Your Guide to the French Presidency of the Council of the EU
Also — SGP, Rule of Law, Taxonomy, EU Budget, Apple
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Get Ready for la PFUE — the French Presidency of the Council of the EU
From January 1st until June 30th 2022, France presides over the Council of the European Union, taking over from the previous presidency trio made up of Slovenia, Portugal, and Germany.
HAPPY NEW YEAR • In Japan, it is possible to buy cans of air to commemorate the end of an Emperor’s rule (The Telegraph). We found no reports of cans of air for sale to commemorate the end of the Slovenian presidency of the Council of the EU as the rotating six-month presidency is going to France, but the moment remains nonetheless important.
POLITICKING • The symbolic shift was celebrated with much fanfare by the French government over New Year’s Eve — with most public buildings illuminated with the EU’s colours. The European flag floated alone above the Tomb of the Unknown Soldier under the Arc de Triomphe on January 1st. During the last French presidency of the Council in 2008, the government opted to let the European flag fly alongside the French tricolore.
As Emmanuel Macron is gearing up to run for the presidential elections, which are taking place in April 2022, any attempt to increase his personal standing at the EU level is criticized as serving internal political goals, notes Europanova’s Guillaume Klossa in Le Journal du Dimanche.
The symbol prompted an immediate controversy, with harsh criticism by political opponents from Jean-Luc Mélenchon to Valérie Pécresse and Éric Zemmour. Polls show that the French public has a very low opinion of the EU, while interest in the PFUE remains niche (Politico). The flag was taken down on January 2nd — a scheduled action, according to the government, but Marine Le Pen celebrated a “patriotic victory” (Libération).
At the EU level, diplomats worry that France will use its clout to push its own policy proposals in a short timeframe. As the presidential election is to take place in April 2022, most expect the French presidency to effectively last two to three months, until March (Politico).
POLICY AGENDA • The French — with permanent representative Philippe Léglise-Costa in a leading role — will preside over the meetings of the EU’s body tasked with getting the 27 Member States to agree a position on legislative proposals. Emmanuel Macron gave a press conference on the matter on December 9th, laying down France’s plans for the Presidency — dubbed “PFUE” in French — with a dedicated motto stressing the need for “recovery, strength, and a sense of belonging” (Government).
The Council of the EU will examine the main ongoing legislative proposals, among which the EU’s landmark digital (DMA/DSA) and environmental (CBAM) regulations — on which France wishes to be an honest broker.
DIGITAL • On digital regulation, Paris has been active in pushing for a tough stance — both in terms of market competition and the surveillance of online content — which is seen as necessary to achieve European autonomy. It will push to get both the DMA and DSA done by March/April.
CLIMATE • On climate, France’s Bruno Le Maire has been adamant that the current surge in energy prices requires a structural fix — while Germans have argued the crisis was temporary.
The expansion of the EU’s carbon pricing scheme (ETS) — expected to include transport and buildings — has also been faced with scepticism in Paris, where memories of Gilets Jaunes storming the streets in protest against fuel taxes are still vivid (Politico).
While the ETS deals with energy pricing at home, the EU also has plans for pollution coming from imports. France wishes the EU carbon tax — the Carbon Border Adjustment Mechanism, or CBAM — to enter into force. After years of pushing for such a tax, the Commission submitted a proposal in 2021. It wishes to use the proceeds to directly finance the Union budget.
INDUSTRIAL POLICY • Paris has always been a proponent of an industrial policy at the European level. The Great Pandemic has given the French stance more weight as the EU has become more vigilant about foreign takeovers and more open to the language of “strategic autonomy”.
While France was widely mocked in 2005 when it prevented the takeover of Danone by Pepsi for wanting to protect its “strategic yoghurts”, there is now definitely a momentum behind industrial policy (The Economist).
This is not only due to the pandemic. China’s rise also played a role in the EU’s efforts to beef up industrial policy. When the Alstom-Siemens merger was killed by the EU’s DG Competition in 2019, economy ministers Bruno Le Maire and Peter Altmaier teamed up to call for a new industrial policy to be enacted — i.e. for merger control to be relaxed — with the aim of creating “European champions”.
In concreto, this means that France wishes state aid law, which governs how Member States are allowed to dish out public money to support private undertakings, to change. Specific sectors are concerned, among which semiconductors, cloud technology, hydrogen, and batteries (Politico). Internal market commissioner Thierry Breton has pushed for ambitious plans for semiconductors. Breton has been a leading force behind the shift towards an industrial policy in Brussels.
Competition vigilantes are more sceptical. Antitrust supremo Margrethe Vestager is wary of the French initiative. Northern free-market nations tend to oppose such positions, although the Netherlands has recently made a U-turn in terms of fiscal policy.
LONG TERM • Paris signaled it wants to initiate a discussion on reforming the Schengen Agreement, the Stability and Growth Pact (see below), European defence, and a European minimum wage. Macron’s December press conference laid down plans that clearly exceed both the timeframe and the competences given to the rotating presidency of the Council of the EU. This broader agenda is seen in Paris as Macron’s Second Act, following his 2017 Sorbonne speech (Contexte).
Macron and Draghi Lead Effort to Reform EU Budget Rulebook
The French President and Italian Prime Minister published an op-ed in the Financial Times of 23 December, calling to “deepen the reform agenda” with respect to the block’s budget rules contained in the Stability and Growth Pact (SGP).
Mario Draghi and Emmanuel Macron: The EU’s fiscal rules must be reformed, Financial Times, 23/12/2021
Revising the European Fiscal Framework, University of Chicago Working Papers, 23/12/2021
ONGOING TALKS • The Great Pandemic has left public finances in shambles across the EU with soaring deficits. This prompted the European Commission to trigger the general exemption clause contained in the SGP. Some Member States have profited from the occasion to argue against an eventual return to the budgetary rules of the pre-pandemic period. The Commission has opened a “consultation” on possible tweaks to the SGP, asking for Member States’ input on the matter.
QUIRINALE SPIRIT • The FT’s op-ed illustrates the renewed transalpine friendship, materialized in the Quirinale Treaty — which comes after years of strained relations between Paris and Rome. The two capitals tend to have similar positions on the matter.
COVID SPIRIT • Draghi and Macron draw on the Covid-19 experience, praising the “power of bold action taken early” which is exemplified by the flagship 1,8 trillion-euro recovery plan, Next Generation EU. The path to recovery cannot obliterate the “significant long-term challenges” which the EU faces — on which the “EU must act boldly and quickly”.
INVESTMENTS • Draghi and Macron underline the massive investments required in “research, infrastructure, digitization, and defence”. These investments cannot be made within the current existing framework which, according to the authors, would require an increase in taxes or cuts in social spending, stifling growth through excessive fiscal discipline.
IN CONCRETO • The op-ed calls for “more room for manoeuvre”, “enough key spending for the future”, and hints at using common debt as a tool to finance them. Macron and Draghi do not put forward precise recommendations, leaving the door open for debate within the framework of the Commission’s consultation on the matter.
Other reform options included the exemption of certain categories of investment from the SGP deficit and debt accounting rules, such as a “green golden rule” for green investment. The EU’s Valdis Dombrovskis, the European Commissioner for Trade, has already said he is open to a “green golden rule” (FT). Paolo Gentiloni has also voiced support for the idea of national debt ceilings (Reuters).
NON PAPER • The op-ed calls for a non-ideological discussion on the subject, referring, for further details, to a paper published on the same day by Draghi’s spokerspon and Macron’s economic advisor. This paper, “the closest thing to an official ‘non-paper’, could be an important contribution to the ongoing debate on the reform of the framework” according to DGAP’s Shahin Vallée (Twitter).
POLITICS • France aims to leverage its presidency of the Council of the EU to push forward discussions on SGP reform — with Bruno le Maire leading ECOFIN meetings. A special summit is planned for March 2022.
In normal times, Paris and Rome’s move would face vocal opposition from fiscally conservative Member States, whether the ‘Frugal Four’ or the so-called ‘Hanseatic League’. But the pandemic has changed things.
Germany’s conversion to fiscal profligacy (in German terms) in 2020 and the recent accession of the ‘traffic light coalition’ means that the policy debate has shifted in Germany — partly thanks to Olaf Scholz and advisor Jörg Kukies’ legacy at the Ministry of Finance under the last Merkel government (FT).
Things have changed in the Netherlands, too, where Mark Rutte’s fourth coalition government promises to be more spendthrift, both at home and at the EU level. D66, a pro-European liberal party, arrived second in the 2021 Dutch general election, and its leader, Sigrid Kaag, is set to take the job of finance minister, which was latterly occupied by the fiscally hawkish Wopke Hoekstra (Bloomberg).
Still, Paris and Rome will not have it this easy. Berlin, Vienna, and the Hague tend to argue that the covid-induced use of the SGP’s flexibilities means that it may not require a fundamental rewrite.
Commission Launches Infringement Procedure Against Poland
On 22 December, just a few days before Christmas — or "end of year celebrations" according to the EU’s official language guide —, the European Commission launched an infringement procedure against Poland for violations of EU law by its Constitutional Tribunal.
CONTEXT • The Polish Constitutional Tribunal, at the centre of the reforms of the Polish judiciary and thus at the heart of the debates surrounding violations of the rule of law in Poland, is the subject of an infringement procedure.
The European Commission has targeted two rulings of the Polish Constitutional Tribunal, in which it "considered that the provisions of the European Union treaties were incompatible with the Polish Constitution, thus expressly challenging the primacy of Union law".
DILEMMA • This new infringement procedure may be a decisive step in safeguarding the rule of law or, on the contrary, in worsening relations between Brussels and Warsaw. Although the reforms of the Tribunal and its politicisation have always worried Brussels, the Polish Constitutional Court has long been spared.
A few months ago, the Commission had prepared the ground by initiating an infringement procedure against the German Constitutional Court. The latter, however, acted as a good student, and the proceedings were dropped.
The attitude of the Polish Constitutional Court, however, promises to be less cooperative than its German counterpart. The Polish government, which has been repeatedly asked to put an end to violations of the rule of law and has been ordered to pay 1,5 million euros per day, is sticking to its guns and refusing to comply, even accusing the Commission of wanting to start a "Third World War" (Euractiv).
WHAT NEXT? • Moreover, even if - in a surprising turn of events - the Polish Constitutional Tribunal was to end up complying with the CJEU's decision, the primacy of Union law remains a contested concept within the EU.
To show that this is not a "Polish problem" one need only look to Romania, where just last week the Constitutional Court challenged the application of a CJEU decision. The Court argued that the ruling is not compatible with the Romanian constitution and therefore cannot be applied without amending it (RTL BE).
Commission Proposes New EU Own Resources
On 22 December, the European Commission proposed to “establish the next generation of own resources for the EU budget”.
IN CONCRETO • Under the Commission proposal, three new sources of revenue would end up in the common EU budget. Money stemming from the Emissions Trading Scheme (ETS), the Carbon Border Adjustment Mechanism (CBAM), and the taxes levied on multinationals under the OECD/G20 agreement on global taxation. Taken together, the Commission estimates this will add up to 17 billion euros per annum from 2026 onwards.
NGEU • The new resources are meant to pay back the EU’s flagship recovery fund, Next Generation EU (NGEU). To finance the 800 billion euros of NGEU, the European Commission tapped into the bond market in order to launch a common European debt. New resources will also be used to finance the Social Climate Fund — a pillar of the EU’s Fit for 55 environmental strategy.
BUDGETOLOGY • The EU budget is composed of four “own resources”. 75% of the customs duties levied at the external borders of the Union go into the common budget. So do the Value Added Tax (VAT) collected by the Member States and another own resource based on non-recycled plastic packaging waste. The rest is made up of Member States’ contributions based on their Gross National Income — which is the EU’s main source of finance.
On 16 December 2020, the EU Institutions agreed to accompany NGEU with a roadmap for new resources — this is the “Own Resources Decision” which the Commission proposes to amend. The rationale was that, without new resources, NGEU would have ended up encroaching on the EU’s general budget (the MFF).
Apple Faces a €50m Fine in the Netherlands
On 24 December, the Dutch competition regulator, the Authority for Consumers and Markets (ACM), gifted Apple with an early Christmas present, ordering it to change its App Store terms or face a fine of up to 50 million euros. Apple has until 15 January 2022 to comply with the Dutch order.
CAN’T BUY ME LOVE? • The decision — which is limited to dating-app providers — condemned Apple’s practice of requiring app developers to use its own in-app payment system. It comes amidst increasing regulatory scrutiny of app stores worldwide. Dating apps like Tinder follow a ‘freemium’ model.
Their platforms are free to download, but users pay for additional — premium — perks, such as unlimited swiping or avoiding in-app advertisements. Apple charges a commission of 30% on all these in-app purchases and subscriptions (with subscriptions falling to 15% after one year), in addition to a fixed yearly fee of 99 dollars for all app developers. These commissions are a growing source of revenue for Apple: the App store raked in 85 billion dollars in 2021 — a striking 23% of Apple’s worldwide revenues.
The ACM considered that the fees were “not proportional to [Apple’s] additional payment service”. It noted that dating apps can only be offered through the App store on iPhones, granting it a ‘dominant position’ which implies additional obligations under competition law.
DOMINANT? • Apple considers that its App Store is not dominant, since it faces competition from Google’s own Google Play. This was the view of the American judges in the Apple v Epic Games case — concerning app store payment conditions for gaming apps. The European Commission’s recent Google Shopping decision — finding, among other things, that Google Shopping is not in competition with Amazon — seems to show a Transatlantic difference in the assessment of digital markets.
WIDER TECHLASH • The ACM’s ruling is the latest evidence of a harsher regulatory climate for app stores. The order may bolster the European Commission’s confidence in its own investigation concerning Apple’s App Store, in which it has preliminarily found that payment conditions in music streaming were contrary to competition law (April 2021).
The EU’s Digital Markets Act, for which “trilogue” negotiations between the Commission, the Council and the Parliament have recently started, would likely prohibit it from unduly favouring its own payment systems over rival ones.
In the United States, the ruling in Apple v Epic Games obliged Apple to allow app developers to advertise channels through which users could pay outside their apps. However, Apple was not ordered to allow third-party payment systems in-app, as in the ACM decision. Congress is also considering the American Innovation And Choice Act, introduced by a bipartisan group of senators, which would stop Apple and Google from favouring their own payment services, much like the DMA.
Commission Unveils its Proposal for Taxonomy Delegated Act
The European Commission is preparing to recognize nuclear energy and natural gas as economic activities that contribute to climate change adaptation or mitigation.
HAPPY NEW YEAR • This is the meaning of the draft delegated act sent by the Commission to the Member States on New Year's Eve. This text would allow new low-cost investments in nuclear power until at least 2045. Gas-fired power plants could also benefit from sustainable financing, but subject to stricter conditions (less than 270g of CO2 emissions per kW/h).
TAXO • As a reminder, in 2020, the European Commission adopted the so-called Taxonomy regulation. It aims to list the economic activities considered as sustainable in order to guide investments and, ultimately, achieve the climate objectives that the Union has set for 2030 and 2050.
To list these activities, the co-legislators (Council of the European Union and European Parliament) have chosen to use delegated acts: legislative acts prepared by experts that the co-legislators can reject. A first list of economic activities recognized as contributing to climate change adaptation or mitigation was adopted on 4 June 2021.
PROCRASTINO • However, nuclear and gas were left off this list due to a lack of consensus among experts. The issue also divides MEPs. During the October plenary, the far right (the ECR and ID groups) had notably tabled proposals to object to the adoption of the first delegated act on the grounds that it did not cover natural gas and nuclear. The proposals were rejected.
Member States were also divided. On October 10, ten of them, including France, signed a declaration calling for the inclusion of nuclear energy in the taxonomy. Conversely, Germany, Denmark and Luxembourg, among others, were vehemently opposed.
AGENDA • This opposition explains the delay in the text. Initially announced for the autumn, it was then to be adopted before the end of 2021. It seems that the document will finally be adopted on 18 January.
STILL DIVISIVE • However, the climate has not calmed down. While Slovakia has welcomed the text, Austria is threatening to take the Commission to the Court of Justice of the EU if it adopts the text, and Spain is opposed. In the European Parliament, the Greens/EFA have already voiced their opposition.
On the civil society side, the European Consumers Organisation (BEUC) denounces institutional greenwashing. While the contribution of the taxonomy lies in its appropriation by market players, the inclusion of nuclear and gas threatens to undermine its credibility with Nordic savers, particularly Germans.
Thanks to those who helped put this first edition together: Ghislain Lunven, Marlies Humpelstetter, Briac de Charry, Filip Filipek, Ambroise Simon, Agnès de Fortanier, Rogier Prins, and Thomas Harbor. See you next week!