Farmers and regions win carve-outs as Brussels blinks in budget stand-off

Good morning. Today, I report on the European Commission’s concessions to the European parliament on the EU budget, then unpack the high-stakes race to reshape the leadership of the European Central Bank, before our climate correspondent reports on a warning to the commission that its simplification drive could be illegal.

Strategic retreat

The European Commission has pandered to demands from the European parliament to adjust its proposal for the next shared EU budget, after deciding to make concessions in the details in order to protect its core focus.

Context: Brussels presented its 2028-34 budget outline in July, featuring a major overhaul that would bundle together existing funds for agriculture and regional development into so-called national and regional partnership plans.

The proposal sparked a massive backlash from the parliament’s biggest parties, which threatened to vote against it unless payments to farmers and local authorities were protected.

Commission president Ursula von der Leyen last night offered just that in a letter to parliament president Roberta Metsola and Denmark’s Prime Minister Mette Frederiksen, representing the EU’s 27 member states.

Inviting them to a meeting today, von der Leyen set out three key adjustments: a “regional check” to give local authorities more spending oversight, a “rural target” to ensure at least 10 per cent of cash goes to farmers, and a “steering mechanism” to give parliament more influence over financing priorities.

“We have heard the views expressed by all parties,” von der Leyen wrote. Her team believe that some concessions are acceptable to protect the overhaul of how money will be allocated.

“The short of it is that the European parliament got more or less what it wanted,” said one senior EU official, suggesting that Thursday’s threatened condemnation vote was likely to be called off.

Chart du jour: Swiss shrink

The ranks of Switzerland’s prized finance sector are shrinking due to tighter regulation and industry consolidation.

ECB reshuffle

Four top jobs at the ECB are up for grabs over the next two years, including president Christine Lagarde’s seat, and Eurozone capitals are already lobbying in a complex tussle to find the right balance of nationalities and policies.

Context: vice-president Luis de Guindos’s term will end in May. Lagarde, chief economist Philip Lane and executive board member Isabel Schnabel will all reach the end of their terms in 2027. Next year 21 of the EU’s 27 states will be Eurozone members.

The ECB is set to formally begin the process of replacing de Guindos this week with a discussion among finance ministers at Wednesday’s Eurogroup meeting, officials told my colleagues in this excellent primer on the succession drama.

No country that joined the EU after 2004 has ever had a member on the executive board. There are demands for gender balance. And politics often trumps qualifications.

The race to replace de Guindos will thus have a bearing on the following three appointments.

Finland is pushing its central bank governor Olli Rehn, a former EU commissioner, as a candidate, while Croatia’s government is expected to nominate its central bank governor Boris Vujčić.

Jostling has already begun for the top job, too. The two main contenders to replace Lagarde are former Dutch central bank governor Klaas Knot and Bundesbank president Joachim Nagel, while some are talking up former Spanish governor Pablo Hernández de Cos.

Not so simple

More than 100 academics and lawyers have sent a letter to EU lawmakers warning them that the simplification of reporting and due diligence rules could go against EU law, writes Alice Hancock.

Context: Under pressure from domestic industry and trade partners such as the US, the EU has started a programme of cutting back the most onerous requirements of its bureaucratic rule book in a bid to reinvigorate the continent’s moribund economic growth. 

The first directives to face the new “omnibus” simplification procedure of the European Commission are the EU’s landmark due diligence directive, which forces companies to root out abuses in their supply chains, and imposes sustainability reporting requirements. 

The purpose of the omnibus is to ride through multiple pieces of legislation and cut them back in one process. The European parliament is due to vote on the first this Thursday.

But in a letter sent to the parliament’s legal committee, the authors argue that the omnibus for sustainability rules could open the commission up to legal challenge and therefore leave the business landscape even more uncertain than it is already.

In one of two legal opinions, Alberto Alemanno, a professor in EU law at HEC Paris, says the omnibus “fails to meet the constitutional standards the EU’s own legal order demands” in part because it makes substantial changes to the laws in question without any impact assessment.

The academics call for the parliament to seek a legal opinion from their in-house lawyers “before taking any further legislative action”.

What to watch today

1. EU-Celac leaders’ summit in Colombia.

2. King Felipe VI and Queen Letizia of Spain begin a state visit to China.

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