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News & Insights on Europe

News and Views on Europe – 1 Jun 2018

posted by eucentresg

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The EU to increase security cooperation in and with Asia
EU Foreign Ministers met in Brussels on Monday (28 May) and agreed on an agenda to strengthen security cooperation with Asia. The Council adopts a set of conclusions identifying some key areas for deeper security engagement. These include maritime security, cyber security, counter-terrorism, hybrid threats, conflict prevention and control over proliferation of chemical, biological, radiological and nuclear weapons. Some of the immediate priorities regarding the EU’s security cooperation in and with Asia is to support regional stability in Asia and raise the level of EU’s involvement with the ASEAN-led regional security architecture.

An op-ed by the EU High Representative / Vice President, Federica Mogherini which appeared in Bangkok Post and The Philippines Star, emphasized the close connections between Europe and Asia. Ms Mogherini noted that the EU is not only an important economic player in Asia, but security cooperation with Asian partners has become the biggest area of growth. Not only is the EU and its Asian partners working together on issues such as cyber-security and counter-terrorism, the EU also support peace processes across the region from Afghanistan to Mindanao to Myanmar, and will work closely with Asian partners to support the de-nuclearisation talks in the Korean peninsula.

 

The EU to respond to Trump’s “Trade War”
US announced that tariffs would be imposed on steel and aluminum from the EU, Canada and Mexico today, 1 June. The initial exemption on the tariffs has expired and US Commerce Secretary Wilbur Ross said that the US would not grant permanent exemption to its allies despite talks and negotiations over the past month. Over recent days, European leaders had hoped that Washington would exempt the EU from tariffs or would instead impose a quota system. However, this was not to be and a 25% additional tariff on steel and 10% of aluminum would be rolled out.

The EU said it would retaliate with countermeasures “that would hit US exports worth a total of €6 billion”. This list of products that might be affected include peanut butter, bourbon, orange juice, Levis and Harley Davidson. The EU is aiming at products or exports coming from the constituencies of key Republican figures. President of the European Commission, Jean Claude Juncker criticized the US for its protectionism and said that the EU would also bring the case to the World Trade Organisation (WTO).

President Donald Trump has long complained that the US has been treated unfairly by both the EU and China when it comes to trade, pointing to the trade deficit as proof of this unfairness. In an op-ed in EUObserver, the President of Ifo Institute Clemens Fuest pointed out the fallacy of Trump’s accusation that the US benefits less from market access to the EU than vice versa. He explained that although there is a US deficit in trade in goods, the US enjoyed a surplus when it comes to trade in services. Additionally, the revenue generated by US companies via profits of their subsidiaries in Europe meant that the current account between the US and the EU is actually balanced and there is no US deficit. He warned that a trade war between the EU and US, to be best avoided, but if inevitable would result in as much loss for the US should the EU decide to make use of other instruments next to tariffs such as taxing the revenues of US companies, particularly the tech giants, operating in Europe.

Following this announcement of steel and aluminum tariffs on the EU, Canada and Mexico, some Republican members of Congress criticized the administration for the “dumb” move, adding that “Europe, Canada and Mexico are not China, and you don’t treat allies the same way as you treat opponents”.

 

Political drama in Italy spooked financial markets
Early this week, the financial markets in Italy and Europe was spooked by Prime Minister-designate Giuseppe Conte’s decision to abandon his mandate and withdraw efforts in the formation of the country’s new government. His announcement came right after President Sergio Mattarella’s rejection of the Five Star-League coalition’s proposed candidate for finance minister, eurosceptic Paolo Savona. Since then, President Mattarella has called on former International Monetary Fund (IMF) official Carlo Cottarelli to assume the role of Prime Minister, so that he may lead an interim government and plan new elections for the country.

Mattarella’s veto of the coalition’s choice for economic minister has generated mixed responses from both at home and abroad. The two leading parties from the last election, Five-Star Movement and The League expressed outrage and disappointment. Luigi Di Maio, leader of the Five Star Movement called for the President’s impeachment, criticizing the President’s decision as an attack on democracy. The League’s leader, Matteo Salvini, also questioned whether Italy is still a democracy. In contrast, the Italian President has received much support from both France and Germany, with French President Emmanuel Macron applauding Mattarella for his “courage and a great spirit of responsibility”.

The fear that fresh elections might have to be called with this impasse is causing jitters in financial market with sell-off of Italian bonds and fall in bank shares. The euro also took a tumble. Investors were worried about the potential increase in support for the anti-establishment parties should there be a snap election. Moreover, there is also increasing political polarization between the pro-EU and anti-EU forces. This was further exacerbated by Budget Commissioner Günther Oettinger’s remarks that “markets will teach the Italians to vote for the right thing.” Amid the chaos, International credit rating agency Moody has put Italy “on review” for a possible credit downgrade, signaling to the country to urgently quell the political uncertainties.

However, a silver lining appeared later as progress has reportedly been made in attempts to reach a compromise between Cottarelli’s technocrat government and the anti-establishment parties so that there is no need to go back to another elections immediately. On Thursday evening, Italy’s coalition partners reached a new deal agreeing to substitute Savano as the finance minister, nominating economics professor Giovanni Tria in his place. Savona is tipped to become the EU affairs minister instead. These developments have calmed the global financial markets for now, ushering in a more stable outlook for Italy’s future.

 

EU remains deadlock on management of refugee/migration crisis
Amidst the EU’s growing agenda, the Union continues to be bogged down over disagreements regarding the long-running migration/refugee crisis. The Union has not been successful in achieving a unified position on how to manage the continued flows of migrants and refugees to the EU. Talks have remained stagnant since October last year despite calls by Members of Parliament (MEPs) for governments to no longer delay progress on migration reforms. While the European Parliament is keen on advancing negotiations, proposals have constantly been stalled and abandoned by various Member States, highlighting the severe lack of cohesion within the Union itself.

The main reason why the EU continues to be deadlock on the management of the refugee/migration crisis is due to the divergent positions adopted by Member States with respect to the crisis. While most Member States agree that it is unfair for countries such as Italy and Greece to bear the brunt of the migrant/refugee influx, others do not concur. The Central European Visegrad Group, led by Hungary and Poland, have been reluctant to accept migrants, and both countries consistently refused to be party to any kind of EU refugee resettlement quotas, adamantly refused to accept any refugees based on the mandatory relocation scheme drawn up by the Commission. Hungarian Prime Minister Viktor Orban reportedly claimed that the EU’s migration policies threaten the “sovereignty and cultural identity” of Hungary, blatantly referring to Muslim refugees as “Muslim invaders”. He has gone a step further in threatening to jail individuals or groups who helped illegal migrants to stay in Hungary. This threat was in the proposed legislation known as the “Stop Soros” bill in which Orban accused Soros of funding NGOs to undermine “Hungary’s Christian character by flooding it with immigrants”.

Notably, the European Commission has just announced €467 million funding for the launching of new programmes under the EU Trust Fund for Africa, which aims to protect migrants and boost stability in the region in terms of employment and economic growth. These developments aim to address the root causes of migration and complement ongoing efforts to protect vulnerable groups and facilitate resettlement efforts. Such initiatives are regarded positively in terms of managing human mobility. However, such achievements still arguably pale in comparison in light of anti-migrant sentiments that are growing with prominence within the Union. Austrian Chancellor Sebastian Kurz’s recent comments in advocating for EU border guards in Africa foreshadows the Austrian government’s plans for when it assumes the EU Presidency for 6 months starting in July. Kurz has made cracking down on immigration his priority.

In the months to come, the values and identity of the EU would continue to be challenged by how it is going to manage the migrant and refugees issue in the midst of differences amongst its member states.

 

EU proposes new cohesion policy favouring southern states
The European Commission on Tuesday (29 May) published its long-term plans for cohesion policy — the money and programmes the EU uses to reduce regional disparities across the bloc. The inflation-adjusted €373 billion cohesion fund is part of the EU’s next budget cycle, running from 2021 to 2027, announced a month ago.

The Commission’s proposal used a new methodology to distribute funds that takes into account unemployment levels and the reception of migrants, and not just economic output as previously. It (together with the fine-tuning of the definitions of “developed”, “transitional” and “less developed” region) means first of all the disbursement of the fund will be more inclusive. For example, most parts of France will be considered not “developed,” but “transitional” — and thus eligible for more EU funding.

The second, and perhaps much more politically controversial implication is that the new policy entails lower allocations for eastern European countries in favour of Southern states. The Visegrad Four countries of Central Europe — Poland, Slovakia, the Czech Republic and Hungary — would each receive about a quarter less in the next budget cycle. Estonia and Lithuania would also experience cuts of 24%. Meanwhile EU funds for Italy’s poorest regions would increase to €43.4 billion from 35.1 billion. Spain will see an increase to €38.3 billion from 31.2 billion and Greece to 21.6 billion from 17.3 billion.

The reasons of shifting funds from the East to the South have elements of economics and politics. On the economic side, the cut in cohesion funding is the result of the East paying a price for their economic success. It seems only natural that the EU spends more on countries like Greece, Italy and Spain which face double-digit unemployment, when jobless rates are below 5% of the workforce in fast growing Poland, Hungary and the Czech Republic. On the political side, the new proposal aims to spend more of the bloc’s money on Italy and other southern states hit by the migration crises, while giving less to the Eastern European countries refusing to accept refugees. It is telling to note that Romania and Bulgaria, the two countries that do not oppose the mandatory quotas for relocation of refugees, will receive 8% more than before.

While the Southern states are likely to receive more financial help from Brussels, the extra funds come with strings attached. The Commission is proposing to tighten the link between EU funds and structural and economic reforms. In other words: no cash if you don’t follow our prescription for economic management.

Despite the controversies, the new proposal seemed to be welcome on two fronts. The first is that it seeks to enact simpler and more flexible rules to access and manage cohesion policy funds. The second is that two of the big sources of cohesion funding, the European Regional Development Fund and the Cohesion Fund, will both have strict guidelines on what kind of programs they can back — and green criteria will play an important part. Under the Commission’s proposal, 30% of funds for less-developed and transitional regions will have to be spent on promoting “a greener, low-carbon Europe,” and 25% of funds in developed regions will be earmarked for green programs.

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