An Electric Council
But also — Critical Infra, Iran, China, Telco Mergers, Amazon, Google
Hi! This is Monday, 24 October 2022, and here’s the news you need to start your week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and Linkedin.
Making Sense of Last Week’s Council Meeting
It was crunch time in Brussels last Thursday and Friday as a whole area around the Council was blocked to welcome the EU-27 leaders to discuss the most pressing of all issues: how to cope with the upcoming winter. After late-night discussions, an agreement was found on broad policy orientations — however, much of the work still needs to be done to adopt concrete measures.
PROPOSAL • Earlier during the week, the European Commission published an awaited proposal to fight high energy prices. It includes joint gas purchasing for at least 15% of EU gas storages, default solidarity rules in case of supply shortages, and a price correction mechanism — i.e. a temporary, “dynamic” price cap for transactions on the TTF gas exchange.
As a reminder, the TTF (Dutch Transfer Facility Title) is the European benchmark price for natural gas. Until now, it was regarded as a sufficient proxy for LNG (liquified natural gas) delivered into Europe, but with the reduction of Russian gas supplies, it has become extremely volatile. As a result, many argue that the TTF index is not representative of the price of LNG anymore, and that a new, separate price index should be adopted.
A dynamic price cap would remain slightly above what importers pay for LNG in order to avoid driving LNG producers away from Europe – which has been one of Germany’s main concerns about a price cap. The temporary solution would help the EU curb gas prices until the block puts in place a new price index to complement the TTF and better reflect the growing importance of LNG on the EU market. The Commission wants to have the new LNG price index ready by March 2023.
WHAT HAPPENED? • The proposal was discussed by EU leaders during the European Council summit until late-night hours. The Council was marked by growing frustration among some countries that solidarity should not only apply to supply but also to prices. “We are asked to show solidarity in sharing energy but there is no solidarity on our calls for containing prices,” Italy’s outgoing prime minister, Mario Draghi said, according to an EU official familiar with the closed-door discussions.
After successive rounds of negotiations, and despite his concerns, Olaf Scholz ended up dropping his opposition to the price gap. However, the package that was agreed on is full of caveats that explain Scholz’s support of the price cap: the dynamic “price corridor” (aka the price cap) is to stay “temporary” and will be limited to “episodes of excessive gas price”, while market interventions will be possible only under strict conditions, in order to protect gas supply.
The Netherlands and Hungary also managed to obtain concessions on the final package. Dutch Prime Minister Mark Rutte — who was reluctant to new joint borrowings to combat rising prices — managed to obtain a vague wording on the topic. For his part, Viktor Orbán is already seeking an exemption to a hypothetical EU price cap on imported gas, arguably because this would put Russian gas deliveries to Hungary at risk – which is reflected in the final package.
OUTCOME • In their conclusions, EU leaders only agreed to call on the European Commission and member states to “urgently submit concrete decisions” on the range of additional measures they identified. In other words, most of the details need to be worked out before concrete policies can see the light of day.
“All in all, this is a package that brings the EU response to the energy crisis a step further, and it is important that countries found consensus with this regard. Unity is the only way for Europe to defeat Putin’s energy blackmail”, notes Simone Tagliapietra, from Bruegel.
BARMAR • At the margins of the Council, leaders from France, Spain and Portugal made a surprise announcement about a new offshore pipeline connecting Barcelona with Marseille (BarMar), hence putting an end to the MidCat project — a bone of contention between France and Germany in recent months. The new pipeline will carry natural gas “as a temporary and transitional source of energy” before being adapted to transport hydrogen and “other renewable gases,” the declaration says. The three leaders have agreed to meet again on December 9 in Alicante to decide on the project calendar and funding.
ECT-EXIT • After recent declarations made by Poland, Spain and the Netherlands, France joined the domino effect to pull out of the Energy Charter Treaty (ECT). In force since 1998, the ECT, which has more than 50 signatories including the EU, was designed to secure energy supplies and grant protection to companies investing in the energy industry. However, in recent years, it was used by energy companies to sue governments for regulatory changes that threaten returns on their investments.
“We have seen in several recent cases that this ECT has led to a speculative mechanism and to significant compensation for certain actors. As we leave, we must focus our investments on renewables, energy efficiency, and nuclear”, said Emmanuel Macron at the press conference following the European Council on Friday.
Germany is also considering withdrawing from the ECT, a federal ministry of Economics spokesperson confirmed to Investigate Europe on Wednesday. A proposal is being discussed by the ministries and is expected to be completed before the end of November — before the treaty’s parties are set to decide on the ECT modernisation.
In a response to the mounting discontent with the ECT, the Commission “took note” of the decision by some EU countries to withdraw from the ECT but insisted that it makes more sense to reform than to leave, Euractiv reported. “The current geopolitical challenges and the resulting need to diversify sources of energy for Europe makes membership to the ECT more pertinent than ever,” a Commission spokesperson said.
In Case You Missed It — Critical Infra, Iran, China, Telco Mergers, Amazon, Google
INFRASTRUCTURE • On 18 October, the Commission revealed its proposal to accelerate and reinforce the protection of European critical infrastructures (ECIs). This proposal follows the sabotage of the Nord Stream pipelines, which Ursula von der Leyen described as “the first time in recent history” that EU energy infrastructures have become a “target”.
Change was already on the way for critical entities: with the recently-agreed Directive to enhance the resilience of critical infrastructures (CER directive) and the Revised Directive on the security of network and information system (NIS2 Directive), the EU will soon have an up-to-date framework to foster both the physical and cyber-resilience of critical infrastructure. But with the war in Ukraine and recent sabotages of key energy infrastructures, the Parliament and Council have been calling for faster action on the topic.
The proposal focuses on three priority areas (preparedness, response and international cooperation) and five priority sectors (energy, digital, infrastructure, transport and space). “Critical infrastructures have become increasingly interlinked as well as mutually dependent” said Vice-President for Promoting our European Way of Life Margaritis Schinas, highlighting the proposal’s strong emphasis on cooperation between Member states and with key partners (such as NATO). While the proposal encourages Member states to conduct stress tests on entities that operate critical infrastructure, it envisions the creation of a Blueprint on incidents and crises.
The proposal has been presented for a Council Recommendation during last week’s European Council.
ALL EYES ON IRAN AND CHINA • On 20 October, the Council adopted new sanctions on three Iranian individuals and one entity responsible for the development and delivery of to the Russian military. This decision follows the reported use of Iranian drones by Russia against civilian infrastructures in Ukraine. While both Russia and Iran deny such accusations, the EU and the US claim that evidence has been gathered by intelligence services. This decision was taken a few days after the EU added new sanctions against Iranian individuals and entities in the context of the regime’s rising repression against current demonstrations.
The European Council also held a strategic discussion on the EU’s relations with China in preparation for the EU-ASEAN Commemorative Summit on 14 December 2022. In a paper sent to all Member-states beforehand, the European External Action Service suggested to refocus the EU’s relationship with China on competition and rivalry, while still preserving cooperation on certain matters.
During the discussion, it was agreed that the EU should engage with China in a more pragmatic way and promote European interests more effectively to limited areas of cooperation. Most EU leaders voiced the importance of acting in a tougher and more united way towards Beijing and of reducing vulnerabilities, notably on technologies, security and innovation. However, member states displayed internal divisions between hardliners supportive of a pushback and those advocating against a potential decoupling with China, including Germany.
TELCO MERGERS • Advocate General of the Court of Justice Juliane Kokott delivered her opinion in the Commission v. CK Telecoms. Leaving the legal specifics of the case aside, which concerns the burden of proof for non-coordinated effects on oligopolistic markets, the case is of great interest for the telecoms sector whose thirst for consolidation could be hampered if the Court were to follow AG Kokott’s opinion. The telecom industry believes mergers are the key to staying competitive and continuing investing in infrastructure. Several high profile transactions — such as Orange/VOO or Orange-MasMovil in Spain — are currently under scrutiny from EU antitrust authorities.
In 2020, the General Court struck down the Commission’s 2016 decision to block the merger between UK telecom provider CK Hutchinson and O2. According to the General Court, the Commission had failed to demonstrate that the merger would lead to a significant impediment to competition, thereby raising the legal test that the Commission has to pass to block mergers which lead to a reduction in the number of competitors. AG Kokott’s reading of the case would give the Commission a wider margin of discretion to block mergers in consolidated sectors such as the telecoms. The Court generally follows the AG’s opinion.
BUY BOXES • The EU wants to have a go at redesigning Amazon’s website design to make it fairer to competitors. The commitments offered in July 2022 by Amazon to settle the Marketplace investigation, started in 2020, are too weak, according to the EU’s Margrethe Vestager. The probe is about (i) Amazon’s use of third-party data, which it harvests and then uses to compete directly with third-party vendors on its marketplace; and (ii) Amazon’s practices with its “Buy Box”, which allegedly favours companies who have arrangements with Amazon. Competitors had already spoken out against the commitments, calling on the Commission to be tougher with Amazon. On 19 October, competition chief Margrethe Vestager weighed in, circulating a revised settlement offer, according to Politico’s Samuel Stolton. In the UK, Amazon is being sued for 900 million pounds in damage claims for its Buy Box practices.
GOOGLE ADS • The EU should also have a go at redesigning Google’s website design, according to more than 40 competitors, including Kelkoo, LeGuide, and PriceRunner. They call on the Commission to ban Google from showing its own shopping comparison units in search results, Natasha Lomas from TechCrunch explains. The signatories argue that Google does not comply with the landmark Google Shopping decision (2017), where the Commission found that Google abused its dominant position for prominently displaying its search boxes, to the detriment of smaller comparison shopping services (CSSs). Although it fined Google 2,4 billion euros, the Commission did not impose remedies on Google, which had to propose its own way to comply with the decision. The upcoming Digital Markets Act (DMA) includes a ban on self-preferencing for core platform services (such as Google Search) operated by likely gatekeepers (such as Google).
What we’ve been reading this week
“The proposed European Chips Act over-emphasises semiconductor production subsidies, focusing too little on increasing value-added in research”, according to Bruegel’s Alicia García-Herrero Niclas Poitiers.
After the outcry over his speech at the College of Europe in Bruges, HRVP Josep Borrell revisits the metaphor of the European garden surrounded by the jungle in a blog post.
While some telecom operators want big tech companies to pay for their network use, the COO of Netflix takes the pen in the FT to develop his arguments.
This Bruegel paper, by Giovanni Sgaravatti, Simone Tagliapietra and Georg Zachmann, compares national support schemes to the energy crisis in the EU.
This week’s newsletter is brought to you by Matteo Gorgoni, Marianna Skoczek-Wojciechowska, and Augustin Bourleaud. See you next Tuesday!