- Ursula von der Leyen outlines practical reforms to bolster the European Union’s economy.
- EU aims to create a unified capital market and streamline business regulations.
- Energy union project could cost 600 billion euros by 2030 to reduce energy dependence.
- ECB’s lower interest rates offer temporary relief amid global competition.
- Domestic political dynamics pose significant challenges to reform efforts.
Ursula von der Leyen, President of the European Commission, has proposed a practical reform strategy to rejuvenate the European Union’s economy. While the plan is pragmatic, the challenge remains whether EU member states will support her vision. Her approach contrasts with the more ambitious, expensive proposals of former European Central Bank (ECB) President Mario Draghi, but it provides a more achievable pathway forward.
At the World Economic Forum (WEF) in Davos, von der Leyen’s clear-sighted economic analysis stood out. While U.S. President Donald Trump dominated the headlines, von der Leyen’s emphasis on practical reform resonated with many financial experts. However, the success of her strategy will largely depend on the commitment of all EU member states.
Building on Mario Draghi’s Vision
Von der Leyen’s reform plan builds on Mario Draghi’s economic ideas. Draghi proposed the EU should invest an extra 800 billion euros annually until 2030 to lead in clean energy and advanced technology. He suggested this could be funded through common borrowing among member states, but this idea remains controversial in the EU.
Understanding the challenges of common borrowing, von der Leyen chose a different path. Instead of large borrowing, she aims to create a unified capital market across the EU. The EU’s household savings are around 1.4 trillion euros, much higher than the US’s. However, these savings are scattered, making it hard to invest efficiently. A better capital market could use these funds to boost the economy.
Streamlining Business Regulations to Boost Growth
Another key element of von der Leyen’s reform agenda is simplifying the regulatory environment for businesses operating in the EU. At present, companies face a complex and fragmented system of laws across the 27 EU member states. This diversity of regulations creates inefficiencies and increases the cost of doing business.
Von der Leyen’s plan calls for harmonizing corporate laws, insolvency rules, labor regulations, and tax laws across the EU. This unified regulatory framework could reduce business costs by up to 37.5 billion euros annually. While this proposal has clear economic benefits, its implementation will be challenging. Many countries are likely to resist changes that could erode their national control over areas like labor law and tax policy. However, if successful, this reform could unlock significant economic potential for the EU.
Energy Union: A Costly but Vital Project
One of the most ambitious aspects of von der Leyen’s reform package is the creation of an EU energy union. The plan calls for building a modern, integrated energy grid across the European Union, which is projected to cost nearly 600 billion euros by 2030. This massive investment is driven by the EU’s need to reduce its reliance on energy imports, which costs hundreds of billions of euros annually.
The urgency of this reform has grown since the outbreak of the Russia-Ukraine conflict in 2022. The geopolitical situation has made Europe keenly aware of the risks associated with relying on foreign energy sources. The energy union aims to reduce this dependence by investing in renewable energy infrastructure and modernizing the energy grid.
However, the cost of the project is substantial, and funding it will require significant coordination among EU member states. Von der Leyen hopes that the creation of a unified capital market could help mobilize the necessary funds for the energy union. The success of this plan will depend on whether the EU can overcome political resistance to common funding mechanisms.
ECB’s Role in Supporting Economic Revival
While the long-term success of von der Leyen’s reforms hinges on structural changes, the European Central Bank (ECB) plays a critical role in supporting Europe’s economy in the short term. ECB President Christine Lagarde has stressed the importance of swift action, particularly given the global economic competition and the challenges posed by rising interest rates in the U.S. and the UK.
In January 2025, the ECB cut eurozone interest rates to 2.75%. This was a move aimed at stimulating economic growth in the face of global competition, where U.S. interest rates remain above 4%. The ECB’s lower interest rates provide temporary relief for European businesses and households, helping to sustain economic activity while longer-term structural reforms take shape.
Experts like Gilles Moec, AXA Group’s chief economist, are optimistic that the ECB can continue to support Europe’s economic recovery. However, they caution that this support is not enough on its own. Structural reforms, particularly in the areas of capital markets and energy infrastructure, will be essential for sustainable growth.
Political Challenges: Domestic Tensions May Derail Reforms
Von der Leyen’s economic plan offers a solid roadmap for the EU’s future. However, the real challenge lies in domestic politics. Many EU countries have strong national interests that could block the proposed reforms. For instance, some may oppose a unified capital market, fearing a loss of control over their financial systems.
Moreover, political issues within member states could lead to growing support for populist or extreme parties. This would make it even harder to gain the political backing needed for reform. The upcoming elections in Germany, the EU’s largest economy, will be a critical moment for von der Leyen’s plan.
Germany’s new government will face significant challenges. The economy has been slowing down recently, and revitalizing it will be no easy task. These issues will be key in determining the future success of von der Leyen’s vision for the EU.
The Road Ahead for EU Economic Reform
The European Union is at a critical point. Ursula von der Leyen’s practical reforms seem more achievable than previous ones. However, these reforms need political backing across the bloc to succeed. Creating a unified capital market, simplifying business regulations, and building an integrated energy union are key to Europe’s future economic stability.
Still, political challenges within the EU may slow down progress. If von der Leyen’s vision succeeds, it could mark the beginning of a new era. A period where practical reforms lead to sustainable growth. However, the journey ahead is long, and there’s much work left to turn these ideas into reality.