European Council Opens Accession Negotiations with Ukraine
But also — CS3D, Platform Workers, Amazon, Tusk, German Budget
Hi! It’s Tuesday, 19 December, and here is your EU news summary for the week. Feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
The Briefing
On December 14 and 15, EU heads of state and government convened for the last European Council of 2023. While they agreed to initiate accession negotiations with the EU and Ukraine, Hungarian Prime Minister Viktor Orbán blocked a decision to increase aid to Ukraine by 50 billion euros. Here’s what happened.
BACKGROUND • During the weeks leading up to the European Council, Orbán threatened to veto:
The opening of accession negotiations between Ukraine and the EU,
An additional aid package of 50 billion euros to Ukraine.
On December 13, the day before the European Council meeting, the Commission announced the allocation of 10 billion euros towards cohesion funds for Hungary. For context, 22 billion euros the Commission decided to withhold 22 billion euros in cohesion funds in December 2022 due to rule of law violations.
In its December 13 decision, the Commission stated that judicial reforms should enable Hungary to access to 10 billion euros. The timing of the release of these funds seems to coincide with EU efforts to persuade Hungary to soften its stance on the Ukrainian issue.
"This is purely coincidental," declared Věra Jourová, Vice-President of the Commission for Values and Transparency. She attributed it to procedure deadlines that must be respected.
This decision sparked criticism in the European Parliament, where many members feel that the Commission is too indulgent on rule-of-law matters. Leaders of four political groups — the EPP, S&D, Renew, and the Greens — jointly sent a letter to the Commission expressing "deep concern about the positive assessment of Hungarian judicial reforms."
These MEPs accused the Commission of a political manoeuvre and expressed worries about the long-term consequences of the decision on the rule of law. "We sent a clear signal to Orbán: when you play tough, you win."
Transparency International EU also argued that Hungary's reforms were superficial, and the Commission's decision wrongly suggested that the rule of law "is on a path of positive and serious reform."
COFFEE BREAK • The release of the 10 billion euros in cohesion funds seems to have partly satisfied Viktor Orbán, ultimately enabling the opening of accession negotiations between the EU and Ukraine (the Council also decided to initiate negotiations with Moldova and grant candidate status to Georgia).
The decision was made in an unusual manner. After heated exchanges between Orbán and other European leaders, German Chancellor Olaf Scholz suggested that the Hungarian Prime Minister briefly leave the room.
This seemingly pre-planned scenario allowed the remaining 26 heads of state to decide to open accession negotiations with Ukraine. The decision had to be unanimous, a condition met even if one head of state is absent.
It was a win-win situation: for the 26 heads of state, it meant being able to start negotiations with Ukraine, and for Viktor Orbán, it provided the opportunity to claim he was not present during the vote, thereby absolving himself.
After the decision, the Hungarian Prime Minister announced on Facebook that "Hungary does not want to be associated with this bad decision”. Hungary will have numerous opportunities to express its opposition — even to block Ukraine's accession — during the negotiations.
Conversely, the decision was celebrated in Kyiv. Ukrainian President Volodymyr Zelenskyy tweeted, "I thank Chancellor Scholz for his personal efforts and Germany for its leadership."
AID • However, Hungary blocked the increase in the EU's long-term budget for the 2021-2027 period (which must also be adopted unanimously). Within this increase, 50 billion euros were earmarked for Ukraine (17 billion euros in grants and 33 billion euros in loans) to support the country in its war effort against Russia.
With no agreement reached, European leaders decided that they will revisit the issue at an exceptional European Council meeting in January or early February. While the preferred solution is to reach an agreement among the 27 member states, the Commission and the Council are working on a Plan B in case negotiations fail. One option is the adoption of an aid package among the other 26 Member States. However, this aid would take longer to approve and be limited to about a year.
Pressure on the EU is at an all-time high: the United States Congress has repeatedly refused to approve a $60 billion aid package to Ukraine proposed by the White House. Last week, only $300 million was approved as part of a larger U.S. military package of $886 billion.
In Case You Missed It
CS3D • On December 14, the European Parliament and the EU Council reached an agreement on the Corporate Sustainability Due Diligence Directive (CS3D) proposal. This directive aims to hold companies accountable for human rights violations and environmental standards caused by their activities and those of their suppliers.
Companies will be required to address the negative impact of their activities through investments and insurance. They must also establish a greenhouse gas emissions reduction plan in line with the goals of the Paris Agreement.
Failure to meet due diligence obligations could result in legal action before European courts and national supervisory bodies. Financial penalties could amount to up to 5% of global turnover.
The due diligence duty will apply three years after the directive comes into force, to:
EU-based companies employing at least 500 people with a turnover exceeding 150 million euros,
Non-EU companies with a turnover exceeding 300 million euros in the European Union,
Companies with more than 250 employees and a turnover exceeding 40 million euros, generating over 20 million euros in a "high-risk" sector such as textiles, agriculture, agri-food, mineral resources, or construction.
The inclusion of the financial sector in the directive was the most controversial aspect of the negotiations. France opposed this inclusion. Banks, insurers, and asset managers will not be held responsible for ESG standard violations committed by their clients or the companies in which they invest.
However, financial sector players must develop transition plans to reduce their greenhouse gas emissions and may also face civil liability for supplier infractions. This partial exclusion of the financial sector will be evaluated in three years.
The directive proposal must now be officially approved by European co-legislators.
Although the UK government asserted last year that it had no plans to introduce similar legislation to the CS3D proposal, specialists on environmental international law warn that since EU directives will apply to large UK companies operating in the EU, UK companies “should not rest on their laurels.”
WORKERS • Following a trilogue, the EU Council and Parliament, with technical assistance from the Commission, reached an agreement on December 13 on the proposal for a directive on digital platform workers. The Commission estimates that 5.5 million workers are falsely safe-employed and are thus deprived of the protections and rights associated with an employment contract.
Pending final approval, the directive introduces a "presumption of an employment relationship" when a relationship of subordination exists. When at least two out of five indicators of subordination are met, the presumption may lead to reclassifying the contract as an employment contract.
The subordination link is assessed based on the platform's ability to determine income, working hours, organization and distribution of tasks, or the attire of workers. Member States may add additional indicators as part of transposing the directive into national law.
Reclassification can be initiated by the worker, their representatives, or at the initiative of competent authorities. The directive will have significant consequences for "gig economy" companies like Uber or Deliveroo, which rely on the services of self-employed individuals. This change in work status could result in a roughly 40% increase in ride-hailing prices, according to Commission estimates.
AMAZON • Margrethe Vestager faced her first setback shortly after returning to her position at the Commission following her unsuccessful attempt to secure the presidency of the European Investment Bank. On December 14, the EU Court of Justice ruled in favour of Amazon in the case of Luxembourg tax rulings.
The Commission had instructed Luxembourg to demand the repayment of €250 million in undue aid from Amazon. The Court of Justice considered that the Commission had not sufficiently demonstrated that the tax ruling that allowed Amazon to reduce its tax bill in Luxembourg constituted state aid incompatible with the internal market.
This ruling suggests further setbacks for the Commission, following defeats in cases involving Fiat and Starbucks. Recently, Engie successfully overturned a Commission decision ordering the repayment of €120 million in Luxembourg.
The Apple case will be judged in spring 2024. The Commission accuses Ireland of providing the equivalent of €14 billion to the California-based company through tax rulings.
TUSK • On December 13, Donald Tusk became the Prime Minister of Poland. President Andrzej Duda used constitutional extensions to delay the nomination of the winner of the October 15 elections, which gave a majority to the opposition coalition against the Law and Justice (PiS) party.
Donald Tusk stated that his goal is to undo the judicial reforms of the PiS. Considering these reforms a threat to the rule of law, the Commission blocked €36.5 billion of NextGenerationEU funds and €76.5 billion in cohesion funds destined for Poland.
GERMAN BUDGET • Last week, the German government narrowly reached an agreement for the vote on its 2024 budget. The budget compromise preserves financial aid to Ukraine but cuts funds for ecological transition and construction.
This end-of-year rush follows a major decision by the Federal Constitutional Court in mid-November. The judges in Karlsruhe ruled that the government had disregarded the debt brake (Schuldenbremse) enshrined in the German constitution by redirecting unspent Covid-19 emergency funds to a special fund for energy transition (KTF).
What We’ve Been Reading
• In a column for the FT, Sinéad O’Sullivan examines the weakness of defence innovation investment in Europe.
• Andrew Duff analyses proposals for treaty reforms for the EPC.
• ECIPE has two publications on Europe and AI: a reflection by Fredrik Erixon on the problem of defining AI and its regulatory consequences, and a paper by Erik van der Marel and Björn Brey on the need to invest in human capital to exploit the opportunities offered by new technology.
This edition was prepared by Luna Ricci, Marwan Ben Moussa, Maxence de La Rochère, Augustin Bourleaud and Hana Rajabally. See you next week!