal.” Mathieu Pollet reported from Brussels, Emile Marzolf reported from Paris and Laura Hülsemann and Frida Preuß reported from Berlin.

HORSENS, Denmark — The European Union’s deregulation drive isn’t just about pleasing Washington, Danish Foreign Minister Lars Løkke Rasmussen said Tuesday, arguing Brussels must loosen up its own rules while defending its independence from U.S. pressure. “It’s like a Kinder egg. It serves more than one purpose,” Rasmussen told POLITICO in an exclusive interview.  “We should go down that track in our own self best interest. But at the same time, it also serves others’ interest as well.” Rasmussen’s comments come ahead of a crucial meeting of EU leaders next week, where the EU’s deregulation drive will take center stage. Leaders are expected to urge the bloc’s executive to speed up efforts to slash red tape — a push the Danish minister said is vital to keeping Europe globally competitive. “If our investors are met with the red carpet in the U.S. and by red tape in Europe, they will, at the end of the day, choose the U.S.,” he stressed.  For over a year, Brussels has been torching swaths of environmental red tape in a bid to restore the competitiveness of Europe’s beleaguered industries against their U.S. and Chinese rivals. Brussels now has nine simplification packages in the works, spanning the defense, environmental and digital sectors.  The EU’s rulebooks have drawn the ire of President Donald Trump, who has threatened to hike tariffs over rules he says discriminate against, and even censor, U.S. companies.  France and Germany, the EU’s two largest economies, are pushing Brussels for a similar environmental deregulation drive.  In a bid to keep Washington onside, the European Commission is preparing plans to address Trump’s grievances — while presenting the effort as part of a self-driven policy overhaul. Politically, the move allows the bloc to reconcile its own domestic agenda without appearing to bow to Trump’s pressure. Washington imposed a baseline 15 percent tariff on all goods from the European Union, while the EU committed to cut its tariffs on U.S. imports of cars and industrial goods to zero. | Focke Strangmann/Getty Images Rasmussen made the comments on the margins of a meeting of EU trade ministers in Denmark, which currently holds the presidency of the Council, the bloc’s intergovernmental arm. The get-together was overshadowed by China’s move to drastically restrict exports of rare earths — further squeezing the EU amid a rift between the U.S. and China.  Brussels called for the G7 group of industrialized nations to coordinate their response to China’s export restrictions. PRESSURE FROM WITHIN Rasmussen poured cold water on the idea of a so-called sunset clause, under which the EU could revisit the terms of its trade deal with the U.S. once Trump leaves office. Under the pact, struck in July by Commission President Ursula von der Leyen at Trump’s Turnberry golf resort in Scotland, Washington imposed a baseline 15 percent tariff on all goods from the European Union, while the EU committed to cut its tariffs on U.S. imports of cars and industrial goods to zero.   “Defining a sunset clause will not change the reality,” Rasmussen said. “I’m living in the real world, and we have to deal with the current U.S. administration.” That view was echoed at the trade ministerial by Thomas Byrne, Ireland’s minister for European affairs.  “If we start rooting through it or making changes or putting in review clauses, I think that that is not something that would be in the interest of European citizens,” Byrne said on his way into Tuesday’s meeting. The European Parliament in particular has called to consider a possible review of the terms the EU conceded to the Trump administration, amid criticism that the transatlantic trade deal was severely skewed in favor of the United States. Rasmussen didn’t rule out renegotiating those terms one day — but only once the political and economic costs of Trump’s trade protectionism begin to bite in the U.S. “I am pretty sure that in a midterm perspective, you will see implications of this strategy within American society. And then we must stand ready to renegotiate things,” the former Danish prime minister said.  Marianne Gros contributed to this report. 

PARIS — Former French Economy and Finance Minister Eric Lombard said his old boss, former Prime Minister François Bayrou, miscalculated by holding a confidence vote after unveiling plans to slash the country’s 2026 budget by nearly €44 billion. When asked at POLITICO’s competitiveness summit in Paris on Thursday if he had any regrets during his tenure, Lombard said his “first regret” was the vote, which appeared doomed from the start. “It seemed to me like a risky gamble, one that didn’t pay off,” Lombard said. Bayrou took lawmakers by surprise in late August when he announced that he would put his unpopular budget, which included slashing two public holidays, to a vote. He unsuccessfully tried to frame the vote as a referendum on the need for drastic action to rein in France’s sky-high budget deficit. Lombard said that the vote put an end to talks on a compromise with the center-left Socialists, whose backing Bayrou’s government had been courting for their spending plan. “That agreement was still possible,” said Lombard, who was considered a bridge between Macron’s centrists and the Socialists. Lombard said it is “imperative” that the budget deficit for next year not exceed 5 percent of gross domestic product. The figure is projected to hit 5.4 percent of GDP this year. Sébastien Lecornu, the outgoing prime minister whose resignation Monday set off a political crisis, signaled Wednesday that France could soften its deficit reduction target to 5 percent of GDP from 4.7 percent, the figure Lecornu initially put forward. French President Emmanuel Macron is expected to name Lecornu’s successor by Friday evening. END OF AN ERA In terms of trade, Lombard called for more aggressive domestic policies to boost European companies in key industries in the face of stiff competition from their Chinese and U.S. rivals. “Free trade is over, it’s dead,” Lombard said, noting that the U.S. and China stopped obeying the international trade rulebook a long time ago. Lombard, who was still a minister when the European Union concluded a trade truce with the United States, acknowledged it was a “bad deal” but defended the European Commission for striking it anyway to avoid a trade war with Washington. “We didn’t have a better one,” he said. Europe, he argued, didn’t have the means to stand up to Trump as it did not have the economic weight of China, he said. “We faced an attack, and that was our response,” he said.

German Chancellor Friedrich Merz warned Friday that Europe must grow stronger to defend against an “axis” of autocratic nations targeting liberal democracy more aggressively than at any time since the Cold War. Speaking at an event marking the 35th anniversary of Germany’s reunification along with French President Emmanuel Macron, both leaders warned that Europe must gird itself to endure massive political and economic shifts around the globe. “The centers of power in the world are shifting to an extent not seen since the end of the Cold War,” Merz said. “An axis of autocratic states that challenges the liberal order around the world is directly challenging Western democracies. That is why we must regain the ability to defend our freedom.” Merz said that “the radiance of what we in the West call liberal democracy is noticeably diminishing,” adding: “It is no longer a given that the world will orient itself towards us, that it will follow our values of liberal democracy.” “New alliances of autocracies are forming against us and attacking liberal democracy as a way of life,” Merz said. Recent global turmoil has struck Germany with particular force. Russia’s all-out invasion of Ukraine and the erosion of the transatlantic alliance have compelled the country’s leaders to invest massively in rebuilding the relatively feeble German military. The energy shock that accompanied the Ukraine invasion and U.S. President Donald Trump’s tariff wars have both hit German industry particularly hard. But Macron too, speaking after Merz, echoed parts of the chancellor’s message, arguing that Europe is undergoing a “degeneration of democracy” due to attacks on various fronts — including from within. “We are also threatened from the outside. But we should not be naive. On the inside we are turning on ourselves; we doubt our own democracy,” he said. “We see everywhere that something is happening to our democratic fabric. Democratic debate is turning into a debate of hatred.” Much of that degeneration is due to online discourse on platforms controlled by U.S. and Chinese firms, said Macron. “We’ve been guilty … of handing over our public democratic space to social networks owned by big American entrepreneurs and Chinese firms whose interests are not at all the survival and the good functioning of our democracy,” said Macron. Both leaders said Europe must build up its economic competitiveness to have the muscle to face the challenges of a rapidly changing world. “The global economic order is being rewritten, it is being rebuilt,” Merz said. “Egoism is becoming more visible again. And perhaps that is why we have become economically weaker and why the social promises we have made to each other are so much harder to fulfill today than they used to be.” Merz called on Europe to “oppose a new wave of protectionism in the world” by forging ahead with new trade rules and seeking new markets. “Europe must refocus on its economic competitiveness,” he said.

BRUSSELS — Donald Trump’s tariffs have stung both the EU and India into mounting a big push to get their long-delayed trade deal over the line — fast.   Brussels and New Delhi only have three months left to deliver on their joint pledge to seal a deal by the end of the year — with the toughest issues related to agriculture and sustainability yet to be resolved.   Despite unprecedented political will, policymakers and experts alike recognize it won’t be an easy run to the finish line.   “The negotiations remain extremely challenging,” the EU’s lead negotiator Christophe Kiener told European lawmakers last week. “It was absolutely expected that when we start negotiating on the most difficult issues, the most sensitive areas, it would not be easy.”   As crunch time approaches, with another round of talks scheduled for next week, here are five things to know:  1. There’s renewed appetite on both sides — thanks to Trump.  Spurred by Trump’s tariff crusade, which hit Indian imports with tariffs as high as 50 percent and didn’t spare the EU either — albeit with a lower rate of 15 percent on most goods — both sides are frantically hunting for alternative trade partners.  “When we knew Trump would come into office, Delhi started sending smoke signals to capitals across Europe saying: We are serious about trade and we want to make this work to hedge against the uncertainties of tariffs and the U.S.’s commerce-first approach,” said Garima Mohan, a senior fellow at the German Marshall Fund who leads the think tank’s work on India.  Roger that, said Brussels.   Taking her whole College of Commissioners to India a few weeks into Trump’s second mandate, European Commission President Ursula von der Leyen and Indian Prime Minister Narendra Modi agreed to seal a deal by the end of the year — something even they recognized would be a steep target.   “It will not be easy. But I also know that timing and determination counts, and that this partnership comes at the right moment for both of us,” von der Leyen said at the time.   The EU has been on a negotiation roll, revamping its pact with Mexico, and concluding talks with the South American bloc of Mercosur countries and with Indonesia.   2. The two have a complicated trade history.  While India is playing hard to get, it is nonetheless seeking to overcome some of its protectionist instincts, deepening ties with Japan and negotiating a deal with Australia. A deal with the EU, its second-largest trading partner, remains a key objective. But historically, their trade relationship has never been easy.   “I know from experience how difficult India can be, how difficult it is to strike the final deal on the more sensitive issues. I suspect that that’s where we are now,” said Ignacio García Bercero, the EU’s chief negotiator for India until 2013. That’s when talks went into snooze mode over thorny issues such as India’s agricultural protectionism and its generic pharmaceuticals. They were relaunched at India’s request in 2022.   Although negotiators stress things are different this time around, they can’t escape sometimes conflicting economic approaches given India’s protectionist history.   “If we look at what is left, it’s the most important stuff … those are exactly the same things that we were dealing with in 2012, 2013, when the negotiations derailed last time,” said Nicolas Köhler-Suzuki, associate researcher at the Jacques Delors Institute.  3. Ukraine isn’t making things any easier.  While Brussels is counting on India for its diversification push, it won’t find it easy to remain a credible threat to Russia while doing more business with a country that maintains historically close ties with Moscow.  An EU official, granted anonymity to discuss closed-door discussions, conceded “one of the biggest issues where [the EU and India] have differences is Ukraine.”  The world’s most populous country sent 65 troops this month to join Russia’s annual Zapad military exercise, in which the Kremlin simulated a nuclear attack on NATO countries. At a recent summit in China, Modi held hands with Russian President Vladimir Putin as they approached their host, President Xi Jinping.  At a recent summit in China, Narendra Modi held hands with Russian President Vladimir Putin as they approached their host, President Xi Jinping. | Pool photo by Suo Takekuma via AFP/Getty Images Trump, meanwhile, is calling on the EU to hit New Delhi with tariffs as high as 100 percent for enabling Russia’s war in Ukraine.   “It’s not all joyous music and singing and dancing. There is an acknowledgement that we need to do more to bridge gaps where they are,” the official said, referring to a communication on India the EU executive put out in mid-September.  Ultimately, by engaging with India, the intention is to ensure the gap left by the U.S. isn’t filled by other, politically hostile, powers.  For India, giving up its ties to Russia is a no-go, as that would constitute a major concession to China, India’s long-standing Asian rival.   “The Russia-China factor is a huge concern for India,” said Mohan.  4. There’s a bunch of tricky technical bits.   Aside from the geopolitics, divergences are also creeping up in a host of nitty-gritty areas.   For one, there are long-standing disagreements on cars and car parts, wines and spirits, and other agricultural products. Earlier this year, the two sides agreed to set aside particularly sensitive agricultural sectors, such as dairy and sugar, to facilitate the talks.   On top of that come other issues related to agriculture, such as sanitary and phytosanitary measures. The EU also takes issue with the Indian Quality Control Orders, which prescribe that certain products must conform to Indian standards before being sold there.  Sustainability provisions and the EU’s green agenda are also complicating the negotiations.   “India had been clear from the outset that it did not particularly like the way the European Union wants to link sustainability-related issues and trade, but they’ve obviously accepted that we will need to have a chapter on this,” said Kiener, the EU negotiator.   However, New Delhi still takes issue with making the Trade and Sustainable Development chapter binding and enforceable through a dispute settlement mechanism. It has also threatened to retaliate against the EU’s carbon border tax, as POLITICO reported earlier this year. “The carbon border adjustment mechanism that the EU has visualized does not meet the test of fair play,” Commerce Minister Piyush Goyal said then.   If that wasn’t enough, a historical issue has also cropped up in the talks: An India-Pakistan dispute over the two countries’ rival claims to basmati rice. New Delhi is pressuring the EU to designate the grain Indian — but if Brussels does so, it risks a rift with Pakistan.  In short, sealing the agreement will likely entail a trade-off between the political benefits of a fast deal against the economic gains of a potentially more comprehensive agreement.   5. They are a temperature check of the EU’s trade priorities.   Ultimately, the deal will be a test of just how much of its (green) trade ambitions the EU is willing to sacrifice on the altar of geopolitics.   Considering Trump’s attempts to upend or at least significantly harm the rules-based trade order, calls have been growing for the EU to be more pragmatic and aim for quicker and less comprehensive deals.   But not everyone agrees that will ultimately be beneficial in the long-term.   “We hope that the result of the trade negotiations will be a commercially meaningful agreement,” Angelika Niebler of the European People’s Party, chair of the European Parliament’s delegation for relations with India, said in Parliament’s trade committee last week.   The India deal will also reveal just how important the bloc deems its aim to advance the bloc’s environmental agenda through trade deals.   “Clearly, India has [a] different geopolitical alignment, and they have always been somewhat closer to the Russia operation,” said García Bercero, the former EU negotiator who now works for the Bruegel think tank.   “But at the end of the day, I don’t think that this would need to be an obstacle to concluding an agreement.” 

Allies fed up with Donald Trump’s latest round of punishing tariffs and spending demands are hitting the president where it hurts — his favorite fighter jet. Spain, in the wake of a row with Washington over NATO’s new 5 percent defense spending goal, ditched its multibillion-dollar purchase of the stealthy F-35 fighter jet. Switzerland, reeling from steep U.S. tariffs, is facing increasing pressure across the political spectrum to drop plans for its own F-35 war planes. And India, frustrated at higher U.S. prices on its goods, has reportedly decided to pause efforts to buy American combat vehicles. The moves — all made in the past two weeks — show the potential consequences of Trump’s economic actions as they reverberate through allied capitals, forcing governments to reassess their defense ties with the United States. They also reinforce American industry fears that this new form of protectionism will spark retaliation, jeopardize arms sales and chip away at America’s dominance as the globe’s top defense supplier. While most allies aren’t rushing to pull out of long-planned purchases, the recent actions by the three countries show growing pockets of resistance, and some of the most concrete pushback yet, to Trump’s global trade maneuvers. The tariffs are “a big middle finger” to allies the U.S. has urged for years to buy American equipment, said Jim Townsend, a former Pentagon official who oversaw Europe and NATO policy. “All of these nations feel bruised by the United States.” The F-35, made by Lockheed Martin, is especially vulnerable to this sort of economic turbulence. Its parts come from more than 100 suppliers around the world, and big overseas orders help keep the price of each jet down. If countries pull out or cut back, costs go up for everyone. The combined price tag for Spain’s and Switzerland’s F-35 orders was about $15 billion for several dozen planes each. Spain’s decision not to pursue the F-35 could steer billions toward the Eurofighter Typhoon — made by the United Kingdom, Germany, Italy and Spain — and the Franco-German Future Combat Air System, a next-generation stealth fighter and drone system slated for the 2040s. Spanish officials cited the need for industrial sovereignty, stronger European supply chains and more reliable partners. Such moves are also politically useful from some European countries. Spanish Prime Minister Pedro Sánchez’s response appeals to the government’s left-leaning base, according to a senior EU official granted anonymity to discuss sensitive political dynamics. “For Sánchez, it’s just very convenient to play Trump’s victim,” the person said. The Swiss deal to buy 36 F-35 jets squeaked through a 2021 referendum with just over 50 percent support, and new tariffs reignited the political fight. Swiss lawmakers pushed to cancel the purchase when U.S. tariffs hit 39 percent, but the government on Wednesday reaffirmed its intent to buy the jets and ordered a review. A decision is due in November. Swiss officials said they can’t pin down a final price because the U.S. has not agreed to one, leaving the contract open to swings in inflation, higher raw material costs and customs duties — which could add as much as $1.6 billion. Other prospective buyers, such as Portugal, have delayed decisions amid doubts over U.S. reliability. Lockheed Martin noted that the United Kingdom, Denmark and Belgium have each recently announced their intent to buy at least 10 F-35s. “Foreign military sales are government-to-government transactions, and this matter is best addressed by the U.S. or country governments,” Lockheed spokesperson Jacqueline Lorenzetti said. The White House defended Trump’s tariffs as an economic boon and noted that he pushed NATO’s defense spending pledge to 5 percent of GDP, which is expected to benefit U.S. arms makers. “President Trump has done more to support America’s military industrial base than any president in decades — including by selling American-made weapons to NATO allies, which will generate billions of dollars for American companies,” White House spokesperson Kush Desai said. The loss of orders from Spain or even Switzerland would have little immediate impact on production, according to one former Pentagon official, who was granted anonymity to discuss a sensitive matter. Those aircraft wouldn’t reach the line for more than a year, and other customers could easily step in to take their place. But any sustained loss of foreign buyers could push prices higher across the fleet. That risk is piling pressure onto a problem that’s already hitting the F-35 program. Officials are rebuilding the Büchel Air Base in Germany — home to part of the country’s nuclear mission under NATO — to host more than three dozen F-35s. The price tag has jumped from $1.5 billion to nearly $2.3 billion. Trump’s mix of tariffs and public browbeating is also fueling the continent’s “Make in Europe” ambitions for weapons. But many European officials caution that in the short term, the EU’s defense industry is a long way from producing all the arms needed to replace U.S.-made hardware, meaning any shift toward self-reliance would have to be gradual. The repercussions could go much further than Europe. India, Reuters reported, is delaying U.S. arms purchases, including Stryker combat vehicles and Javelin anti-tank missiles, following Trump’s decision to double tariffs on Indian goods to 50 percent over its purchases of Russian oil. Indian officials denied the report as “false and fabricated,” but the story highlights rising tensions. Indian Prime Minister Narendra Modi responded to the tariffs by publicly reaffirming India’s “special and privileged strategic partnership” with Moscow. Billions of dollars’ worth of arms deals are in the U.S. government’s foreign military sales pipeline for New Delhi, making an Indian pullback challenging. “We’ve worked for more than a decade to strengthen our relationship with India,” said former Air Force Secretary Frank Kendall, who led the U.S.-India Defense Technology and Trade Initiative in the Obama administration. “Slapping those huge tariffs on India is going to have very negative impacts on the relationship.” But supply chains for weapons are tricky and more nuanced than some of these decisions suggest. That’s especially true for the F-35, a sixth-generation fighter jet that stands out for its stealth, advanced sensors and versatility. “Even if there’s a new administration, Republican or Democrat, that wants to repair all this horrible damage, it’s going to take a long time to recover trust,” said Richard Aboulafia, managing director at AeroDynamic Advisory, a U.S.-based consulting firm for the defense industry. “And this is an industry built on trust.”