Why grim geopolitics kept EU leaders busy over dinner

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Good morning. Today EU leaders will meet to discuss how to push ahead with a long-stymied plan to create a capital markets union across the bloc. But as we report this morning, the discussion is likely to unravel: the push by big states such as France, Spain and the Netherlands is opposed by a majority of the others, as smaller states gang up on some of the proposals.

Here, we bring you up to speed with what the leaders discussed at their geopolitical dinner last night, and our competition sleuth explains why one of the new ideas to save the single market from former Italian prime minister Enrico Letta has startled Brussels’ antitrust overlords.

Troubling times

EU leaders last night agreed to impose new sanctions on Iran and to redouble efforts to provide air defences to Ukraine, over an extended evening discussion that laid bare the scale of disorder wracking the continent’s neighbourhood.

Context: Iran’s attack on Israel last week, the first direct assault by the Islamic republic on the Jewish state, has dramatically raised the risk of a wider war across the Middle East. At the same time, Russia’s full-scale invasion of Ukraine is now in its third year.

“We have seen so much turmoil in the world in recent days,” Simon Harris, Ireland’s taoiseach, said on his way into the summit. “This is a meeting happening against an extraordinary political backdrop.”

While urging restraint, the 27 leaders — over a supper of scallops, sole and chocolate cream — agreed that the bloc “will take further restrictive measures against Iran”, endorsing proposals to put sanctions on its missile and drone industries.

“The idea is to target the companies making the drones and missiles,” European Council president Charles Michel said after the meeting about the measures, which could be formally adopted next week.

The leaders were also urged by Ukraine’s President Volodymyr Zelenskyy, via videoconference, to provide air-defence systems to the country as it endures ongoing bombing from Moscow’s forces.

“Nato says that your own reserves of defence capabilities, they are more effective with regards to your own security if you give them to Ukraine than if you keep them yourself,” said Belgian Prime Minister Alexander De Croo, adding that there was more “urgency” on the question.

Separately, the leaders also agreed to work on recalibrating the EU’s relationship with Turkey, whose bid to join the bloc has in effect been frozen for years.

But the endorsement remained cautious, as especially Cyprus is wary of closer relations with Ankara. The conclusions state that all efforts are “reversible” and dependent on “Turkey’s own constructive engagement”.

Chart du jour: Gearing up

The security of Nato’s frontline states is now determined by Moscow’s war in Ukraine. Amid warnings of a possible Russian attack on Nato in the next decade, the Baltic states are upgrading their defences.

Let them merge

Enrico Letta shocked EU officials in Brussels this week with a controversial idea: forget about fragmentation of the single market and change the rules to let bigger companies merge to counter the might of China and the US.

But the former Italian premier’s proposal hasn’t gone down well with the EU’s competition gatekeepers, writes Javier Espinoza.

Context: For years EU regulators have been agonising over whether to let European groups merge and become big players, or to enforce strict limits to foster mutual competition. In the telecommunications sector, officials have opposed letting companies grow in size, fearing it might lead to monopolistic tactics and higher fees for consumers.

But in a report on the EU’s single market to be discussed by EU leaders today, Letta argues for “a European dimension surpassing the national confines that currently hinder any substantial competition with American, Chinese or Indian conglomerates”.

Speaking to the FT, he elaborated: “The true game-changer is the set-up of a single market at the European level,” Letta said, adding that the size of the “entire single market” needed to be considered for the competition rules.

“What is absolutely necessary is to change the size of the relevant market,” Letta added.

While Letta did not directly advocate a general overhaul of the rules, he is suggesting the EU should adapt its established policy of the last two decades and stop blocking deals that would result in the kind of large telecom operators seen in the US.

That has not gone down well with some officials at the EU’s powerful competition unit, which is holding an event today commemorating 20 years of merger regulation.

An EU official said: “This is not a paper we will endorse easily.”

So expect a pushback among officials and member states who fear this could harm consumers.

What to watch today

1. Second day of the EU leaders’ summit.

2. EU holds conference on 20th anniversary of its merger rules.

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