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News & Insights on Europe

News and Views on Europe – 23 Nov 2018

posted by eucentresg

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France and Germany present Eurozone Budget proposal
On Monday, 19th November, France and Germany’s finance ministers presented a joint proposal on the Eurozone budget to their counterparts at an extraordinary Eurogroup meeting. All 27 EU finance ministers were present. France and Germany hope to establish the budget by 2021, describing it as a “major political breakthrough”.

The Eurozone budget emphasises investment, convergence and stabilisation, which will shape national reforms. Investment will take place in areas of innovation, research and human capital. French Finance Minister Bruno Le Maire has also argued for the need to converge Eurozone national economies to tackle economic crises. The Eurozone budget will be a part of the EU’s next long-term budget spanning seven years. Hence, all member states would have to agree upon its establishment, but only the 19 Eurozone members will be able to utilise it.

According to Mario Centeno, President of the Eurogroup, the Eurozone budget proposal has largely been welcomed by the Eurogroup. However, Dutch Finance Minister Wopke Hoekstra has expressed scepticism, stating that the need for the budget is unconvincing. Le Maire and Hoekstra will be meeting in Paris on Thursday, 22nd November, for further discussions. The Eurozone heads of state will make the final decision on the budget at a summit in mid-December.

The Franco-German joint proposal of the budget is also a signal that France and Germany see a pressing need to collaborate and strengthen the foundation of Europe. The day before the Eurogroup meeting, Merkel and Macron had met to discuss defence, the Eurozone and more, with Macron declaring a “Franco-German responsibility in preparing for the future and the re-founding of Europe.”

However, the Eurozone budget already faces an imminent challenge in the form of Italy’s 2019 budgetary proposal. Italy has challenged the EU Commission by refusing to amend its budget in alignment with EU fiscal rules. Both Dutch and German diplomats have repeatedly said that Italy’s disregard for the bloc’s deficit and fiscal rules demonstrate the risks within the eurozone’s financial system that must be reduced before further reforms can take place.

After Italy’s budget proposal was rejected by the Commission, it resubmitted another with only slight modifications, insisting on the need to depart from EU fiscal rules. On Tuesday, 20th November, Centeno told the EU Parliament’s Economic and Monetary Affairs Committee that Italy’s slightly modified budget is unlikely to obtain the green light from the Commission, raising the possibility of sanctions against Rome.

 

Deepening cooperation in defence to address security challenges
On Monday, 19th November, the defence ministers of 25 EU member countries agreed to form a joint EU intelligence school, along with 16 other new projects which range from improving training and facilities to boosting maritime operations and air systems. These projects fall under the Permanent Structured Cooperation (PESCO), which was launched last year and aims to advance the EU towards a common defence union. It is also hoped that PESCO will reduce the EU’s dependency on the US.

The joint EU intelligence school will be led by Greece and based in Cyprus. It will train intelligence agency staff across the EU in collaboration with national security agencies and NATO. However, eyebrows have been raised by the proposal to have two of the most Russia-friendly EU member states run the project.

Notwithstanding the scepticism, the establishment of a joint EU intelligence school would be a breakthrough for the EU in the intelligence realm. Calls for increased intelligence cooperation in the Union have been persistently met with opposition by the UK, which viewed it as unnecessary competition to the Five Eyes intelligence alliance – comprising the US, Australia, Canada, New Zealand and Britain. After Brexit, London will no longer be an opposing force.

Nonetheless, Denmark and Malta have also opted out of PESCO projects. Denmark usually does not participate in joint European security and defence policies because of its opt out from this pillar of cooperation when it was introduced in the Maastricht Treaty. As for Malta, it opted out to avoid meeting the eligibility criteria of regular increases in defence expenditure.

Just last week, German Chancellor Angela Merkel endorsed the idea of a common European defence concept and proposed plans for a “true European army”. French President Emmanuel Macron has also argued for increased European strategic autonomy lately, emphasising the importance of the EU’s ability to “protect itself with respect to China, Russia and even the United States”.

However, several EU diplomats reacted negatively to the notion that PESCO might be the beginning of a common European army as alluded to by Merkel and Macron. Polish defence minister Mariusz Blaszczak insisted that PESCO should primarily complement NATO rather than replace it. He also stressed that PESCO should be open to non-EU countries such as the US, Norway and the UK after Brexit. Dutch Prime Minister Mark Rutte also asserted that forming a European army would be going too far and the Netherlands’ defence policy will still centre around NATO.

Discussions surrounding PESCO has become more intense and urgent at a time when the EU’s security environment is uncertain. EU High Representative Federica Mogherini expressed her worries on Tuesday, 20th November, over Europe’s security in the face of US-Russia tensions. Last month, Washington withdrew from the Intermediate-Range Nuclear Forces Treaty (INF), claiming that Moscow has been violating the treaty with the development and deployment of a new cruise missile. Mogherini has called for talks to maintain the agreement, worrying that the collapse of the INF treaty would lead to a new, destabilising arms race in Europe’s backyard.

Another security development in the region is the EU foreign ministers’ decision on Monday, 19th November, to explore the possibility of applying sanctions against Iran over two foiled attacks in Europe, which have both been attributed to Iranian intelligence. Up till now, the EU has been cautious in its dealings with Iran as it still seeks to salvage the nuclear deal after the US withdrew from it and imposed sanctions on Iran. However, France has recently slapped asset freezes on two suspected Iranian agents over a plot to bomb a rally near Paris, while Denmark has called for a coordinated EU response to a foiled plan to murder three Iranian dissidents on its soil. After the EU foreign ministers met in Brussels, they have decided to proceed with the sanctions.

 

EU Commission moves on tougher investment screening and restore tariffs on rice from Cambodia and Myanmar
During a “trilogue” meeting between representatives of the European Parliament, the Council of Ministers, and the European Commission on Tuesday (20 Nov), it was proposed that there will be a plan to enforce more scrutiny on foreign investments in “critical sectors” of the EU. This follows after an increase in investments from China in the EU. Lawmakers want more stringent screening to protect Europe’s strategic interests.

The proposal, driven by France and Germany, will be voted by member states on Dec 5. However, not all of the member states are for tougher checks. Under the plan, all member states would have to provide an annual report on investments in their respective countries. Italy’s populist government, which has been going against the grain, wants a more minimalist approach and for reporting to be voluntary. The current EU president, Austria, said the other states did address Italy’s concerns but a better checking system is still needed.

Although it does not mention any country by name, the proposal is intended to mitigate state-influence from China, given the surge in investments and that some Chinese state-led firms have bought their European rivals. The expanded list of critical sectors will include aerospace, health, nano-technology, the media, electric batteries and food supply. Of the world powers, EU is the only one that does not have a current screening system in place. Franck Proust who headed the Parliament’s negotiating team said, “it will mark the end of European naivety”.

On Monday (19 November), several EU rice producers associations from Italy, Spain, Portugal, Greece, and France asked the member states to approve Commission proposal to impose tariffs on rice imports from Cambodia and Myanmar for up to three years. This position was taken in light of economic considerations but the human rights violations of the two Asian countries was also brought up.

A formal investigation was launched on March 16 at the formal request of Italy and 7 other member states to activate the safeguard clause on rice imports from Cambodia and Myanmar. The findings revealed that a significant surge of rice imports has caused economic damage to the rice sector in Europe. Producer organizations cite human rights violations in these countries as reason to justify stopping subsidized imports. However, the Commission said only economic reasons can justify the safeguard clause.

In a separate process from this safeguard investigation, the same two countries are also under a Everything but Arms agreement which allows tax-free access to the EU market for rice imports. Under the EBA, trade preferences can be withdrawn in light of human rights considerations. It is likely that the tariffs will be restored at the end of the investigation.

 

Theresa May and the EU pushes on with Brexit deal despite political turmoil in the UK; Spain holds up negotiations over Gibraltar
Theresa May was in Brussels on Wednesday (21 Nov) to discuss the political declaration which will result in the future relations between EU and UK. She met with Commission President Jean-Claude Juncker and chief negotiator for EU, Michel Barnier, on the much shorter document to expand and clarify the text. May sees the future relationship as the “thing that will make a difference to people’s lives” adding that “it’s in the national interest to get that deal right”. She hailed the meeting for “further progress” made and will return on Saturday for more talks before the special Brexit summit, which will be held the following day, Sunday, 25 Nov.

In the UK, acceding to demands from lawmakers, the British government pledged to publish an economic impact assessment to compare the impact of May’s proposed deal with both the status quo of current EU membership and a “no-deal” scenario. The analysis is to be published before the British parliament comes to a vote on Brexit in December. With five months to go before leaving the EU, there is fighting from both sides of the Brexit camps on the issue. The economic assessment is expected by some to show that Britain should drop its Brexit plans.

The internal turmoil does not stop here; Labour party business secretary, Rebecca Long-Bailey, said the EU would be willing to renegotiate the withdrawal agreement with her party. She said that Labour would not agree to the deal as it stands and that a single market relationship would be better. Her comments were made despite the fact that EU leaders including Angela Merkel, Irish Prime Minister Leo Varadkar, and Michel Barnier, had said renegotiations would not be possible. Barnier said that whatever political troubles lie ahead, “the bloc has a ‘duty’ to stand firm on its key Brexit red lines”. EU diplomats say that some small tweaks may be made to ensure a successful deal rather than a no-deal, but there is no room for a “radical overhaul”. The EU will be focused on “getting the ball over the line”.

Former UK foreign secretary, David Miliband has a different perspective, calling Brexit “the worst of all worlds”. In his view, the deal does not meet the aspirations of the British people whether they voted to leave or remain. He had criticisms of both Brexiteers like Dominic Raab, who abandoned the project, and opponents like Labour’s Jeremy Corbyn. Miliband acknowledged that the current deal was kicking the can down the road for more debate after the transition period and advocated that another referendum is now the democratic as well as the stable choice. He said, “the danger of a backlash of going ahead with it is far greater than the danger of a backlash of offering people a rethink”.

Meanwhile, Spanish authorities take issue with Brexit agreement on Gibraltar, who were hoping for a bilateral arrangements between UK and Spain. However, under article 184, it is subsumed under EU-UK relations. Spain’s foreign minister, Josep Borrell, wants a specific reference for Gibraltar in the political declaration and said “we cannot give consent” without explicit formulation of future relation for Gibraltar in the withdrawal agreement. Spanish Prime Minister Pedro Sánchez also reiterated claim and said Spain will vote no on the agreement if there are no changes on this issue in the text. This has led to “a testy exchange” at a meeting of EU 27 ministers a time when the EU is trying to present a united front on Brexit. However, some see this hold up from Spain as more of a domestic political move by PM Sánchez. The Socialist government has been criticized by its conservative opposition for missing the chance to assert their authority over Gibraltar during Brexit negotiations.

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