Rubles-for-Gas Contract Sparks Legal Feud
Also — ECB, Intellectual Property, and Microsoft
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Pressure Increases for EU with Oil & Gas Embargo in the Pipe and Rubles Legal Tug of War
OIL & GAS • Following the EU's unanimous adoption of a fifth package of sanctions against Russia, the European Commission is drafting a proposal for an embargo on Russian oil and gas. Putin's former chief economic advisor stated that such an embargo could end the war within eight weeks. Weaning Germany, Italy, Austria, Hungary off Russian oil and gas will come at a high price. German Chancellor Olaf Scholz said a gas embargo would cause mass poverty in Europe. In the run-up to a sixth package of sanctions, the Commission published technical guidelines for 17 countries on how they could cut off their oil and gas reliance.
RUBLES FOR GAS • Following President Putin’s decree of 31 March on requiring payment in rubles from ‘unfriendly countries’, the European Commission warned that paying for gas in rubles could breach EU sanctions, according to an internal legal analysis. Under the scheme, companies must open bank accounts in euros/dollars and in rubles at Gazprombank, which then takes care of the currency exchange.
Russia has threatened to cut off gas supplies to non-compliant companies. European energy companies are facing significant legal uncertainty over the issue. They risk either losing their gas supplies or breaching EU law. The Dutch government has already told energy companies not to pay for gas in rubles. “We cannot allow any circumvention of the sanctions through back doors”, German Economy Minister Robert Habeck told POLITICO, while not stating clearly what the German government thought of the European Commission’s legal assessment of the decree.
NEW SUPPLIERS • Diversification from Russian gas is “possible and feasible”, said Italian Prime Minister Mario Draghi in an interview with Corriere della Sera. Eni, an Italian supermajor, signed a deal with Algeria’s Sonatrach to import an additional 9 billion cubic metres of gas by 2024. Israel also sees an opportunity in the current situation. Israeli Foreign Minister Yari Kapid asserted the EU's need to reconsider its Middle Eastern energy policy. Israel confirmed that its oversupply could be exported through yet to be built pipelines across Turkey and Greece, or liquefied and shipped from Egypt.
ECB Leaves Interest Rates Unchanged Amidst Surging Inflation and War
The European Central Bank (ECB) announced on 14 April that it will not change its policy amidst high inflation driven by energy prices and expectations that the Frankfurt-based institution would take a tougher stance on interest rates.
RATES & PURCHASES • “The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively”, the ECB’s policy minutes read. The Asset Purchase Programme (APP) will also wind down in the third quarter of 2022, as planned.
HARD TO SQUARE • The ECB’s governing council is trying to find how to combat surging inflation and support a disportionately war-stricken European economy at the same time — quite a dilemma. Inflation hit 7,5% in March 2022 in the eurozone, according to data by Eurostat. The Bank of England and the US Federal Reserve have both started increasing interest rates, making the ECB the only central bank to hold still.
EURO DOWN • Financial markets showed signs of agitation following the ECB’s decision. The euro plunged to a two-year low against the dollar, at 1,076 dollars for a euro. The 30-year German Bund traded for the first time since 2018 above 0%, at slightly less than 1%.
Commission Proposes Framework to Protect Local Craft and Industrial Products
On 13 April, the Commission proposed the first-ever framework to protect the intellectual property of local craft and industrial products that rely on traditional practices. This framework will extend the use of geographical indications (GIs) — signs that indicate that a product carries specific qualities due to its place of origin — to craft and industrial products. The proposal is in line with the 2020 Intellectual Property Action Plan in which the Commission had already envisioned the extension of GIs to such goods.
POTTERY & PORCELAIN • The framework will extend the use of GIs to cover products such as porcelaine de Limoges, Boleslawiec pottery, Donegal tweed, Solingen cutlery and Murano Glass — 800 products in total. It will draw on the successful GI system for agricultural products, foodstocks, wine and spirits: “Europe has an exceptional legacy of world-renown crafts and industrial products. It is time that these producers benefit from a new intellectual property right, like food and wine producers”, said Internal Market Commissioner Thierry Breton.
CONTEXT • Currently, there is no EU-wide protection that links the origin, quality and reputation of industrial and craft products — producers have to apply for national protection in Member States. However, the process can prove very costly and the level of protection granted is uneven, depending on national legislation. In addition, the lack of a EU-wide system prevents producers from enjoying a full protection at the international level for their GI products.
HOW IT WILL WORK • First, producers would submit an application to Member States’ authorities which would be assessed and submitted to the European Union Intellectual Property Office (EUIPO) if successful. Then, the EUIPO would grant or refuse the protection. If granted, the Office would register the product at the EU level and carry out protection procedures with third countries. A direct registration formula would also be available.
EXPECTED BENEFITS • According to the Commission, the benefits of extending GIs to craft and industrial products would be legion. The scheme would ensure fair competition by fighting counterfeit products in the EU but also internationally: since the EU is a signatory to the Intellectual Property Organisation, European producers would be able to seek protection in signatory countries outside the EU (the system would also allow for more ambitious GI provisions in bilateral trade agreements). Within the EU, the new regulation would favour economic development of rural areas and incentivize producers and SMEs to invest in authentic products. The protection of unique skills and jobs along with the economic recovery of less developed regions is also at stake.
New Companies Join OVH in Antitrust Case Against Microsoft Cloud
Italian cloud service provider Aruba and Copenhagen-based Danish Cloud Community are part of a complaint against Microsoft started by French cloud provider OVH, according to Bloomberg. The complaint was lodged a year ago, but was only made public after the Wall Street Journal reported on it a month ago.
CONTEXTO • The complaint followed others in the same sector over an alleged breach of antitrust rules on the part of the American technology corporation. Although the new information does not shed a new light on the substance of the case, it does show the extent of the grievances of European cloud companies.
A COMPETITIVE MARKET • The market for cloud services is both competitive and strategic. However, Microsoft is trailing behind Amazon’s AWS and is closely followed by Google Cloud. Although the market for cloud services is relatively new, market shares have not moved significantly in favour of Microsoft or any other provider during the last few years. One reason is that unlike in other markets such as social media, cloud services do not display network effects. Network effects represent a phenomenon that adds value to a service the more people use it. For example, if more people sign up to a social network, even more people are likely to follow, as they are now more likely to find friends and connections.
National Competition Authorities, in response to the Commission’s consultation on the Digital Markets Act, found that network effects were the most important factor in digital markets’ power assessment in the competition enforcement cases that they have investigated. Cloud services do not benefit from network effects — customers do not gain from switching providers merely because others have done so. Also, the Commission is helping companies build up their cloud infrastructure through the Gaia-X standard. Therefore, there seems to be little evidence that the market may tip in favour of one or another company.
DMA TODAY • In the meantime the trilogue meetings last month have yielded an agreement on the final text of the Digital Markets Act. The legislation will apply also to the provision of cloud services. In this context, there is a risk that the numerous complaints may never end up being treated under competition rules, but according to the upcoming DMA.
What we’ve been reading this week
A paper written by Artem Remizov et al. for the CEPS advocates for granting Ukraine candidate status in her bid for EU membership. Furthermore, the authors urge for an overhaul of the accession process, focused on stronger incentives for reform.
The ECFR’s Theodore Murphy exhorts Europe to take the lead in helping African countries weather the food crisis triggered by the conflict in Ukraine, to avoid a repeat of Russia’s successful campaign of vaccine diplomacy.
Cécile Maisonneuve and Benjamin Fremaux of Institut Montaigne make the case for the EU embracing nuclear power.
Greece’s future remains grim, Adam Tooze reminds us. Europe cannot escape her responsibility in helping the country chart a new course.
Thanks to those who helped put this edition together — Gabriel Papeians de Morchoven (welcome!) Augustin Bourleaud, Giulio Preti, Gaëtan du Peloux, Maxence de La Rochère, Rogier Prins, and Thomas Harbor. See you next Tuesday !
*Articles do not have individual authors, the views expressed in this publication do not reflect the personal views of those credited.