(Bloomberg) — During a break in proceedings at February’s European leaders’ summit, the Dutch premier approached his Portuguese counterpart with a can of beer and a smile.
Mark Rutte handed over a popular Belgian brew to Antonio Costa with an acknowledgment that the government in Lisbon had surprised him, according to a person with knowledge of the exchange. After Portugal’s public debt hit 134% of GDP during the pandemic, Costa had bet his fiscally conservative colleague that he’d get it back below 100% and, to the Dutchman’s amazement, he’d managed it.
When the leaders gather in December, Costa will be in charge of proceedings as the newly installed president of the European Council, and he’s going to need to keep exceeding expectations of skeptical colleagues to survive the storms that await him.
The 63-year-old takes up his position as one of the bloc’s two most senior figures at a perilous time for the European Union, with the Russian army threatening its eastern borders, its companies trailing their American and Chinese rivals, and a hostile president-elect about to return to the White House.
For years, attempts to shore up the EU have been hampered by internal dysfunction: Germany’s three-party coalition collapsed in November after months of paralysis, Emmanuel Macron’s government in France only survives thanks to support of the far right, and pro-Kremlin leaders in Hungary and Slovakia have been obstructing efforts to help Ukraine.
Costa, who the Portuguese president has called “irritatingly optimistic,” is upbeat all the same.
“Everybody understands the challenges and that we need a common approach,” he said in a November interview from his provisional office in Brussels. “Five years ago everybody was entrenched in their own positions, now people are open minded.”
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His role too, has been a source of problems. His predecessor Charles Michel’s long-running feud with European Commission President Ursula von der Leyen was the worst kept secret in Brussels, adding a farcical subplot to every icy joint appearance.
At global summits like the Group of 20, Michel and von der Leyen often ran competing schedules, baffling and irritating the leaders from whom they were each, separately, trying to win support for the EU’s positions.
So Costa’s first job is simply to restore some order.
Von der Leyen begins her second five-year term at the commission just as Costa takes up his post at the Council and, privately, both are pledging to coordinate their foreign visits and summit agendas. They established regular meetings every two weeks before Costa had formally taken up his role.
All the same, some officials say that Costa will have his work cut out to become an effective counterweight and partner to von der Leyen, who has a track record of stretching the limits of her official remit, on occasion keeping national leaders in the dark before springing key decisions on them in order to bounce them into accepting her plans.
Costa has spoken to Michel, Donald Tusk and Herman von Rompuy, his three predecessors in a role that was created in 2010, about how they tried to manage the tensions that stem from the EU’s split leadership structure.
Through the Covid-19 pandemic and the war in Ukraine, von der Leyen and the commission consistently set the agenda. But that has damaged relations with national leaders. The EU works best when the council president is an effective partner who can mobilize support from member states, one senior official said.
Von der Leyen’s team, too, know they have an issue that Costa can help to address.
Simply organizing effective meetings would be a start, according to one senior official. Michel struggled to impose order on the leaders and allowed small groups to meet in private, keeping the others waiting, which created bad blood.
Since his nomination was confirmed in June, Costa has been touring European capitals to find out first hand how far leaders are prepared to go to revive the bloc’s faltering competitiveness and its long-neglected defenses.
Meetings with Macron, German Chancellor Olaf Scholz and almost all of their 25 colleagues have confirmed for Costa what anyone watching EU public policy discussions would have suspected, according to a senior official briefed on those conversations, it’s going to be very, very difficult.
The EU needs to mobilize an extra €800 billion ($840 billion) of investment a year in order to revamp its militaries, develop new technology and meet its goals for the energy transition, according to Mario Draghi, the former president of the European Central Bank and Giorgia Meloni’s predecessor as Italian premier.
The best way to do that is by issuing more joint European debt, Draghi says. But Germany is blocking any discussion of the issue, while Macron says the EU could collapse unless it can find a solution.
“Our Union must become more competitive and independent — in areas ranging from energy, security or defense. To achieve this member states need to be bold. Tough decisions will require leadership,” European Parliament President Roberta Metsola said. “I am confident President Costa with his vast experience will lead this effort in the European Council.”
Costa has a track record for managing such negotiations from his eight years governing Portugal, which included an unprecedented alliance with the communists. He quit, abruptly, last year when his name was linked to a corruption investigation, though he’s never been charged and mistakes have been pointed out in the prosecutors’ case.
In his initial conversations with leaders, Costa has avoided going into detail on the thorny issue of how to pay for it all, according to a senior official briefed on the discussions.
He reckons that if leaders can agree on what they want to achieve, then it will become more possible to reach a deal on how to achieve it, the official said. Indeed, EU diplomats suggested there is appetite in the capitals for such a pragmatic approach.
But he’s also going to have plenty of problems coming at him.
Russia’s invasion of Ukraine will be at the front of his mind as he starts his new job, Costa said in his spartan office. He says his focus will be on how to find a just and lasting peace. On Sunday, he visited Kyiv along with Kaja Kallas, the EU’s new top diplomat, and Marta Kos, the bloc’s enlargement commissioner. The three are due to meet with President Volodymyr Zelenskiy and other officials in the Ukrainian capital. ”From day one of our mandate, we are reaffirming our unwavering support to the Ukrainian people,” Costa said in a post on X upon arrival in Kyiv.
But diplomats worry that he’s also going to have a fight on his hands to hold the EU together if Donald Trump follows through on his threats to pull support from Kyiv. During closed discussions at last November’s summit in Budapest, some leaders were already suggesting the bloc must be ready to cover the shortfall in financial aid, a proposal that’s bound to strain EU finances, as well as political will.
Nevertheless, EU envoys and seasoned officials say that Costa could be the person to restore a sense of unity and trust.
They say that his easygoing character and repertoire of anecdotes has helped to build good relations with leaders across the political spectrum. Even the anti-liberal Hungarian Prime Minister Viktor Orban backed him, and that’s something neither von der Leyen nor Kaja Kallas, the new EU foreign policy chief, can say.
Costa is planning to hold retreats for the leaders, where they can discuss the biggest issues without the pressure to agree on formal conclusions. The first one will be in February in Belgium, with Rutte, now the NATO secretary general, and UK Prime Minister Keir Starmer invited.
Those who have talked to him stressed his talent for making leaders feel heard and finding compromises. He’s also described as careful — ready to ask for help when he needs it, the people said.
He can also be surprisingly direct. After 30 minutes of gentle warm up, he’ll suddenly tell you exactly what he wants and how you can help him to get it, according to one of the people.
His efforts to win leaders’ support for new investment in competitiveness and defense, as well as the green transition, will almost certainly run into the negotiations over the EU’s next seven-year, €1 trillion budget.
That process is always fraught, but this cycle looks the toughest yet, since the bloc will need to find €30 billion a year in repayments on the post-pandemic recovery fund that Costa helped to negotiate in 2020.
Costa expects the budget talks to focus on finding a balance between increasing the overall size of the budget, adding new revenue sources and more joint borrowing for certain narrowly defined projects, most likely in defense. To secure an agreement, he anticipates compromises on the massive agriculture and infrastructure programs that swallow two thirds of the EU budget.
The common thread running through all those discussions will be the threat from Russia. That’s the key to unlocking the serious new funds needed to boost the bloc’s defense capabilities and from that can flow changes in regulation, industrial strategy and financing, according to people familiar with the discussion.
Several countries in eastern Europe, which have traditionally been opposed to increasing deficits, have softened their positions significantly since Russia’s invasion of Ukraine, Costa points out, and that could pave the way for an overall agreement.
“Some of the budget frugals are not so frugal when we are talking about defense,” Costa said.
–With assistance from Andra Timu, Joao Lima and Kevin Whitelaw.
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