Hi! This is Tuesday, 31 October 2023, and here’s the EU news you need this week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and Linkedin.
The Briefing
On October 15, Poland saw the opposition to the Law and Justice Party (PiS) win legislative elections for the first time in eight years. While these results suggest a potentially more harmonious relationship with Brussels, the road ahead is bumpy.
ELECTION RESULTS • If PiS (Law and Justice Party) came in first with 35.38% of the votes, it only obtained 194 seats in the Sejm, the lower house of Parliament.
The opposition, comprised of the "Civic Platform" (30.50%), "Third Way" (14.40%), and "New Left" (8.61%) parties, secured the largest share of the votes, obtaining 248 seats, thus securing a comfortable majority that is likely to lead to a coalition government with Donald Tusk at the helm.
MANIFESTO • The opposition parties have agreed on a program to restore the rule of law in Poland, aiming to reestablish the independence of the judiciary, which has been undermined by a series of reforms leading to the appointment of judges aligned with the PiS in all branches of the judiciary.
The opposition parties also intend to negotiate with the EU for the release of the €35.4 billion from the NextGenerationEU recovery plan and the €75.6 billion from EU cohesion funds, which have been held up by the European Commission for over a year. To receive NGEU money, EU Member states must demonstrate to the Commission that they meet certain criteria, e.g., allocating 37% of expenditures to European environmental objectives.
DONALD IN BRUSSELS • Donald Tusk, the expected future Prime Minister of Poland, wasted no time visiting Brussels soon after the election to reassure European counterparts, including the President of the European Commission, Ursula von der Leyen, expressing a desire to expedite Poland's return to the European stage.
BUMPY ROAD AHEAD • The formation of the new government may take time, as the Polish Constitution stipulates that President Andrzej Duda (PiS) must appoint a Prime Minister 14 days after the first session of the Sejm (the lower house of parliament), which is scheduled for November 13th.
The Prime Minister must then secure the confidence of the Sejm with an absolute majority. The PiS, even with the support of the far-right "Confederation" party, does not hold the majority. If government formation fails, the Constitution allows for the Sejm to elect the Prime Minister itself, potentially delaying Donald Tusk's appointment until Christmas.
DUDA’S VETO • Even if an opposition government is formed, governance challenges may arise. The President, who is from the PiS, has the right to veto legislative reforms, which can only be overridden by a 3/5 majority in the Sejm, potentially obstructing the opposition's legislative agenda.
Different parties will need to overcome their disagreements on various issues within an opposition that ranges from center-right to left.
RULE OF LAW • Regarding the restoration of the rule of law, the new coalition will have to undo eight years of judicial reforms. Poland has been in the sights of the European Commission and the European Court of Justice for years due to repeated challenges by its Constitutional Tribunal to the primacy of European law.
The establishment of a highly political disciplinary chamber within Poland’s Supreme Court has also been condemned by the Court of Justice. European institutions have also criticized irregularities in the appointment of judges, raising doubts about the impartiality and independence of the judicial system.
The promise of improved relations between European institutions and Poland alone will not be enough to unlock European funds. The disbursement of funds is contingent on the independence of the Polish judiciary. Until reforms are implemented, the Commission is unlikely to release the funds from the recovery plan.
In Case You Missed It
EUCO WRAP UP • European heads of state met in Brussels on October 26 and 27 for a European Council meeting.
They discussed the EU's position on the conflict between Israel and Hamas, with differing views among Member States, some calling for a ceasefire to protect innocent civilians, while others emphasized Israel's right to self-defense.
The Council's conclusions struck a compromise, urging the establishment of "humanitarian truces" to protect civilians and address humanitarian needs. The singular expression "humanitarian truce," which could have meant a permanent ceasefire, was rejected.
For the first time, the EU-27 leaders discussed the Commission's request to increase the EU's long-term budget for 2021-2027 by €67 billion in liquidity and €33 billion in loans, prompted by significant spending related to COVID-19, the conflict in Ukraine, and the energy crisis.
While there is consensus on increasing funds for Ukraine, there is division on budget increases for digital and "green" technologies, as well as funding the interest payments on the common loan via NextGenerationEU. The Council aims to reach an agreement on this matter by the end of the year, noting that decisions on the multiannual financial framework require unanimous approval.
Lastly, European leaders expressed support for using frozen Russian assets, with €200 billion earmarked for financing aid to Ukraine.
RATE HIKES ON PAUSE • The European Central Bank (ECB) decided to leave interest rates unchanged at its meeting in Athens on October 26. This decision ends series of ten consecutive rate hikes. This pause comes ahead of similar decisions expected from the U.S. Federal Reserve and the Bank of England.
ECB President Christine Lagarde stated that there are no immediate plans to lower interest rates and that borrowing costs will remain at restrictive levels "as long as necessary." Further rate hikes are not ruled out if inflation does not decrease rapidly enough.
While inflation has decreased from a peak of 10.6% a year ago to 4.3% in September, it remains well above the 2% target. The ECB also warned of the risk of another energy price shock resulting from the Israel-Hamas conflict.
The halt in interest rate hikes occurs in the context of economic stagnation, or even contraction, in the eurozone. Christine Lagarde noted that this trend is unlikely to reverse for the remainder of the year due to the continuing impact of high-interest rates on economic activity
INDUSTRY • "We call on Member States to urge the next European Commission to present a Clean EU Industrial Deal for competitiveness in the first 100 days of its mandate."
This is the request of the CEOs of eight associations representing key industries in the energy transition —- Cefic, Eurobat, Eurofer, Eurometaux, Hydrogen Europe, Recharge, SolarPower Europe, and WindEurope — in a letter to Ursula von der Leyen, Charles Michel, and Roberta Metsola on October 25.
Industry leaders are calling for the next Commission to present a plan for the green industry of a scope similar to that of the Green Deal. They desire "a genuine industrial growth strategy, covering the entire supply chain, over the next five years."
The Green Deal Industrial Plan presented in February 2023, is not sufficient, according to its signatories. "Global competition for leadership in clean technologies and raw materials has intensified (...) There is not a single month to lose," explain these associations, who are concerned about the EU's lagging competitiveness in certain sectors.
What We’re Reading
Could the arrival of AI herald the emergence of European tech giants? Dan Milmo from The Guardian listens to the optimists.
And if this bit of euro-chauvinism isn't enough for you, read Zsolt Darvas's paper for Bruegel, in which the economist counters the alarmist speeches about the relative performance of the European economy.
Szymon Kardaś from ECFR calls on Europe to massively invest in its electrical network.
This edition was prepared by Alexandra Philoleau, Luna Ricci, Maxence de La Rochère, and Augustin Bourleaud. See you next week!