China Wants To Rule The EU: Will Berlin Finally Wake Up?
Good morning! We are David Carretta, Christian Spillmann and Oliver Grimm, and we are presenting you the Morning Post Europe. Parts of it are translated with the help of AI, but always edited by one of us.
Today’s analysis focuses on China. Foreign Ministers adopted a document on common threats that will serve as the basis for drafting the EU’s Security Strategy. Oliver explains that Beijing is ready for an economic war to impose its will on the EU. Will Brussels wake up?
In the briefing we cover Ukraine: Kyiv has been bombed again, while Zelensky is under pressure to dismiss the army commander. The Commission on Friday proposed the long-awaited ETS revision. In Hungary, Magyar is pressing ahead with de-Orbanisation. In the United Kingdom, Andy Burnham becomes Prime Minister today.
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China Wants To Rule The EU: Will Berlin Finally Wake Up?
By Oliver Grimm
No public announcement, no press release, complete radio silence: Last Monday at their last Council meeting before the summer, EU foreign ministers approved a geopolitically explosive document. In their new “Assessment of the EU’s Strategic Environment,” the 27 ministers warn that China intends to use its “asymmetric advantages with the EU, from trade imbalances to critical raw materials to technological advances” as leverage “in pursuit of its ambition of becoming the world’s leading power.” Beijing will “continue to seek to increase its influence in Europe”, the paper states.
The 20-page document, entitled “Common Understanding of Threats and Challenges,” is neither classified nor did it appear unexpectedly on the ministers’ agenda. The EU ambassadors had already given their approval on July 8. As the 16th of 22 agenda items, it was passed at the very beginning of the Council meeting on Monday. Our sharp-eyed colleague Finbarr Bermingham from the “South China Morning Post” was the first to spot it.
Its content is a significant reassessment of the Chinese threat to Europe’s autonomy. The People’s Republic “positions itself to win systemic competition, combining industrial scale, technological ambition, and global reach while exploiting instability”, it says.
The political reality, however, shows the limits to the Union’s autonomy vis-à-vis Beijing. Just two days after the meeting of foreign ministers, “The Financial Times” reported that Ukraine will be permitted to use €6 billion of its EU support loan to purchase Chinese components for its drone fleet. China is thus reaping double profits from Russia’s war against Ukraine: thanks to its technological dominance, both warring parties are faithful clients of its drone industry.
Certainly, the greatest threat to Europe continues to emanate from Moscow, the ministers conclude in their threat assessment: “Russia seeks to break the European and global security order and promote a governance model based on spheres of influence, through which it aims to reassert predominance over its neighbours.” The ministers’ hope for a quick end to this war are slim: “Russia continues to disregard diplomatic efforts to bring an end to its war of aggression and achieve a just and sustainable peace on the continent.”
The Kremlin, they alert, “has stepped up its hybrid campaign against the EU and its Member States, including the disruption of critical infrastructure, espionage, cyberattacks, foreign information manipulation and interference, satellite interference, instrumentalisation of migration as well as election interference and physical sabotages and other forms of hostile interference.” The purpose of all this? “To undermine European unity and democracy, instigate fear and polarisation in societies and, critically, discourage further support for Ukraine.” The “increasing militarisation of society and shift to a war economy” in Russia “constitutes a long-term threat to European security.”
The EU has widely taken account of the Muscovite menace, after four-and-a-half years of full-blown war, and 12 years after the illegal Russian annexation of Crimea. There is less consensus on the Chinese threat. Several EU members have deliberately manoeuvered themselves into dangerous economic dependencies. Think, for example, of the massive Chinese electric vehicle and battery investments in Pedro Sánchez’ Spain — which would rely on thousands of imported Chinese workers for at least the next two years, by the Spanish government’s own admission.
But the biggest culprit in Europe’s sellout to the Chinese dictatorship is Germany. Under the 16 years of Angela Merkel’s rule, and the four of her successor Olaf Scholz, Berlin has thwarted even the slightest attempt to formulate a political answer to the Chinese Communist Party’s declared goal of becoming the world’s superpower by means of economic domination. What’s good for Volkswagen and Bosch is good for Germany. And what’s good for Germany cannot be questioned by the rest of the EU.
Belatedly, the Germans are waking up. The systematic destruction of the German automotive sector, brought on by a combination of corporate greed, managerial shortsightedness, and an obsession with the combustion engine in an era of electrification, seems to have changed the German chancellor’s thinking. The joint Franco-German government meeting on Friday in Brühl offered a spark of hope.
“I am not ready to accept that things continue like they currently stand, because this is to the detriment of jobs in Europe”, Merz said at a joint press conference with French President Emmanuel Macron. The EU’s daily trade deficit of €1 billion with China isn’t simply a consequence of the interplay between Europan demand and Chinese supply. Beijing, Macron warned, is waging an “aggressive” trade war against Europe. He also said that France and Germany have “never been so convergent on China”.
Both leaders were zeroing in on the massive manipulation of China’s currency, the Yuan. Merz said Beijing deliberately undervalued it by 30 percent in order to give its exporters another boost (on top of pharaonic state subsidies to its industries, up to eight times higher than in OECD countries). “If it is true that the Chinese currency is at present valued correctly, there should be no reason not to let it be traded freely”, Merz added, not without malice.
Berlin and Paris set out to work on a plan for the EU to counter the Chinese menace. Their finance and foreign ministers are tasked to come up with a document in time for the Europan Council on 15 October.
“We are only at the beginning of China’s productivity. It is going to get out of control, and the Chinese authorities cannot control it”, a European diplomat told The Morning Post Europe. In step with the work on this geoeconomic front, the Union quickly needs to accelerate the deepening of its Common Market. “Prices must become competitive again in Europe, and that is going to happen through the Common Market. We have to accelerate towards a Common Market 3.0. Otherwise, Europe will become an industrial colony”, the diplomat added.
All this means the European Commission must change its modus operandi quickly, and profoundly. DG Trade, the diplomat pointed out, wasn’t created for industrial policy, but for free trade. Belatedly, Commission president Ursula von der Leyen has come around to accept this reality. She has tasked Denis Redonnet, a deputy director general in DG Trade in charge of the application of trade rules, to become her “Mr China”.
Will all this prevent Europe’s economic vassalisation? The answer will be given in an executive office at the address Willy-Brandt-Straße 1, 10557 Berlin — the seat of the Bundeskanzleramt.
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Geopolitics
Kyiv under missiles, Zelensky under pressure to dismiss Syrskyi — Russia launched another massive attack of ballistic missiles and drones against Ukraine on the night of Saturday to Sunday, once again focusing on Kyiv, exploiting the shortage of Patriot interceptors that allows it to pierce the capital’s air defences. Of 41 missiles and 125 drones launched by Russia, Ukrainian defences shot down or neutralised 18 missiles and 108 drones. The attack caused at least one death and 16 injuries.
Meanwhile, protests against President Volodymyr Zelensky’s decision to dismiss Defence Minister Mykhailo Fedorov show no sign of abating. The protests continued over the weekend. Zelensky is reportedly considering the possibility of dismissing the commander of the armed forces, General Oleksandr Syrskyi, who had been in conflict with Fedorov. “Change is inevitable,” Fedorov himself said following a conversation with Zelensky: “Dialogue is happening. I believe we will succeed.”
In search of a deal on the twenty-first sanctions package — The ambassadors of the twenty-seven member states will try again this week to reach agreement on the twenty-first sanctions package against Russia. Last week’s attempts came to nothing due to opposition from Greece, which wants to obtain a derogation allowing it to continue transporting Russian liquefied natural gas to third countries.
The package has already been partly hollowed out to overcome the vetoes of Italy and France (on visas for Russian fighters) and of Germany and Portugal (on the cod import embargo). The objective had been to reach an agreement by 15 July to prevent an increase in the Russian crude oil price cap, which sets the threshold above which EU operators cannot offer services for transporting oil. A temporary solution was found: the price cap will remain frozen until 23 July. This is the new deadline for agreement on the twenty-first sanctions package.
Green Deal
The Commission’s proposed ETS reform — The European Commission on Friday 17 July launched the major revision of the Emissions Trading System (ETS), the pillar of the EU’s climate and decarbonisation policy, but considered by Italy and the countries of central and eastern Europe as an unsustainable cost for their industries. The objective of the reform is to reconcile climate, innovation and competitiveness: “Keeping the clean transition on track, providing relief to our industry and supporting decarbonisation,” said President Ursula von der Leyen.
The Commission has been subjected to strong pressure from three groups of member states. Spain and the Nordic countries want to preserve the integrity of the ETS following investments made in renewables and fear that the revision will undermine the price signal. Italy and Poland lead a group of 10 member states that would like to significantly scale back the most successful decarbonisation tool, accusing it of imposing an enormous cost on their industries. Germany and France are in the middle, in favour of some adjustments.
Big industry gets slower emissions reduction and more free allowances — In concrete terms, the Commission’s proposal translates into a slower emissions reduction trajectory for the sectors covered by the ETS from 2031, more free allowances for energy-intensive industries and a market stability reserve that will also be tasked with preventing price spikes. The Commission proposes cutting the allowance cap reduction path from 4.4 percent to 3.7 percent from 2031 to 2035, and to 1.7 percent from 2036. Furthermore, the proposal provides for introducing up to 2 percent of international credits for the 2036-40 period and integrating CO2 removal for 250 megatonnes.
The market stability reserve intake rate will fall from the current 24 to 12 percent. The market stability reserve will be more dynamic in order to inject certificates in the event of price spikes. The additional free allowances for industry are worth around €10 billion. The sectors covered by the Carbon Border Adjustment Mechanism (CBAM) — iron and steel, aluminium, cement, fertilisers, hydrogen and electricity — will continue to benefit from free allowances until 2038. A clause is included whereby a company that leaves Europe will be obliged to repay the free allowances it received.
More conditionality for industries and member states — The revision proposed by the Commission provides that industries and member states will be subject to a series of conditionalities for the easing of the climate effort. The additional free allowances will be granted only to companies that provide decarbonisation investment plans (80 percent at the time of approval by boards of directors, 20 percent after implementation of the investments). Member states will be required to spend at least 50 percent of ETS revenues on decarbonisation investments in the energy sector (electrification, grids, storage), industry (including chemicals and fertilisers), green tech, aviation and maritime.
The Commission also plans to grant more support to Eastern European countries, Greece and Portugal (Italy is not included), as well as to create an Industrial Decarbonisation Bank that should provide investments of €100 billion by 2040 (€30 billion will be guaranteed by an investment “Booster”).
Hungary
In Hungary, Magyar frees himself from Orbán’s president — Hungarian President Tamás Sulyok on Saturday countersigned a mini constitutional reform that prematurely ends his mandate, enabling Prime Minister Péter Magyar to continue the de-Orbanisation of the country. An Orbán ally elected by the Fidesz-majority parliament in 2024, Sulyok said he had no other choice but accused Magyar of openly violating “the rule of law,” creating “a negative precedent that inflicts a deep wound on the constitutional values of democracy.” Orbán commented on the decision via Facebook: “Tyranny is no longer a threat, but a reality. If this can be done to the president, tomorrow no one will be safe,” the former prime minister said.
Parliament President Agnès Forsthoffer will assume the role of acting president from today. Péter Magyar defended the choice of the constitutional amendment, which introduces further reforms to purge institutions of Orbán allies. “Through these decisions, we are restoring something that the Orbán regime sought to take away from the Hungarian people for many long years: the certainty that power can be limited, that the nation’s public assets can be recovered, and that the state can once again serve its citizens — the free citizens of Hungary,” the Prime Minister said.
Post Brexit
Burnham new Labour leader and new British Prime Minister — On Friday, Andy Burnham was officially appointed new leader of the Labour Party and today will take the baton from Keir Starmer as Prime Minister of the United Kingdom. His first public speech was particularly eagerly awaited, given that Burnham had previously never detailed his plans for government. He didn’t do so on Friday either, although he confirmed his intention to focus on the domestic situation in the United Kingdom.
“This generation of politicians, including myself, has failed to challenge a political culture and economic model that simply doesn’t work well enough for ordinary people,” Burnham said, promising “a return to the Labour that (Britons) once knew.” Burnham challenged the privatisation of essential infrastructure and promised to renationalise some utilities, but also assured he would be “a pro-business leader.” His plans for relations with the EU remain a major unknown.
Draghi report
Von der Leyen meets Mario Draghi — Commission President Ursula von der Leyen today meets former Italian Prime Minister and former ECB President Mario Draghi to discuss the competitiveness situation. Von der Leyen would do well to read the European Policy Innovation Council’s updated analysis of how many recommendations from Draghi’s report have actually been implemented.
Almost two years have passed since its presentation and the counter continues to move at a crawl. Only 60 recommendations out of 383, amounting to 15.7 percent, have been fully implemented. The figure was 15.1 percent in January 2026 and 11.2 percent in September 2025. For 225 recommendations, the counter is stuck: they have been implemented neither fully nor partially.
Musical chairs
Two parachute drops before the holidays — The French use the term “parachutage,” which has been adopted within EU institutions too: the appointment, driven by political considerations, of cabinet members to the most senior administrative posts. At the penultimate College meeting before the summer recess, the Commission decided to proceed with two such appointments.
Danish national Tomas Anker Christensen, a cabinet member of Commissioner Dan Jørgensen, was appointed Principal Adviser and Special Coordinator for the Global Clean Transition in the Directorate-General for Energy. Slovenian national Marko Makovec, Head of Cabinet of Commissioner Marta Kos, was appointed Principal Adviser in the Directorate-General for Enlargement and Eastern Neighbourhood.
Today
Irish EU Presidency: informal meeting of Research Ministers
Commission: President von der Leyen receives Mario Draghi
Commission: Commissioner McGrath in Washington meets the Chairman of the Consumer Product Safety Commission, Peter Feldman, and the Attorney General, Todd Blanche; delivers a speech at the Atlantic Council
Eurostat: data on construction output in May; asylum and migration statistics for 2025