EU Weekly | 6th Sanction Package Moves Ahead as European Council Caves In to Orbán on Oil Ban
Also — Russian Assets, Davos, Poland, Big Tech, Taxonomy
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European Council Caves In to Orbán on Oil Ban
EU leaders are meeting in Brussels on 30-31 May for an extraordinary European Council meeting. The bloc’s heads of States and governments discussed financial aid to Ukraine, food security, and of course energy security.
DEAL • Last night, EU leaders reached an agreement to implement an embargo on Russian oil, which will have to be voted on in the EU Council.
In doing so, the heads of state and government acceded to Hungary's demands by granting it an exemption. The embargo will halt roughly 90% of Russian oil imports, but represents a major concession to Hungary.
5. The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline.
7. The European Council will revert to the issue of the temporary exception for crude oil delivered by pipeline as soon as possible.
CONTEXT • The Commission’s proposed oil ban, initially floated on 4 May, was revised on Saturday 28 May to limit its scope and spare Hungary, the main holdout. The oil ban became a big topic ahead of the meeting, precisely because of Viktor Orbán’s refusal to discuss it.
WATERED DOWN SANCTIONS • The proposal was revealed by Politico on 26 May. The sanctions package will include a ban on seaborne oil, leaving pipelines unaffected. Crude and refined oil will continue flowing to countries such as Hungary — but also the Czech Republic and Slovakia.
It was confirmed that the Commission sent a revised proposal to EU Member States on 28 May. While the latest draft seems to meet Budapest’s demands, Viktor Orbán added on 30 May (Monday) that he needed extra-guarantees that Hungary would still be able to import Russia oil via sea if something were to happen to the pipelines.
ORBAN • Viktor Orbán stated on 24 May that he would refuse to debate the topic at the European Council, in a letter to European Council President Charles Michel. Budapest wanted to know more about what the EU can do to help landlocked countries, such as Hungary, Slovakia or the Czech Republic, to wean themselves off Russian oil.
The European Council does not decide on sanctions, it is the Council of the EU — where unanimity is required for sanctions to come into force. The question here was whether this discussion should happen at the ‘political level’ of EU heads of State and governments at the European Council.
“Looking at the gravity of the issues still open, it is very unlikely that a comprehensive solution could be found before the special meeting of the European Council on 30-31 May”,“I am convinced that discussing the sanctions package at the level of leaders in the absence of a consensus would be counterproductive”, Orbán wrote then.
EXPENSIVE DEMANDS • The Commission proposed on 4 May a phase-out of Russian imports of oil by year's end in a sixth sanctions package. Other sanctions in the sixth package target Sberbank, people close to the Kremlin, and several media outlets. On 18 May, the European Commission unveiled its plan called REPowerEU to cut the EU’s energy dependency on Russia by 2027 — with a 210 billion euro enveloppe.
Not enough for Orbán, who was concerned that there are were specific measures to help landlocked countries pay for new infrastructure. Hungary expects the EU to spend as much as 800 million euros to help it wean itself off Russian oil, as it currently relies on a single pipeline to deliver oil from Russia. The European Commission has already proposed time exemptions for landlocked countries to help ease the transition. But Budapest has refused the Commission’s offer which gave until the end of 2024 for the ban to kick in.
RULE OF LAW • As Orbán is trying to play hardball in getting the Commission to make some EU cash available, it should be borne in mind that Hungary’s Recovery and Resilience Facility money (RRF, part of NGEU) is still withheld by the Commission because of rule-of-law concerns. The European Commission has also triggered the Conditionality Mechanism which could see EU funds — not only NGEU — frozen because of similar concerns. On rule of law, Orbán could traditionally count Poland as an ally. But Budapest and Warsaw have charted very different paths on how to react to Russia’s war in Ukraine.
As Adam Balcer and Zsuzsanna Végh note in an ECFR blog post
“Poland and Hungary will still need each other as mutual guarantors in the face of criticism from EU institutions and other member states concerning the rule of law. However, if Hungary does not take a tougher stance on Russia, Warsaw will not reconcile with Budapest and cooperation will remain limited to this basic common denominator”.
Commission Getting Tough on Russian Asset Freezes, Moving Forward with Ukraine Trade Liberalisation
ASSET CONFISCATION • On 25 May, the Commission proposed new rules on freezing and confiscating assets of individuals and entities violating the EU’s sanctions. It opens the door for the removal of legal impediments that prevent the EU from confiscating assets belonging to Russian oligarchs.
By adding the violation of EU ‘restrictive measures’, i.e. sanctions, to the list of EU crimes, the proposal will make evasion of sanctions illegal across all Member States, covering practices such as failure to freeze assets, concealing assets or engaging in illegal trade with the mentioned individuals or entities.
The Commission has also proposed a Directive on asset recovery and confiscation that will authorise confiscation of illegally obtained assets – to punish criminal enrichment and prevent future violations. Currently, violating sanctions is a criminal matter only in 12 Member States while penalties vary in the EU. The bet of the Commission is that a harmonisation of rules will prevent the offenders from taking advantage of countries with less severe regimes.
“At present, divergent criminal definitions and sanctions as regards the violation of the restrictive measures can still lead to impunity. We need to close the loopholes and provide judicial authorities with the right tools”, explained Didier Reynders, Commissioner for Justice and Consumers.
TRADE LIBERALISATION • On 24 May, the Council adopted a regulation allowing for temporary trade liberalisation and other trade concessions for Ukrainian imports. Against the backdrop of the ongoing war in Ukraine, the EU is committed to supporting its war-ravaged economy, also emphasising the importance of internal and international food security.
The agreement suspends all tariffs under Title IV of the EU-Ukraine Association agreement, covering industrial as well as agricultural products and providing tariff-free quotas for one year. It also removes anti-dumping duties and other restrictive measures on steel imports.
The proposal was endorsed by the European Parliament, supported by 515 MEPs, with 32 against and 11 abstentions.
“We must support Ukraine at all levels with every tool at our disposal: not only with weapons and sanctions but with our trading power… ensuring that Ukraine’s economy remains resilient and competitive,” said Sandra Kalniete, Standing Rapporteur for Ukraine.
In Case You Missed It — Davos, Poland, MEPs in SF, Taxonomy
DAVOS • It is Davos time. The forum of ‘stakeholder capitalism’ and global cooperation is held this year amidst war in Ukraine, and with a trimmed-down Chinese delegation due to the lockdown and the feeling that China’s ‘pro-Russia neutrality’ towards Russia.
European Commission President Ursula von der Leyen gave a keynote speech, calling international institutions to join the reconstruction platform for Ukraine, to be chaired by Ukraine and the European Commission. Von der Leyen stressed the link between climate change and geopolitics, as the EU is pushing forward for ambitious climate targets while cutting itself off ‘unfriendly’ suppliers. Von der Leyen also underlined the issue of food security, while 20 million tons of wheat are stuck in Ukraine.
POLAND’S RRF • Budapest’s historical ally in rule-of-law standoffs with the European Commission is cosying up with Brussels, as Poland is taking record number of refugees from Ukraine. The Polish parliament approved legislation to abolish the contentious disciplinary chamber for judges that caused the European Commission to withhold 36 billion euros in NGEU grants and loans over rule-of-law concerns. The European Commission has not triggered the Conditionality Mechanism against Poland, whereas it has against Hungary.
The bill had the support of the coalition parties, while opposition parties voted against the move, which is seen as cosmetic. As Jakub Jaraczewski of Democracy Reporting International wrote
“The bill fixes some issues identified by the European Commission, but doesn't address most of them. There's the expectation that the Polish [government] will take more actions related to this - such as un-suspending judges. I'll wait with commenting on the bill's contents until it's final, but we can already see that ultimately all the talk about sovereignty and not being dictated by Brussels on the core constitutional matters dissolved as getting EU money became an increasingly pressing issue”.
Ursula von der Leyen is due to visit Warsaw on 2 June. Commission and Polish officials aim to resolve the issue before von der Leyen’s visit.
MEPs IN SAN FRANCISCO • A delegation from the Internal Market and Consumer Protection Committee (IMCO) of the European Parliament hailed to San Francisco this week. Eight MEPs met with Big Tech executives (including eBay, Apple, Google, Meta, Airbnb or PayPal), academics, and officials of the Silicon Valley this week. Their 5-day visit aimed at exchanging views on e-commerce, consumer protection, and internet regulations, the press release reads.
“The mission was timely because the European Union is ushering in a new era of digital platform regulation with the adoption of the Digital Markets Act and Digital Services Act. As Europe is pioneering new digital laws that will have an impact beyond the EU, US companies and think-tanks took great interest in the Parliament’s role in the process. We were able to discuss with some of the largest companies that will be most affected by the DMA-DSA package such as Meta, Google and Apple. Their feedback was mostly positive, although we will have to see how compliant or litigious they will be once the DMA and DSA enter into force”, said Andreas Schwab, the chair of the delegation.
THUMBS UB • To Michal Czaplicki, of the Secretariat of the Internal Market and Consumer Protection Committee of the European Parliament, for his tweet from the Facebook HQ.
TAXONOMY • Meanwhile, the Taxonomy saga continues, with the MEPs taking on a bid to stop gas and nuclear power from being included in the bloc’s green rulebook. After the motion for a resolution against the inclusion of gas and nuclear was submitted to the Parliament’s environment and economy committees on 20 May by 16 MEPs from all across the political spectrum, the public hearing took place on Monday 30 May ahead of the committees’ vote on objection scheduled on 14 June. The final plenary vote will take place the following month.
Yet, the bar to reject the inclusion of the two technologies is high, as an absolute majority (353 votes) will then be required. On the Council side too, the opposition is being formed. States that have already indicated their intention to reject the delegated act include Germany, Luxembourg, Austria, but also Denmark and Spain, according to Contexte. However, it will require 15 states representing 65% of the population to take down the proposed delegated act.
ECON and ENVI heard from the experts including representatives of the financial sector, the European Investment Bank (EIB), the Joint Research Centre (JRC) and the World Wildlife Fund (WWF).
What we’ve been reading this week
Can Germany keep her promise to ramp up military spending and become a pillar of NATO’s eastern flank? Writing for the Royal United Services Institute, Alexandr Burilkov relates the country’s floundering attempts at holding on to the much-discussed, but still elusive Zeitenwende.
The conflict in Ukraine has driven a wedge between long-time allies Fidesz and Law and Justice, but do not expect the chill to last, say Adam Balcer and Zsuzsanna Végh in the columns of the ECFR. Faced with ever increasing criticisms from their European partners, Hungary’s and Poland’s governments need each other’s back.
There’s a way for Europe to better control gas supply and prices, argue Peter Cramton and his co-authors in VoxEU: forming a buyers’ cartel.
The CER’s Zach Meyers makes the case for the United Kingdom to follow the EU’s lead and take an ambitious approach to tech regulation.
The EPP’s think tank, the Martens Centre, has released a report penned by Federico Ottavio Reho and Anne Blanksma Çeta on citizens’ perceptions of the economy, common security, joint climate action, and shared EU values.
This week’s newsletter is brought to you by Cyril Tregub, Marianna Skoczek-Wojciechowska, Gautier Parthon de Von, Maxence de La Rochère, and Thomas Harbor. See you next Tuesday!