EU Weekly | A Rethink of the EU’s Future on Europe Day
Also — Foreign Subsidies, Sanctions, Competition, Hydrogen
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Europe Day — CoFoE, Treaty Changes, and Russia
9 May is celebrated as Europe Day to commemorate the Schuman Declaration of 9 May 1950, a founding moment for a then-embryonic community of European countries. Europe Day was chosen to draw a curtain on the Conference on the Future of Europe (CoFoE), a large-scale ‘citizens’ forum that brainstormed on the changes needed in the EU institutions. In Moscow, Vladimir Putin celebrates in great fanfare the USSR’s victory in the Great Patriotic War, while trying to bolster support for his war in Ukraine.
IT’S A WRAP ! • On 9 May, the closing event of the Conference on the Future of Europe (CoFoE) was held in Strasbourg. The final report was presented to European Commission President Ursula von der Leyen, European Parliament President Roberta Metsola, and French President Emmanuel Macron, whose country holds the rotating presidency of the Council.
SPEECHES • Macron called for the creation of a ‘European Political Community’, which would welcome the EU’s Member States and countries such as Ukraine, which handed the European Commission the second part of its questionnaire which has been “handed over symbolically to [the European Commission] on Europe day, says to Olga Stefanishyna, Ukraine’s Deputy Prime Minister for Euro-Atlantic Integration.
Macron suggests that this new community would allow the charting of a European path for countries “without prejdug[ing] of any future membership of the European Union” — a ‘group of like-minded countries’ in a way. “Macron is being honest: saying EU enlargement process cd last decades should not be read as France trying to block Ukraine's EU aspirations. Macron is open to enlargement but he is also is being honest: EU enlargement is complex”, commented Georgina Wright, from Institut Montaigne.
PROPOSALS • On 30 April, the plenary assembly of the CoFoE adopted 49 proposals, on topics ranging from the environment to European security and democracy. Initiated in March 2019 by French President Macron and delayed by a year due to the Covid pandemic, the Conference finally came to an end, as planned under the French Presidency.
UNANIMITY • Hungary’s position on an oil embargo has only made the issue more topical. The abolition of the unanimity rule is high on the list of priorities of European citizens, and has the support of Italian Prime Minister Mario Draghi and German Minister for European Affairs Anna Lührmann.
There’s a catch, however. In order to abolish the unanimity rule, a unanimous decision of the Member States is required. This is reassuring for some experts, particularly in the field of security and defence, where the abandonment of unanimity raises fears of a loss of credibility on the international scene where the Union is supposed to speak with one voice.
TRANSNATIONAL LISTS • Among the final proposals of the Conference is also the creation of "pan-European or transnational lists comprising candidates from different Member States". The European Parliament anticipated this suggestion and last week voted in plenary session on a proposal to create, in addition to national constituencies, a single constituency in which 28 MEPs would be elected. The problem is that the Parliament's decision does not prejudge the final implementation. In fact, in the context of the revision of the procedure for the election of members of the European Parliament, the Council must, once again, take a unanimous decision.
TREATY CHANGE ? • Macron and von der Leyen have left the door open for Treaty changes, and the Commission President expects proposals to be made in September this year. According to the EPC’s Georg Riekeles, 8 to 10 Member States would currently support Treaty changes, while the quorum required to initiate the process is 14 out of 27.
But 13 Member States have already made clear they are really not happy with the idea, or the process. Bulgaria, Croatia, the Czech Republic, Denmark, Estonia, Finland, Latvia, Lithuania, Romania, Slovenia, and Sweden have issued a non-paper, cautioning against “unconsidered and premature attempts to launch a process towards Treaty change”. The non-paper also snaps at the European Parliament’s ‘instrumentalization’ of the Conference to pursue its own “special institutional interests”.
MACRON TIME • It is a big moment for a freshly reelected Emmanuel Macron, whose 2017 Sorbonne speech had called for a broad debate on reforming the EU. Following his 9 May Strasbourg trip, Macron immediately flew to Berlin to have dinner with Chancellor Sholz to shore up the Franco-German couple on key issues. Scholz’s government had signalled its openness to revise the Treaty in its ‘traffic-light coalition manifesto’ late last year — thereby eroding the traditional North/South divide on Treaty changes.
Macron is facing parliamentary elections in June, which are expected to give his party, recently rebranded Renaissance, a governing majority given France’s majoritarian system. Macron’s centrist-european views are challenged on both the right and left, where Jean-Luc Mélénchon’s takeover of the left is happening at the expense of the Socialists and Greens’ European credentials.
WHAT NEXT • Lengthy and complex negotiations on Treaty change does not, however, mean that no progress will happen. “[E]nacting indispensable policy reforms and treaty change is not an ‘either-or ’ question. On the contrary, they should be pursued in parallel, and they might even influence each other”, the EPC’s paper notes.
While the President of the Commission assured she would "follow up on the issues discussed and the conclusions approved at the conference", it should be remembered that there is no binding mechanism for transposing these proposals into legislative acts. Moreover, some reforms, notably institutional ones, will have to overcome political obstacles.
EU Gets Tough on Market-Distorting Foreign Subsidies
On 4 May, the European Parliament and the Council of the EU adopted their positions on the Foreign Subsidies Regulation proposal — just a year after the Commission issued the initial proposal. Inter-institutional negotiations, or trilogues in EU slang, can officially start.
MIND THE GAP • Extra-EU subsidies are caught by trade defence instruments when trade in goods occurs — but mergers and public procurement do not fall in their ambit. Within the EU, strict State aid rules prevent countries from granting companies subsidies that distorts the internal market. Extra-EU subsidies granted to companies engaging in mergers or in public procurement procedures fall in a regulatory gap. EU merger control does not take foreign subsidies into account.
A NEW TOOLKIT • Under the supervision of the European Commission, companies would have to disclose the financial contributions they receive from extra-EU public bodies when they engage in mergers or public procurement procedures, provided certain thresholds are met. The Commission would then have the power to redress the distortions where they are found, by using antitrust-inspired remedies. The Commission would also be able to start market investigations when it suspects that certain foreign subsidies may distort the internal market.
Foreign subsidies can take many forms, including capital injections, loans, fiscal incentives, tax exemptions, and debt forgiveness.Tracking down foreign subsidies may prove trickier than expected, given the often opaque structures and innovative accounting used. It may also be complex to distinguish “legitimate” foreign subsidies that relate to industrial policy from “illegitimate” market-distorting subsidies.
REGULATORY MUSCLE • The EU’s latest proposal targets foreign subsidies that distort the internal market — when foreign bidders outbid non-subsidized companies thanks to the government's deep pockets.
Until now, lawmakers had only taken action for situations when public order and security were at stake, with the FDI Screening Regulation in 2019. In 2021, the Commission proposed a new tool to protect Member States that are the target of deliberate economic coercion, such as Lithuania with China.
The rise of non-market practices in mergers and public procurement, fuelled by China’s State Owned Enterprises (SOEs) has made the Commission concerned about the long-term consequences of subsidy-induced market distortions in the EU. The unilateral move was prompted by the current gridlock at the WTO and realisation that multilateralism is not the trendiest concept in these early 2020s.
AMENDMENTS • The European Parliament and the Council have made their proposed amendments public. MEPs have amended the Commission’s proposal to lower notification thresholds, initially designed to capture the largest and potentially most distortive foreign subsidies. MEPs consider that the de minimis thresholds for foreign subsidies to be considered distortive should be lowered from 5 to 4 million euros, while the turnover thresholds for M&A have been lowered from 500 to 400 million euros. The Council believes the thresholds should be raised, to 600 million euros for M&A. MEPs have also reduced the lengthy time limits that were put forward, in order to reduce red tape.
EU Proposes Sixth Sanctions Package, Gradual Phase-Out of Russian Oil
SANCTIONS, EPISODE 6 • On 4 May, after several weeks of rumours and intense behind-the-scenes negotiations, Ursula von der Leyen, the President of the European Commission officially announced a proposal for a sixth sanctions package against Russia. The package is currently being negotiated by EU ambassadors.
OIL EMBARGO • By far one of the most expected and most sensitive measures to date, the Commission is proposing to phase out Russian imports of oil, both crude and refined, by year end. As it stands, Russia remains the largest supplier of oils to the EU, according to European Commission statistics — though most of the imports only go to a handful of Member States, notably Slovakia, Lithuania, Finland and Hungary.
To minimise the potentially-considerable impact of such a sanction, the Commission proposed phasing out Russian supply of crude oil within six months and refined products by the end of the year. French think tank Institut Montaigne’s Georgina Wright, speaking to What’s up EU last week, argued such a move from the EU would be unprecedented and may, alongside a ban on other energy sources in the near future, lead to “huge economic loss and shock”.
HAVE YOUR CAKE • Hungary has already announced it would veto any oil ban the Commission would put forward. Not only has Hungary’s PM Viktor Orbán been a vocal supporter of the Kremlin, but this comes as the EU is reluctant to release large sums of money for energy investments given the recent activation of the Conditionality Mechanism over public procurement and corruption issues in the country. Furthermore, Slovakia and the Czech Republic, also heavily dependent on Russian imports, have demanded an exceptional three-year phase out period to 2024. Finally, the Commission has agreed to a three-month transition before banning EU shipping services from transporting Russian oil instead of the initial one month, according to Euractiv. This aims to alleviate concerns raised by Greece, Malta and Cyprus about their shipping companies.
The announcement of a phased-out oil embargo did not influence oil production plans by the Organisation of Petroleum Exporting Countries (OPEC) — and has only pushed the price of crude by a mere 3%, as analysts had already factored the embargo in their predictions. OPEC announced only a slight increase in oil production for June, despite calls coming from the EU and a surge in prices, arguing that China’s lockdowns are threatening global demand.
BUT ALSO • The new package is not all about oil: among other things, it is also set to exclude Sberbank, Russia’s largest bank which is involved in most of the transactions related to oil and gas, from the SWIFT international payment system, along with two other large banks: Credit Bank of Moscow and the Russian Agricultural Bank.
Media outlets have also made their way back onto the sanctions list, with three big Russian state-owned broadcasters, who are accused of aggressive propaganda, to be banned from distributing their content in the EU.
Finally, the package is expected to ban any services related to accountancy and consultancy by EU companies — a measure so far opposed by Cyprus, whose professional services sector runs the risk of being heavily hit.
WHAT’S NEXT • The adoption of the package is now in the hands of the EU leaders and unanimity in the European Council is required for such a decision. This means that some changes to the current proposal might take place in the upcoming days.
SHOW ME THE MONEY • While sanctions negotiations were ongoing, an International Donors Conference took place in Warsaw, hosted by Poland and Sweden in cooperation with the European Commission and the European Council. Around 6,5 billion dollars were raised to support Ukraine’s economy and the humanitarian crisis caused by the war in Ukraine. This comes alongside a new aid package of €200 million from the Commission — bringing the Commission’s entire financial support to Ukraine to 4 billion euros since the start of the war on 24 February.
Industry Vows Tenfold Increase in Hydrogen Electrolyser Production
On 5 May, as part of the European Electrolyser Summit, European Commissioner for Internal Market Thierry Breton and representatives of the Electrolysers manufacturing industry signed a Joint Statement announcing a tenfold increase of electrolyser manufacturing by 2025 - one step closer to meeting the Commission’s REPowerEU communication to “double the previous EU renewable hydrogen target to 10 million tons of annual domestic production, plus an additional 10 million tons of annual hydrogen imports”.
TRANSITION GOALS - This is yet another move towards meeting EU domestic energy transition targets and paving the way for large scale deployment of clean hydrogen production, amid pressures on EU Member States to phase out Russian energy imports. The Declaration sets to increase electrolysis capacity tenfold to an annual 17.5 GigaWatt — in line with Fit for 55 objectives and the EU Clean Hydrogen Alliance’s aims to promote investments and stimulate the roll-out of clean Hydrogen production and use.
In order to achieve these new objectives, the EU’s strategy is to use the lessons learnt from building an integrated gas and electricity market to build a competitive hydrogen market for imports while simultaneously reassuring investors. The first market building phase will see the suspension of relevant competition legislation, in an effort to attract investors. The second phase, due to start in 2030, wil see the progressive reinstallment of competition rules such as ownership unbundling.
SUBSIDIES - Gas for Climate, an industry lobby group, estimates that the costs of developing this new market would range from €27 to €64 billions - through a new “European hydrogen Backbone” initiative. While concerns remain over potential free-riding of new market entrants (which would ultimately benefit from the infrastructure built by incumbents), cross-subsidiarisation and EU green hydrogen subsidies will contribute in scaling-up the hydrogen market. The Carbon Contracts for Difference (CCfD) - the proposed subsidy scheme - would see end users get paid a premium based on CO2 emissions avoidance, derived from the fluctuating EUA price.
‘A New Age of International Cooperation in Competition Policy’, says Vestager in Berlin
On 5 May, Competition Commissioner Margrethe Vestager addressed the Annual International Competition Network (ICN). She was expected to be in Berlin, but was kept busy in Strasbourg at the European Parliament plenary by discussions on the Foreign Subsidy Regulation.
COOPERATION • The EU’s top competition official focused on cooperation in digital enforcement between competition authorities, praising the joint-work of the European Commission and the UK’s Competition & Markets Authority (CMA) on Facebook’s use of advertising data and ‘Jedi Blue’, the Google-Facebook Open Bidding Agreement.
“It goes without saying that the more we, as an international competition community, are able to harmonise our approach, the less opportunity there will be for global tech giants to exploit enforcement gaps between our jurisdictions” — Margrethe Vestager
EX-ANTE / EX-POST • With the Digital Markets Act (DMA) in mind, Vestager stressed the complementarity between ex-post tools such as merger control and new, ex-ante obligations — such as those contained in the DMA. Digital markets require a novel, “hybrid approach, in which both ex ante regulation and traditional competition tools will both play their part”.
CALENDAR • On a side note, Vestager alluded to the DMA entering into force in “the spring of 2023”, therefore “rowing back from an earlier suggested timeframe of this fall”, says Natasha Lomas from TechCrunch. Getting the troops ready to enforce the obligations that the DMA sets for ‘gatekeeper companies’ is not an easy task. “Our teams are currently busy with all these preparations and we're aiming to come forward with the new structures very soon”, Vestager said.
IKK CONFERENCE IN BERLIN • The day before the ICN conference, competition geeks were already gathered in Berlin to attend the German Federal Cartel Office’s International Cartel Conference (IKK). Sven Giegold, Secretary of State in the German Federal Ministry for Economic Affairs and Climate Protection gave a broad assessment of current antitrust debates and enforcement., calling the DMA “a major achievement”.
“With some Neo-Brandesians now in charge in several national public institutions and the Europeans being proactive on digital markets for some time, are we witnessing a “Zeitenwende” in antitrust? Maybe not that far. But it is fair to say that the antitrust pendulum is swinging back from Chicago to some extent”.
What’ve been reading this week
A policy brief by Olivier Blanchard and Jean Pisani-Ferry for the Peterson Institute for International Economics (PIIE) analyses the consequences of the war in Ukraine and makes extensive recommendations, focused on balancing sanctions with fiscal and monetary policy.
In VoxEU, Michele Ruta forecasts that firms will be slow to respond to the changing geopolitical environment, and that absent government intervention, this will not lead to a retreat of globalisation.
Writing in his newsletter Geoeconomics, Shahin Vallée criticises the legal contortions the German government resorts to in order to maintain the fiction that it abides by the Constitution-mandated debt brake, thus squirming away from a long-overdue debate on the soundness of the Schuldenbremse.
The European Union Institute for Security Studies (EUISS), the EU’s own foreign policy think tank, has released a report penned by Alice Ekman on China’s efforts at making friends, and on how this is reshaping the world order.
A new report by Jaïr van der Lijn et al. for the Stockholm International Peace Research Institute (SIPRI) evaluates both the effectiveness and the limitations of the military training missions carried out by the EU since 2003.
This week’s newsletter is brought to you by Andreea Irina Florea, Elena de Rouvroy, Alexandra Philoleau, Gabriel Papeians de Morchoven, Thomas Harbor, Théo Bourgery, and Maxence de La Rochère. See you next Tuesday!