EU leaders scheme backlash to Viktor Orbán’s freelance diplomacy

Good morning. While EU leaders were milling around the Washington Nato summit, discussing additional support to Ukraine and closely watching US President Joe Biden’s health, they were also debating the right response to Hungarian premier Viktor Orbán’s recent diplomatic rampage. Henry has more below.

And our Frankfurt bureau chief previews a report by German and French economic experts who have some ideas on the lagging Capital Markets Union.

Dear Viktor

EU leaders are corralling a joint response to Hungarian Prime Minister Viktor Orbán’s freewheeling diplomacy, in a bid to draw a red line under his controversial visit to Vladimir Putin that Brussels deems contravened EU treaties, writes Henry Foy.

Context: Orbán, the EU’s most pro-Russian leader, inherited the largely ceremonial six-month rotating presidency of the EU Council on July 1. Four days later, he flew to Moscow and discussed a half-baked peace plan with Putin, outraging his EU and Nato allies.

On the sidelines of the Nato leaders’ summit in Washington yesterday, informal groups of EU leaders bounced around ideas including a joint letter to Orbán making clear their indignation and demanding he cease his unauthorised foreign policy jaunts, according to people briefed on the discussions.

“Enough is enough,” said one of the people. “There’s a lot of irritation and discussion over how to hit back.” A second person said that another proposal was to convene a special meeting of EU affairs ministers dedicated solely to addressing Hungary’s transgressions.

Those conversations took place either side of a heated meeting of EU ambassadors in Brussels, where a majority harshly condemned Orbán’s actions. Most also echoed a legal assessment that Orbán had “jeopardised” joint EU goals and broken rules on foreign policy “solidarity”.

Belgian caretaker Prime Minister Alexander de Croo, whose country held the rotating presidency before Hungary, told the Financial Times: “When we did the handover, [Orbán] told me that he would do everything to ensure continuity and not undermine the results of the Belgian EU presidency, and it’s obvious that’s not what he is doing. The way he is behaving is clearly not in line with the treaties.”

“Unity is the precondition to be strong, to have influence. When we are divided, we are weak,” Charles Michel, president of the EU Council — and the person actually mandated to speak on behalf of the 27 states — said in an interview yesterday in Washington.

“If there is an attempt to divide us, it is not the first time,” Michel said. “We must ensure that the other 26 would stick to the [official EU] position and would not be divided by any attempt to instil doubts or some curious ideas.”

Chart du jour: Ahoy

Yachts, symbols of wealth and opulence, are often associated with individuals accused of murky dealings. That is a problem for Italy’s thriving yachting trade, writes Silvia Sciorilli Borrelli.

Start’em early

Economic advisers to the French and German governments have criticised a central piece of the EU’s languishing capital markets reform, proposing some eye-catching ideas of their own, writes Martin Arnold.

Context: Europe’s policymakers are examining ways to increase the depth of the region’s capital markets. After more than a decade of sluggish negotiations, this project — known as Capital Markets Union — gained fresh impetus in recent months due to concerns over Europe’s shortfall of investment and growth compared with the US.

In a report to be published today, the experts say that helping banks offload more loans through securitisation — a central focus of the CMU — is unlikely to do much to boost investment or growth in Europe.

Ulrike Malmendier, a member of the German Council of Economic Experts, said boosting securitisation “was not what we need right now” even if banks have “lobbied so hard” for this to happen, adding it “will not really boost growth or investment”.

Instead, the economists propose several other policies, including encouraging children to become investors. The report suggests that EU investment accounts for kids would “allow children to experience different financial cycles and understand the long-term low risk and high reward of investing in equities”.

The experts also recommend increasing the size of private sector pension funds, while calling for governments to match private investments in venture capital funds.

Other measures include harmonising EU insolvency laws and strengthening the powers of the European Securities and Markets Authority, among other things.

But the timing might not be ideal, as the experts themselves acknowledge, given that Europe’s second-largest economy is struggling to form a government.

“Of course the situation in France does not make it easier,” said Malmendier. “But I am still somewhat hopeful we can bring more attention to this issue given the urgency of the situation.”

What to watch today

1. Final day of Nato leaders’ summit in Washington, DC.

2. Informal meeting of EU environment ministers in Budapest.

Now read these

• Power vacuum: France’s post-election chaos could hinder progress on a long list of high-priority EU dossiers, as President Emmanuel Macron turns inwards.

• Copying Russia: In dire need of soldiers to replace troops killed in action, Ukraine is recruiting convicted felons for its army.

• Further right: After a fallout with other parties, Alternative for Germany has formed a third far-right group in the European parliament.