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News & Insights on Europe

News and Views on Europe – 9 Mar 2018

posted by eucentresg

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Transatlantic trade war on the horizon
In a very controversial move last Thursday (1 Mar), US President Donald Trump announced that the US would impose 25% tariffs on steel imports and 10% on aluminum on the ground of national security concerns. (This policy has led to the resign of his top economic advisor Gary Cohn on Wednesday.)

Estimate suggests that EU steel exports to the US could be slashed by an estimated 50% or more. Therefore, to retaliate against the tariffs and to protect its companies, EU is set to hit a wide range of American products — ranging from yachts to peanut butter and orange juice — with duties of 25%. The products targeted, as shown in a list obtained by POLITICO, are chosen so as not to harm EU industries, which do not need these imports. Some targets clearly gun for politically sensitive Republican-run states. The EU is also looking at “safeguard” measures to protect its industry — restricting the bloc’s imports of steel and aluminium to stop foreign supplies flooding the European market, which is allowed under World Trade Organisation (WTO) rules. Moreover, Brussels is in contact with other countries to forge an internationally coordinated response to Trump’s protectionist trade policy decision. Countries could potentially line up with the EU include Canada, Brazil, South Korea, Japan, Australia and Turkey, which are all likely to be hurt by the tariff imposition.

Trump, in the face of such threat from the EU, did not back down. Instead, he tweeted that “If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S.” This is because “They make it impossible for our cars (and more) to sell there,” he added, slamming what he called a “big trade imbalance.”

In addition to the transatlantic trade fissure, the EU may face a two-front trade war due to its trade policy towards China. The EU on Tuesday (6 March) extended anti-dumping duties of between 48.3 and 71.9% on stainless steel pipes from China for a further five years. The Commission concluded that Chinese producers had significant spare capacity and that this was likely to lead to large-scale imports into the EU at dumped prices if the measures were lifted. The duties on seamless stainless steel pipes and tubes were first set in 2011, with a review after their expiry in 2016. The duties remained in place during the review despite an earlier argument by Chinese ambassador to the EU, Zhang Min that there will be “No winners in Europe’s war against Chinese steel”.

 

Eight northern EU states urge caution in euro zone reforms
This week, a so-called “Northern Alliance” has emerged against the euro zone’s potential political integration. Finland, Ireland, the Netherlands, Estonia, Lithuania, Latvia and the two non-euro zone members – Sweden and Denmark – issued on Tuesday (6 Mar) a joint statement opposing the cluster of reforms proposed by French President Emmanuel Macron and backed by the European Commission President Jean-Claude Juncker.

“The discussion on the deepening of the European Monetary Union [EMU] should find a consensus on ‘need to haves,’ instead of focusing on ‘nice to haves’,” the statement read. Basically, the core message was that euro zone reforms should focus on completing the banking union, improving compliance with budget rules and setting up a European Monetary Fund (EMF), with more ambitious plans such as setting up a joint euro zone budget or common finance ministry left for later. Moreover, they said the strength of the euro depended, above all, on “decisive actions at the national level” to comply with EU rules on debt and budgets, and that these national actions “should have priority over far-reaching proposals”.

The joint statement came just hours after Angela Merkel in Germany secured a deal with Social Democrats that will see her leading a fourth government. While the German Chancellor has publicly committed to supporting Macron’s ambitious reform agenda, Merkel actually pursued a midway with regard to euro zone reforms. For instance, she did not back Macron on a euro zone budget, but did go further than the northern group in saying that the future EMF should be a fully-fledged EU institution under EU parliament control instead of an intergovernmental body.

Emphatically, the political significance of the joint statement should not be under estimated. The group had never been seen as opposing to the Franco-German axis, although they had often joined forces with Britain to battle more protectionist traditions in France and Germany. But this time, they appear to champion the interests of the EU countries with a budget surplus that are broadly opposed to budget transfers and institutional centralization at the EU level. The implications of this development on the future direction of European integration and on the French idea of a multi-speed Europe could potentially be significant.

 

Italian elections delivered “hung” parliament and ushered in anti-establishment, anti-immigration parties
Italian voters delivered a hung parliament on the 4 March general elections – rendering none of Italy’s main political groups – League, Five Star Movement and Demoratic Party – being able to rule alone. This has upended traditional politics in which “the old certainties of the center-right / center-left division” has been blown apart. The biggest winners of this election is the far right League and the anti-establishment Five Star Movement.

As no party is close to an overall majority, coalition talks will take weeks and possibly months. Although once asserting that it rejected talks of coalition, Five-Star has now taken up a more accommodating stance about “shared politics”. Newly elected lawmakers will meet on the 23 March for the first time to discuss the future. There were speculations about a German-style grand coalition but it seems that this coalition is highly implausible due to the narrow margins in vote counts. League leader Matteo Salvini has claimed the right to form a government and will likely have a first go in forging a coalition with Berlusconi’s Forza Italia.

Italy, the 3rd largest economy in the Eurozone has continued to suffer from sluggish growth and high youth unemployment. Its debt is the 2nd highest in the EU and productivity is low. Compounding these dismal figures is the urgent topic of immigration which League has played to its advantage. The Commission’s Eurobarometer has found that Italy, once EU’s most fervent supporters had become most Eurosceptic. However, given the fragility of the Italian economy, there is also little popular appetite for “Italexit” despite rising discontents with the EU. In fact, Five Star Movement, which used to advocate a referendum on leaving the euro did a volte-face and removed any reference to this in its election manifesto. Instead, the issue that raised to the top during the elections was on immigration – and in particular the continued flows of refugees through the Mediterranean sea to Italy. Which ever party finally formed the government in Italy would thus likely clash with the EU over this sensitive issue.

 

Austria and Luxembourg to sue European Commission over construction of nuclear plant in Hungary
Austria, adamant about defending and honouring its decades-old anti-nuclear stance, is suing the European Commission for agreeing to the construction of power plant in Hungary, whom Austria shares a border with. The new nuclear plant will be partly subsidized by Russia’s nuclear monopoly, Rosatom, and will cost up to USD$12 billion. Luxembourg is joining Austria supporting the principle that no public funds should be invested in nuclear power.

The genesis of Austria’s anti-nuclear stance has its roots in the 60s, when during the construction of its first nuclear power plant on the Danube, a referendum that was held revealed that citizens were against the nuclear program by a narrow margin of 1%. The Zwentendorf plant was later completed but was never active. Since then, Austria government has paraded nuclear- free energy, citing safety concerns. Other concerns that have been expressed included Russia’s now increasing role in European affairs.

Austria’s other neighbours such as Slovakia and the Czech Republic have all expressed interest in expanding their nuclear facilities early on, but Austria has always been steadfast about its position, and warned that it would veto any nation that attempted to obtain clearance from the Commission, or EU subsidies for nuclear programs. Unfortunately, as per the Euratom Treaty signed in 1957, which regulates the European civil nuclear industry, new nuclear power plants serving the EU’s interest can be supported. The Commission’s ultimate decision to give the green light to the construction indicates a possible expansion of nuclear programs in Europe. Although a thorny issue, the Commission maintains that it will “defend its position in court”, suggesting that the it will likely not change its position. Right now, Austria is courting Germany, a powerful ally, in hopes to strengthen the stance against nuclear programs. Germany, on its part, in the wake of the Fukushima meltdown incident, had drawn up a policy of nuclear exit by 2022. 100,000 people had taken to the streets during that period, demonstrating popular dissent for nuclear plants, and the decision to shut down all nuclear plants by 2022.

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