Welcome to EURACTIV’s weekly Economy Brief. You can subscribe to the newsletter here.

One legislative proposal at a time, the European Commission is trying to build its economic resilience and reinforce the EU’s economic sovereignty. But to increase the EU’s leverage on the global stage, power relations between public and private interests within the EU will have to shift as well.

On Monday, the Commission finally presented its proposal for the Single Market Emergency Tool (SMEI) that should allow the Commission to identify critical products and sectors, request information from companies in these sectors, and, in emergencies, reprioritise their orders.

Analysing the Commission’s proposal, Klaas Hendrik Eller, an assistant professor specialising in the legal governance of global supply chains, told EURACTIV that supply chains would increasingly be understood to be “a sort of public infrastructure” instead of the “mysteriously complex assemblage of private companies, composed in a way to maximise efficiency.”

According to the reasoning of the Commission, secure supply chains have shown themselves to be a Europan security interest, which is why they cannot simply be handed over to the whims of the free market. A previously private concern becomes a public one.

This shift is not only visible in the SMEI, but in many other EU policies that aim at increasing the EU’s resilience amid global tensions. The foreign investment screening mechanism brings investment and financing decisions into the realm of the public; the raw materials act, announced last week, does the same for the most important materials that should feed the industry.

When politicians talk of European sovereignty, they usually mean the transfer of some powers and competences from the national level to the EU level. There is certainly some of that in the SMEI – for example, the requirement to keep intra-EU borders open for products and workers during emergencies or the possibility to organise public procurement on an EU level.

However, increasing the EU’s economic sovereignty also means increasing control over the EU’s economic actors.

Understandably, companies are not very fond of this, complaining of the overreach of the Commission. For example, the possibility for the Commission to reprioritise orders in an emergency situation under the SMEI is certain to be fought by businesses.

While the SMEI might seem like a power grab by the state to the detriment of entrepreneurial freedom, the Commission pointed out that the powers it proposes to give itself under the SMEI are still far weaker than the interventionist powers that are at the disposal of other states, for example, the US.

“And I don’t think we can call the US a planned economy,” Commissioner Thierry Breton said.

The Commission is not giving itself outrageously uncommon powers. Rather, it claws some aspects of the economy back under political supervision that were freed up for the market when the creation of the single market reduced national political supervision over economic actors without replacing this supervision at the EU level.

What we are witnessing is not a completely new politicisation of the market. It is the re-politicisation of the economy at a new, more European level.

 Chart of the Week

Price rises across Europe are being felt by everybody, but especially by those who have the least. And for them, one price development is especially worrying: averaged across the EU, the price of bread has increased by 18% from August 2021 to August 2022.

The price of bread is influenced by the disruptions to the wheat supply following Russia’s invasion of Ukraine, skyrocketing energy prices and the related increase in fertiliser prices. While prices generally increased more in Eastern than in Western Europe, the case of Hungary is especially jarring – with a price increase of 66% within a year.

The Hungarian price development is especially puzzling since, earlier this year, the Hungarian government introduced price controls on some basic foodstuffs, wheat flour being one of them. On Saturday, the Hungarian government announced it would extend the price controls until the end of the year, but the data on bread prices makes one doubt whether they work.

The Hungarian bakers association argued that the price increases were due to the rising energy prices. However, rising energy prices are a reality across the EU, and Hungary was supposed to have fewer problems with energy prices, thanks to its special gas deals with Russia.

Something is off, either with the price controls or with the data. If you, dear Economy Brief reader, have an idea of what might be the reason for the dramatic Hungarian price rises, let us know!

Finally, the graph below also hides a positive message. With bread prices in Switzerland rising the least compared to the rest of Europe, the unambiguously best bread on the continent has become relatively cheaper in the past 12 months.

Graph by Esther Snippe

EU Economic Policy Roundup

EU Parliament and member states greenlight €5 billion macro-financial assistance for Ukraine: On Thursday (15 September) a large majority of the European Parliament greenlighted macro-financial assistance to Ukraine in the form of cheap long-term loans backed by guarantees from member states. EU member states also gave their ok during the General Affairs Council on Tuesday (20 September). The €5 billion are part of the promise of up to €9 billion in macro-financial aid that the EU Commission promised in May.

CETA is five years old: On Wednesday (21 September), the EU Commission celebrated the fifth birthday of the EU-Canada Comprehensive Economic and Trade Agreement (CETA), claiming that trade in goods had increased by 31% over the past five years. CETA entered into force provisionally in 2017. However, 11 of 27 EU member states have still not ratified the agreement.

Commission’s ban on forced labour products should include remedies, MEP says. According to Maria Arena (S&D), chair of the human rights subcommittee, the EU executive should include remedies for victims in its proposal for a ban on products made with forced labour. Remedies could have “a deterrent effect” on companies, making sure they have no incentive to put products tainted by human rights abuses on the European market, she told EURACTIV. However, the Commission maintains that the costs of product withdrawal will be enough to deter companies from eliminating forced labour from their operations.

Commission threatens to block €7.5 billion in EU cohesion funds for Hungary over rule of law concerns. Citing worries over corruption in Hungary, the European Commission proposed on Sunday (18 September) to suspend one-third of the cohesion funds allocated to the country if its reform efforts remain insufficient in the coming two months. Read more.

Economy news from the Capitals

Austria in violation of EU labour market laws. The European Commission has notified the Austrian government of its failure to signal the transposition of new EU labour market directives, kickstarting the bloc’s infringement procedure that could end at the European Court of Justice. Read more.

Spain fines delivery app Glovo €79 million for labour law breaches. Delivery company Glovo was fined €79 million by Spain’s labour ministry for violating a law that requires food delivery platforms to hire employees formally. Read more.

Commission should not accept Orbán’s move to unblock EU cash, Budapest mayor. The Commission should not approve Hungary’s remedial measures to reverse the EU’s decision to suspend funds over corruption concerns, according to the mayor of Budapest, Gergely Karácsony. Read more.

Swedish Central Bank boosts interest rate with the biggest rise in 30 years. The Swedish Riksbank decided on Tuesday to raise the interest rate to 1.75% in, the most important increase in about three decades and is expected to announce more additions this autumn, the bank said on Tuesday. Read more.

Teleworkers more than doubled in four years in Belgium. Teleworking is growing in Belgium and impacts mobility habits, FPS Mobility and Transport explained in a press release published on Monday based on a survey of 1,250 Belgian workers between June and July this year. Read more.

Poland to oppose EU rule of law sanctions on Hungary. After six months of cooler relations, Polish Prime Minister Mateusz Morawiecki announced his country would oppose EU rule of law sanctions on Hungary proposed by the European Commission on Sunday. Read more.

Reducing corporate income tax beneficial, Portuguese economy minister. Reducing corporate income tax for companies would be an important signal for the entire industry and beneficial given the current crisis, Economy Minister António Costa Silva said on Sunday. Read more.

Dutch social programme to combat poverty gets EC go-ahead. The Netherlands will receive €413 million from the European Social Fund to help people in vulnerable employment positions and combat poverty until 2027, the Social and Employment Ministry announced following the European Commission’s approval on Thursday. Read more.

Literature Corner

Zugzwang Central Banking: In this FT column, Daniela Gabor explains the impossible situation that the European Central Bank finds itself in. She argues that “macro-financial stability requires a new framework for coordination between central banks and Treasuries that can support a state more willing to, and capable of, disciplining capital.”

Zugzwang: Are we on the brink of a central banking paradigm shift? In a response to Gabor’s FT column, Adam Tooze shows some scepticism about whether the paradigm shift Gabor argues for is imminent.

Technocracy and Crisis: Stagnation and technocratic rule in Italy. Ahead of this Sunday’s elections in Italy, this long-read by Lucio Baccaro is a well-argued but rather depressing account of how Italian politics and economic policies interacted in the past years.

What Giorgia Meloni would mean for Europe: The CER’s Luigi Scazzieri takes a look ahead at what a triumph of Italy’s far-right would mean for Italian relations with the EU. Especially regarding the national recovery plan, where the right-wing coalition wants to repurpose some of the spending, tensions can be foreseen.

SME Envoy report: How are European SMEs impacted by the Russian invasion of Ukraine? European SMEs have a harder time than large companies dealing with the consequences of the Russian invasion of Ukraine.

Silvia Ellena and Vlad Makszimov contributed to the reporting.

[Edited by Nathalie Weatherald]