EU Gentiloni – NBC New York

• After surviving “terrible prophecies”, the European economy must face the challenges of the war in Ukraine and the management of trade relations with China, believes Paolo Gentiloni, Secretary General of the EU.
• The EU economy has seen “low growth overall, but none of the dire prophecies we’ve heard over the last two or three years: recessions, blackouts, divergence, divisions in Europe over the Russian invasion,” Gentiloni said in an interview with CNBC’s Steve Sedgwick at the Ambrosetti Forum.
• The European Union must “support Ukraine, keep the doors of international trade open, which does not mean accepting China’s position, of course, we abandon our ingenuity in trade relations with China,” he noted.

The European Union has managed to avoid the “terrible prophecies” that have threatened its economy in recent years, but still faces Russia’s war in Ukraine and fragile trade relations with China, outgoing EU Economy Commissioner Paolo Gentiloni said on Saturday.

The bloc’s economy has seen “low growth overall, but none of the dire prophecies we’ve heard over the last two or three years: recessions, blackouts, divergence, divisions in Europe over Russia’s invasion,” Gentiloni said in an interview with CNBC’s Steve Sedgwick at the Ambrosetti Forum in Cernobbio, on the shores of Lake Como in Italy.

A former Italian prime minister, Gentiloni has been European Commissioner for Economic Affairs under President Ursula von der Leyen since December 2019. The European Commission is responsible for economic strategy and legislation for the 20 eurozone countries – such as tariffs – while the European Central Bank oversees the region’s monetary policy and interest rate decisions.

Gentiloni will not return for a second term as commissioner after von der Leyen’s tumultuous re-election as president – but he laid out the economic picture that awaits his imminent successor.

“The economy is growing, slowly, but growing. And the risks of divergences within the European Union, which were very high at the time of the pandemic, are very limited,” he noted. “The worst thing is that if we do not increase our capabilities in terms of competitiveness, if we do not make enormous progress in what we call the capital markets union, and if we do not take up the challenge of defense… if we do not do it, well, the new situation in the world will appear very difficult for Europeans.”

Europe, recovering from the Covid-19 pandemic, is grappling with a cost of living crisis and high inflation, exacerbated by Russia’s invasion of Ukraine in February 2022 and energy supply shortages following sanctions against Moscow. The eurozone economy grew in the first half of this year, with flash figures showing gross domestic product growth of a better-than-expected 0.3% in the three months to the end of June, compared with the previous quarter.

In its spring forecast, the European Commission predicted that EU GDP would grow by 1% in 2024 and by 0.8% in the euro area, with growth of 1.6% and 1.4% in the two regions respectively in 2024. At the time, the Commission cited growth supported by accelerating private consumption, falling inflation and a strong labour market, but also by broader geopolitical risks amid ongoing conflicts in Ukraine and the Middle East.

Against a backdrop of falling inflation, the ECB took the first monetary policy easing measure since 2019 in June, lowering its key rate to 3.75%, from a record low of 4% since September 2023. By Friday, markets had fully priced in a further rate cut by the ECB at its next meeting on September 12.

The relationship with China

Europe now faces a double storm: a tight election in the United States, its biggest trading partner, in November, and friction in its trade relations with China. The EU has been in Beijing’s crosshairs since its decision last June to impose higher tariffs on Chinese imports of electric vehicles, which benefit “largely from unfair subsidies” and pose a “threat of economic harm” to electric vehicle producers in Europe.

Gentiloni stressed Saturday that trade diplomacy with China and the war in Ukraine must be at the top of the agenda of challenges facing the new Commission – and that these are more pressing concerns than the potential advent of a second U.S. administration under former President Donald Trump.

The European Union must “support Ukraine, keep the doors of international trade open” but also “abandon our ingenuity in the trade relationship with China. But this does not mean that we can accept the idea that international trade and the rules of international trade are finished,” Mr. Gentiloni stressed.

He downplayed the economic impact of a Trump victory in November, adding: “I think a change in the US administration, meaning a Trump victory in the election, would obviously not be well received in Brussels, but I don’t think the change would be huge in terms of economic relations.”

Winds of change

Gentiloni has yet to announce his next steps after leaving the Commission, at a time when Europe and its legislative body are facing a growing wave of far-right support.

“You should never plan your next role when you already have a role. But of course I will make my contribution to European affairs and perhaps also to Italian politics and Italian affairs,” he said on Saturday.

The left-wing politician is unlikely to win the support of Italian Prime Minister Giorgia Meloni, who has nominated European Affairs Minister Raffaele Fitto, from the ranks of her right-wing Brothers of Italy party, to join the new EU executive.

Far-right factions gained ground in the last European elections, leading Hungary’s right-wing Prime Minister – who currently holds the EU Council presidency – Viktor Orbán to question whether a van der Leyen Commission is appropriate, given political sentiment.

“The heart of the problem is this: The previous Commission was very ineffective in terms of competitiveness, the European economy, migration, stopping the war. So, overall, it was an ineffective Commission,” the Hungarian leader told Sedgwick on CNBC on Friday, noting that a decision had been made to “create the same Commission, basically.”

He added: “So I am convinced that people can change and be able to do better than in the past. But it is hard to believe that. So I try to support the Commission as much as possible, but as a rational man, I think that we have neglected the voters’ desire for change, and the same system is still in place in Brussels, and that is not a good thing.

— CNBC’s Katrina Bishop contributed to this report.