What will be the focus of Commission President Ursula von der Leyen’s “State of the European Union” speech on Wednesday? There is a lot of speculation about that at the moment. One thing is certain: While the climate mission of the Green Deal is practically complete, the issues of agriculture and biodiversity are not only far from agreement, but are gaining even more political momentum.
In fact, two days after the SOTEU speech, the EU Commission is scheduled to publish a draft implementing act to extend the authorization of glyphosate. The document is “in the internal consultation phase,” according to an executive representative. It is scheduled to be distributed to panel members at the Sept. 15 meeting of the Standing Committee on Plant Health (Scopaff).
It is not only glyphosate for which the deadline is approaching. The import bans on wheat, corn, rapeseed and sunflower seeds from Ukraine also expire on Sept. 15. Ukraine has already threatened the EU with a complaint to the WTO if it extends the bans. According to a spokeswoman for the EU Commission yesterday (Monday), the Commission is currently “working on solutions” that everyone would agree with. A Herculean task.
Minister Backes, the EU Commission wants to realign the European debt rules. Until before the summer break, numerous technical questions were still unanswered. Have these been clarified in the meantime?
The technical discussions are still ongoing. We have made progress, but there is still a lot of need for clarification. There is still work ahead of us here. We need a solution that works for all member states.
Germany criticizes the EU Commission’s proposal, saying that the new set of rules gives it too much room for interpretation in assessing national budget paths. Do you share this view?
For Luxembourg, the decisive factor is that we need simple, clear and credible rules that guarantee equal treatment of the member states and secure sustainable public finances in the long term. This is extremely important for us. Of course, we know that the member states have different economic starting positions and that we all – at national and European level – face enormous challenges: the green and digital transformation, strengthening our competitiveness, and the consequences of the Ukraine war, to name just a few. Here, we need to find a balance between stability and flexibility in the new framework to get all member states on board.
For example, could the involvement of a neutral body, an independent European Fiscal Board, be a way out to achieve equal treatment of member states?
There is already a Fiscal Board in the European institutional framework, modeled on the European Commission, and its role in the new governance architecture is under discussion. At the moment, we should focus primarily on what role the existing board could play. In the context of these discussions, however, I am by no means closing my mind to a discussion on an advisory role for this board.
Where do you see possible lines of compromise when the political debate enters the decisive phase in the fall?
Eleven states, including Luxembourg, under German leadership published a joint guest article in various newspapers on the reform of the Stability and Growth Pact before the summer break. In the article, we call for clear and transparent rules to achieve sustainable public finances in the long term. These points are essential. Important elements, such as the preventive criteria or the reduction of deficits and debt – criteria that apply equally to all member states – still need to be discussed further. The realignment of the Stability Pact is highly complex and requires intensive negotiations, which the Spanish presidency must now moderate. The important thing for Luxembourg is that we position ourselves well for the long term with the new rules. We must ensure early enough that national budgets remain stable in the long term. Overall, however, I remain confident that we can find compromises.
What happens if no agreement is reached by the end of the year and the current exemption rules in the Stability and Growth Pact expire? The Commission has already thought out loud that it will then conduct budgetary surveillance in 2024 along the lines of what has been achieved to date.
I don’t think this is legally possible. We have treaties that we have to abide by as long as the new set of rules is not enshrined in law. It is important that the member states take the necessary time to reach an agreement that is acceptable to all parties. Therefore, the motto must be quality before speed.
The Commission wants to spend €66 billion more for the second half of the multi-year EU budget. However, many member states are reluctant to provide additional money and are instead relying on reallocations in the EU budget. What do you think the solution here might be?
In the course of the Midterm Review, it is really important that we continue to support Ukraine unitedly and with all our strength. All member states see it that way. Merging financial support for Ukraine with other EU budget discussions complicates matters. As far as the mid-term review of the EU budget in general is concerned, we in Luxembourg would like to see even more targeted use of the agreed budget funds and greater efficiency in spending. The Commission will have to do some more work on this. But under no circumstances should support for Ukraine suffer as a result.
Wouldn’t it make sense, especially in view of the Ukraine aid and the associated uncertainties, to take the aid money out of the EU budget and manage it through a separate facility, comparable, for example, to the early euro bailout fund EFSF? Such a Ukraine facility could then raise money for the country on the capital market itself with the help of guarantees from the EU states.
That is an interesting idea, but it would take too much time with the creation of a new institution in the current situation. Besides, the euro crisis of that time cannot be compared with the Russian war of aggression. I think it makes more sense to keep the Ukraine aid under the umbrella of the EU budget and to bundle and manage it there, especially if we also think about the subsequent reconstruction in the country.
Climate protection is high on the EU agenda. The Luxembourg financial center has a prominent role to play here. What are the plans for the future?
Green bonds have changed the financial world. Investors, understandably, still want to make money with their investments, but today they also want to make a difference with their investments – they want to finance sustainable projects. For the Luxembourg Stock Exchange, this market is now a very important segment. 40 percent of all green bonds worldwide are listed here. In addition, 40 percent of all European ESG funds (Environmental, Social, & Governance) are listed here. We are the world’s fifth-largest green financial center. That’s something to be proud of.
What about blue bonds focused on marine conservation and social bonds?
Blue bonds are still more of a niche at the moment, but of course we see potential in this segment as well. With social bonds, on the other hand, we are already much further along. Luxembourg is the first stock exchange to list gender bonds. In the financial center, we are focusing on two areas: “Women in Finance” and “Finance for Women”.
What do you mean by that?
Luxembourg has a long tradition in finance and our financial center is working hard to bring women more into leadership roles in the management of the financial industry. To this end, just a few months ago we launched the “Women in Finance” charter, which was immediately joined by 70 banks and other players in the financial center. These are now in the process of addressing the goals of the charter in their own houses.
And what about “Finance for Women”?
This is where we come in with the gender bonds and support projects in developing and emerging countries that are led by women. When we talk about the UN’s SDGs, goal number five – gender equality – is central for me. It is important to support women in leadership roles, not least because studies show, for example, that companies run by women have a significantly better carbon footprint.
Luxembourg is also home to important EU financial institutions, including the European Stability Mechanism. At the moment, the ESM has no program country to which it must provide assistance. Where could the stability mechanism take on additional tasks in Europe?
First of all, it is of central importance that the stability mechanism exists. In past crises, the ESM has always sent out a signal of stability and thus contributed significantly to building market confidence. Before we now talk about further tasks for the ESM, all countries must first ratify the agreed ESM reform, which will give the stability mechanism a stronger role in crisis prevention.
You are also governor of the European Investment Bank. The EIB could finance even more projects for innovation and competitiveness, but would have to strengthen its capital base to do so. Would you be in favor of a capital increase?
Europe faces significant financing needs, particularly in relation to its green and digital goals. The EIB has a crucial role to play in mobilizing these funds. Public funding should serve as a catalyst for private investment, especially in higher-risk projects. Given these challenges, a capital increase would certainly be worth considering, but given the upcoming change in leadership at the EIB, it may currently be too early to take steps in this direction.
A change at the top of the EIB is imminent. A decision on this may already be made in September. Do you have a favorite among the well-known names that have raised their fingers?
I’m sorry to disappoint you, but I can’t give you a scoop here. All five candidates are eminently qualified to do the job at the head of the EU Bank. Personally, I think it’s very good that we have more female candidates, with three women and two men. This means that the prospects are not bad that the EIB will be headed by a woman for the first time in more than 60 years. But I cannot and do not want to anticipate the discussion. In a few days, at the informal Ecofin meeting in Santiago de Compostela, Spain, we will have an initial discussion on the successor to EIB President Hoyer, who has done a truly outstanding job, and then we may know more.
There is no shortage of superlatives when the Chief of Staff of the German Air Force, Ingo Gerhartz, joins Diehl Defence CEO Helmut Rauch for the presentation of the European Air Defense Academy in Todendorf at the beginning of September. As the “leading systems house for air defense systems and missiles in Germany,” the family-owned company’s defense division has recently received “excellent feedback from Ukraine,” enthuses Rauch: “Iris-T SLM saved Kyiv,” were the first words addressed to him by the mayor of the Ukrainian capital, Vitali Klitschko, at their meeting in the spring.
Lieutenant General Gerhartz, in turn, speaks of the “supersonic speed” with which the establishment of the Center for European Air Defense at the site of Air Defense Missile Group 61 in Todendorf on the Baltic coast took place in just eight months: “This is where the turn of the times becomes visible.” The MANTIS system previously stationed here was handed over to Slovakia in the wake of the Russian attack on Ukraine.
Above all, the publicly displayed solidarity between the defense industry and the Bundeswehr represents a turning point. The name of Diehl Defence, for example, is emblazoned in large letters at the entrance to the European Air Defense Academy, which is housed in a container complex, under a stylized missile with the letters Iris-T SLM. Training is already taking place here on military trucks manufactured by Rheinmetall MAN Military Vehicles (RMMV). Launcher, command posts and radar equipment are installed on them – even though the first of six units ordered by the German armed forces is not scheduled to enter service at the Todendorf site until October 2024.
In addition to Diehl Defence, Hensoldt, RMMV, Airbus Defence and Space, and Rohde & Schwarz have been involved in creating the training modules. Gerhartz speaks of “breathtaking speed”; Diehl Defence CEO Rauch praises the cooperation with the Bundeswehr as “completely unbureaucratic” and expresses the hope that the training center can “continue to grow accordingly.” “We hope to reach out to more international partners,” Gerhartz agrees. For European defense policy, the training facility in Todendorf symbolically embodies the new military cohesion.
To deepen this, the Air Force Inspector gathered the Air Force chiefs of 14 of the 19 member states of the European Sky Shield Initiative (ESSI) around him in Todendorf at the beginning of September. The joint arms cooperation project was initiated by German Chancellor Olaf Scholz in his Prague speech in August 2022 as a response to the threat posed by Russia – but France, Italy and Poland, which prefer their own air defense systems, have not joined the joint arms cooperation initiative.
The strategic goal of the initiative is clear for the Bundeswehr: It is about showing other partners that Iris-T SLM (Infra Red Imaging System Tail/Thrust Vector-Controlled Surface Launched Medium Range) is a “good answer to medium-range threats,” says Gerhartz. But the Bundeswehr also has an interest in spreading the weapon system as widely as possible throughout NATO, he said, in order to thereby increase interoperability within the alliance. Even if countries participating in ESSI decide in favor of other systems, it is important that these “can be integrated together, can operate together”.
As recently as June, the Bundestag approved the order of six fire units for the Bundeswehr worth €950 million; two of the ground-based systems have already been delivered to Ukraine, a third is about to be delivered to Kyiv, and five more are to follow. The signing of purchase contracts by Estonia and Latvia is expected in the coming weeks.
The war effort is already paying off for Diehl Defence. Sales in the Armaments 2022 subdivision, for example, rose from €660 million to €810 million. Diehl Defence program manager Harald Buschek, who is responsible for IRis-T development, says: “The Ukrainians are absolute professionals; they have a hit rate of 100 percent in Kyiv.” In 2025, he says, the private company wants to build at least eight systems, instead of three to four as this year.
While experts welcome the integration of Iris-T into ESSI’s ground-based air defense, the verdict on the Israeli-American Arrow system is much more reserved. Simon Petersen, a Danish expert on ballistic missile defense, described the German government’s purchase as “the strangest procurement decision I’ve seen in a long time.” In June, the Bundestag’s budget committee had approved the allocation of nearly €4 billion for the Israeli-American system; in August, the US government gave the green light for delivery. Gertz called it “historic that this country, of all countries, is providing this protection for Germany”.
What is good for the German-Israeli arms partnership does not necessarily make sense for the integration of ground-based European air defense: The greatest threat to Germany and Europe comes primarily from Russian short-range 9K720 Iskander missiles, the Kh-47M2 Kinschal hypersonic weapon and cruise missiles – all weapon systems that do not leave the earth’s atmosphere during their flight. This is probably one of the reasons why training on Arrow 3 will not take place at the European training center in Todendorf, but in Israel. And the system will not be stationed on the Baltic coast in 2024, but in Holzdorf in Saxony-Anhalt, among other places.
What will be the focus of Commission President Ursula von der Leyen’s “State of the European Union” speech on Wednesday? There is a lot of speculation about that at the moment. One thing is certain: While the climate mission of the Green Deal is practically complete, the issues of agriculture and biodiversity are not only far from agreement, but are gaining even more political momentum.
In fact, two days after the SOTEU speech, the EU Commission is scheduled to publish a draft implementing act to extend the authorization of glyphosate. The document is “in the internal consultation phase,” according to an executive representative. It is scheduled to be distributed to panel members at the Sept. 15 meeting of the Standing Committee on Plant Health (Scopaff).
It is not only glyphosate for which the deadline is approaching. The import bans on wheat, corn, rapeseed and sunflower seeds from Ukraine also expire on Sept. 15. Ukraine has already threatened the EU with a complaint to the WTO if it extends the bans. According to a spokeswoman for the EU Commission yesterday (Monday), the Commission is currently “working on solutions” that everyone would agree with. A Herculean task.
Minister Backes, the EU Commission wants to realign the European debt rules. Until before the summer break, numerous technical questions were still unanswered. Have these been clarified in the meantime?
The technical discussions are still ongoing. We have made progress, but there is still a lot of need for clarification. There is still work ahead of us here. We need a solution that works for all member states.
Germany criticizes the EU Commission’s proposal, saying that the new set of rules gives it too much room for interpretation in assessing national budget paths. Do you share this view?
For Luxembourg, the decisive factor is that we need simple, clear and credible rules that guarantee equal treatment of the member states and secure sustainable public finances in the long term. This is extremely important for us. Of course, we know that the member states have different economic starting positions and that we all – at national and European level – face enormous challenges: the green and digital transformation, strengthening our competitiveness, and the consequences of the Ukraine war, to name just a few. Here, we need to find a balance between stability and flexibility in the new framework to get all member states on board.
For example, could the involvement of a neutral body, an independent European Fiscal Board, be a way out to achieve equal treatment of member states?
There is already a Fiscal Board in the European institutional framework, modeled on the European Commission, and its role in the new governance architecture is under discussion. At the moment, we should focus primarily on what role the existing board could play. In the context of these discussions, however, I am by no means closing my mind to a discussion on an advisory role for this board.
Where do you see possible lines of compromise when the political debate enters the decisive phase in the fall?
Eleven states, including Luxembourg, under German leadership published a joint guest article in various newspapers on the reform of the Stability and Growth Pact before the summer break. In the article, we call for clear and transparent rules to achieve sustainable public finances in the long term. These points are essential. Important elements, such as the preventive criteria or the reduction of deficits and debt – criteria that apply equally to all member states – still need to be discussed further. The realignment of the Stability Pact is highly complex and requires intensive negotiations, which the Spanish presidency must now moderate. The important thing for Luxembourg is that we position ourselves well for the long term with the new rules. We must ensure early enough that national budgets remain stable in the long term. Overall, however, I remain confident that we can find compromises.
What happens if no agreement is reached by the end of the year and the current exemption rules in the Stability and Growth Pact expire? The Commission has already thought out loud that it will then conduct budgetary surveillance in 2024 along the lines of what has been achieved to date.
I don’t think this is legally possible. We have treaties that we have to abide by as long as the new set of rules is not enshrined in law. It is important that the member states take the necessary time to reach an agreement that is acceptable to all parties. Therefore, the motto must be quality before speed.
The Commission wants to spend €66 billion more for the second half of the multi-year EU budget. However, many member states are reluctant to provide additional money and are instead relying on reallocations in the EU budget. What do you think the solution here might be?
In the course of the Midterm Review, it is really important that we continue to support Ukraine unitedly and with all our strength. All member states see it that way. Merging financial support for Ukraine with other EU budget discussions complicates matters. As far as the mid-term review of the EU budget in general is concerned, we in Luxembourg would like to see even more targeted use of the agreed budget funds and greater efficiency in spending. The Commission will have to do some more work on this. But under no circumstances should support for Ukraine suffer as a result.
Wouldn’t it make sense, especially in view of the Ukraine aid and the associated uncertainties, to take the aid money out of the EU budget and manage it through a separate facility, comparable, for example, to the early euro bailout fund EFSF? Such a Ukraine facility could then raise money for the country on the capital market itself with the help of guarantees from the EU states.
That is an interesting idea, but it would take too much time with the creation of a new institution in the current situation. Besides, the euro crisis of that time cannot be compared with the Russian war of aggression. I think it makes more sense to keep the Ukraine aid under the umbrella of the EU budget and to bundle and manage it there, especially if we also think about the subsequent reconstruction in the country.
Climate protection is high on the EU agenda. The Luxembourg financial center has a prominent role to play here. What are the plans for the future?
Green bonds have changed the financial world. Investors, understandably, still want to make money with their investments, but today they also want to make a difference with their investments – they want to finance sustainable projects. For the Luxembourg Stock Exchange, this market is now a very important segment. 40 percent of all green bonds worldwide are listed here. In addition, 40 percent of all European ESG funds (Environmental, Social, & Governance) are listed here. We are the world’s fifth-largest green financial center. That’s something to be proud of.
What about blue bonds focused on marine conservation and social bonds?
Blue bonds are still more of a niche at the moment, but of course we see potential in this segment as well. With social bonds, on the other hand, we are already much further along. Luxembourg is the first stock exchange to list gender bonds. In the financial center, we are focusing on two areas: “Women in Finance” and “Finance for Women”.
What do you mean by that?
Luxembourg has a long tradition in finance and our financial center is working hard to bring women more into leadership roles in the management of the financial industry. To this end, just a few months ago we launched the “Women in Finance” charter, which was immediately joined by 70 banks and other players in the financial center. These are now in the process of addressing the goals of the charter in their own houses.
And what about “Finance for Women”?
This is where we come in with the gender bonds and support projects in developing and emerging countries that are led by women. When we talk about the UN’s SDGs, goal number five – gender equality – is central for me. It is important to support women in leadership roles, not least because studies show, for example, that companies run by women have a significantly better carbon footprint.
Luxembourg is also home to important EU financial institutions, including the European Stability Mechanism. At the moment, the ESM has no program country to which it must provide assistance. Where could the stability mechanism take on additional tasks in Europe?
First of all, it is of central importance that the stability mechanism exists. In past crises, the ESM has always sent out a signal of stability and thus contributed significantly to building market confidence. Before we now talk about further tasks for the ESM, all countries must first ratify the agreed ESM reform, which will give the stability mechanism a stronger role in crisis prevention.
You are also governor of the European Investment Bank. The EIB could finance even more projects for innovation and competitiveness, but would have to strengthen its capital base to do so. Would you be in favor of a capital increase?
Europe faces significant financing needs, particularly in relation to its green and digital goals. The EIB has a crucial role to play in mobilizing these funds. Public funding should serve as a catalyst for private investment, especially in higher-risk projects. Given these challenges, a capital increase would certainly be worth considering, but given the upcoming change in leadership at the EIB, it may currently be too early to take steps in this direction.
A change at the top of the EIB is imminent. A decision on this may already be made in September. Do you have a favorite among the well-known names that have raised their fingers?
I’m sorry to disappoint you, but I can’t give you a scoop here. All five candidates are eminently qualified to do the job at the head of the EU Bank. Personally, I think it’s very good that we have more female candidates, with three women and two men. This means that the prospects are not bad that the EIB will be headed by a woman for the first time in more than 60 years. But I cannot and do not want to anticipate the discussion. In a few days, at the informal Ecofin meeting in Santiago de Compostela, Spain, we will have an initial discussion on the successor to EIB President Hoyer, who has done a truly outstanding job, and then we may know more.
There is no shortage of superlatives when the Chief of Staff of the German Air Force, Ingo Gerhartz, joins Diehl Defence CEO Helmut Rauch for the presentation of the European Air Defense Academy in Todendorf at the beginning of September. As the “leading systems house for air defense systems and missiles in Germany,” the family-owned company’s defense division has recently received “excellent feedback from Ukraine,” enthuses Rauch: “Iris-T SLM saved Kyiv,” were the first words addressed to him by the mayor of the Ukrainian capital, Vitali Klitschko, at their meeting in the spring.
Lieutenant General Gerhartz, in turn, speaks of the “supersonic speed” with which the establishment of the Center for European Air Defense at the site of Air Defense Missile Group 61 in Todendorf on the Baltic coast took place in just eight months: “This is where the turn of the times becomes visible.” The MANTIS system previously stationed here was handed over to Slovakia in the wake of the Russian attack on Ukraine.
Above all, the publicly displayed solidarity between the defense industry and the Bundeswehr represents a turning point. The name of Diehl Defence, for example, is emblazoned in large letters at the entrance to the European Air Defense Academy, which is housed in a container complex, under a stylized missile with the letters Iris-T SLM. Training is already taking place here on military trucks manufactured by Rheinmetall MAN Military Vehicles (RMMV). Launcher, command posts and radar equipment are installed on them – even though the first of six units ordered by the German armed forces is not scheduled to enter service at the Todendorf site until October 2024.
In addition to Diehl Defence, Hensoldt, RMMV, Airbus Defence and Space, and Rohde & Schwarz have been involved in creating the training modules. Gerhartz speaks of “breathtaking speed”; Diehl Defence CEO Rauch praises the cooperation with the Bundeswehr as “completely unbureaucratic” and expresses the hope that the training center can “continue to grow accordingly.” “We hope to reach out to more international partners,” Gerhartz agrees. For European defense policy, the training facility in Todendorf symbolically embodies the new military cohesion.
To deepen this, the Air Force Inspector gathered the Air Force chiefs of 14 of the 19 member states of the European Sky Shield Initiative (ESSI) around him in Todendorf at the beginning of September. The joint arms cooperation project was initiated by German Chancellor Olaf Scholz in his Prague speech in August 2022 as a response to the threat posed by Russia – but France, Italy and Poland, which prefer their own air defense systems, have not joined the joint arms cooperation initiative.
The strategic goal of the initiative is clear for the Bundeswehr: It is about showing other partners that Iris-T SLM (Infra Red Imaging System Tail/Thrust Vector-Controlled Surface Launched Medium Range) is a “good answer to medium-range threats,” says Gerhartz. But the Bundeswehr also has an interest in spreading the weapon system as widely as possible throughout NATO, he said, in order to thereby increase interoperability within the alliance. Even if countries participating in ESSI decide in favor of other systems, it is important that these “can be integrated together, can operate together”.
As recently as June, the Bundestag approved the order of six fire units for the Bundeswehr worth €950 million; two of the ground-based systems have already been delivered to Ukraine, a third is about to be delivered to Kyiv, and five more are to follow. The signing of purchase contracts by Estonia and Latvia is expected in the coming weeks.
The war effort is already paying off for Diehl Defence. Sales in the Armaments 2022 subdivision, for example, rose from €660 million to €810 million. Diehl Defence program manager Harald Buschek, who is responsible for IRis-T development, says: “The Ukrainians are absolute professionals; they have a hit rate of 100 percent in Kyiv.” In 2025, he says, the private company wants to build at least eight systems, instead of three to four as this year.
While experts welcome the integration of Iris-T into ESSI’s ground-based air defense, the verdict on the Israeli-American Arrow system is much more reserved. Simon Petersen, a Danish expert on ballistic missile defense, described the German government’s purchase as “the strangest procurement decision I’ve seen in a long time.” In June, the Bundestag’s budget committee had approved the allocation of nearly €4 billion for the Israeli-American system; in August, the US government gave the green light for delivery. Gertz called it “historic that this country, of all countries, is providing this protection for Germany”.
What is good for the German-Israeli arms partnership does not necessarily make sense for the integration of ground-based European air defense: The greatest threat to Germany and Europe comes primarily from Russian short-range 9K720 Iskander missiles, the Kh-47M2 Kinschal hypersonic weapon and cruise missiles – all weapon systems that do not leave the earth’s atmosphere during their flight. This is probably one of the reasons why training on Arrow 3 will not take place at the European training center in Todendorf, but in Israel. And the system will not be stationed on the Baltic coast in 2024, but in Holzdorf in Saxony-Anhalt, among other places.
