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The External Action Service Gets the Green Light


The EU Institutions

5 August 2010

On 26 July, following an agreement between the three institutions (the European Parliament, the Commission and the Council), foreign ministers adopted an official decision establishing the new European External Action Service (EEAS) and setting out its organisation and functioning. This ended long inter-institutional squabbles over how it should be organised, who should control the budget, etc. Although there is still some legislative work left (like amendments to the EU staff and financial regulations) and Baroness Catherine Ashton, the High Representative of the Union for Foreign Affairs and Security Policy, still has to fight for the EEAS’s share in the EU 2010 budget, the Service should be up and running by 1 December 2010, exactly one year after the Lisbon Treaty entered into force.

The EEAS will consist of a central administration in Brussels, comprising geographic desks, as well as multilateral and thematic desks, a strategic policy planning and other departments, and the 136 Union delegations in third countries and to other organisations. Initially, it will have a staff of around 1,200, but gradually this number will grow. At least one third of the staff will be appointed by Member states, while at least 60% will be from the EU institutions, thus underlying the EU credentials of the nascent diplomatic corps.

Understandably, everyone now seems to be focused on who will get what, as Baroness Ashton is due to name the top officials of the central administration and Heads of Delegations in 30 countries. Member States have been lobbying long and hard to place their “best and brightest” to the top posts such as the Executive Secretary-General of the EEAS, and two Deputy Secretaries-General, who will actually manage the day-to-day functioning of the EEAS.  Through this process have resurfaced the divisions between big and small, old and new Member States. It will be a delicate task for Baroness Ashton to ensure that the final make-up of the central administration and heads of delegations reflects adequate geographical, as well as gender balance.

The underlying question, however, is whether the EEAS will “give the EU a stronger voice around the world, and greater impact on the ground,” as Baroness Ashton hopes. The answer to this is twofold. On the one hand, the EEAS will not change much how the EU’s foreign policy is formulated. The establishment of the EEAS does not mean that national foreign policies and diplomacies will disappear. The bottom line is that Baroness Ashton and the EEAS will be able to go only as far as the 27 Member States allow, because the decisions regarding foreign and security policy require unanimity. So, if the EU is to have a “stronger voice”, the Member States should be willing to let Baroness Ashton speak on their behalf. Otherwise, as she has joked herself referring to the famous Henry Kissinger’s question whom to call in Europe, the EU will have now a number to call, but the caller would hear a voice asking to “press one for the French position, two for the German position, three for the United Kingdom, etc.”

On the other hand, it is very important for the EU to have an “integrated approach” that would link different policies – from development to crisis management and humanitarian aid – so that the EU could be more effective “on the ground”. The EEAS could potentially bring together economic, political, and civil and military crisis management tools that the EU has. Currently, as Baroness Ashton points out, “too much depends on ad-hoc arrangements and the creativity of individuals”. If there are comprehensive strategies in some places, it is “despite our structures, not because of them”. If Baroness Ashton and the EEAS would succeed in developing more coherent EU’s action in various hot-spots around the world, the EU could indeed strengthen its presence on the international stage.

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Belgium takes over the Presidency of the Council of the EU


The EU's Institutions

7 July 2010

Every six months, the European Union (EU) gets a different national twist, as the rotating Presidency of the Council of the EU passes on from one Member State to another. On 1 July, Belgium took the torch from Spain and will keep it until the end of December, with Hungary waiting next in line.

The rotating Presidency system was blamed for much of the inconsistency within the EU policy-making process and the fragmented representation abroad with a changing set of national leaders representing the EU. Therefore, the Lisbon Treaty established the post of a permanent President of the European Council (where the Heads of State or Government meet). And yet, the rotating Presidency of the Council of the EU (also known as the Council of Ministers) was not abolished, because Member States have always perceived it as a matter of national pride and a possibility to directly influence the EU agenda.

While the most significant political discussions are taking place between EU leaders at the European Council, headed by Mr Herman Van Rompuy, the rotating Presidency still continues to be an essential element within the EU’s decision making system. Belgium will chair nine various Council meetings of different ministers, apart from the Foreign Affairs Council (meeting of foreign ministers), headed by Baroness Catherine Ashton, the High Representative of the Union for Foreign Affairs and Security Policy. The Belgian Presidency will have to engage in dialogue with the European Commission (which has the right of legislative initiative), to broker compromises between Member States, and to negotiate with the European Parliament, whose legislative powers have been considerably strengthened by the Lisbon Treaty.

Belgium, one of the founding countries of the European Community, has promised a “modest” Presidency, whose aim will be to “promote the proper functioning of the EU institutions”. Belgian officials have indicated that they will not compete for the limelight with the Union’s new top posts – the President of the European Council and the High Representative. This might also increase the importance of the European Council itself, which, as many observers note, has recently been playing more important role than, for instance, the European Commission. Belgium also supports a strong European Commission that must remain the “driving force for European integration”.

While such a position corresponds to Belgium’s traditional pro-European stance, currently Belgium is not well-positioned to assume a strong leadership role during its Presidency. Wrought by divisions between Dutch-speaking Flemish and French-speaking Wallon communities, Belgium has only a caretaker government in charge of day-to-day matters, led by the outgoing Prime Minister Yves Leterme. With the political parties stalled in coalition talks (in the last month’s elections, voters in the northern Dutch-speaking region of Flanders handed victory to the separatist New Flemish Alliance, raising fears that the country could break apart), no one can really predict when the new government would be sworn in (for instance, in 2007, Belgium lived for more than half a year without a government). This, however, means that the country’s ministerial team might change in the middle of its Presidency, thus putting the ministers new to their portfolios in a rather difficult position. The EU experienced a similar situation last year, when the Czech government fell halfway through its Presidency. Nevertheless, the EU officials have repeatedly voiced their “100% confidence” in Belgium’s ability to successfully fulfil its role as a presiding country. Countries usually prepare their presidencies two years ahead, and Belgium, as one of the founding countries of the European Community, has a very good experience: this will be its 12th Presidency.

It is widely expected that Mr Van Rompuy, a former Belgian Prime Minister, will try use the low-profile Belgian Presidency to strengthen and expand his own position as the President of the European Council. He will push ahead his efforts in, for instance, coordinating the work on issues like economic governance and to profile himself as a central figure in the EU’s attempts to overcome the current economic crisis. He is already heading the special task force, which is due to come out with a report and recommendations on reforming the economic governance of the EU in October. Given the fact that the Commission is also working on the subject, it will be up to the Belgian Presidency to consolidate the two positions.

Indeed, the current crisis inevitably will dominate the EU’s agenda in the coming six months. In its Presidency’s Programme, Belgium foresees a focus on financial regulation and economic governance. Other priorities include issues ranging from climate change to combating poverty within the EU. In general, Belgium’s priorities correspond to the overall priorities agreed by the so-called Trio of Presidencies (Spain, Belgium and Hungary) in their 18 month programme of the Council.

Externally, it is going to be an “invisible” presidency. While the Spanish Presidency tried to leave its imprint on the EU’s external relations that led to some frictions between Madrid and Brussels, Belgium’s Foreign Minister Steven Vanackere declared: “The implementation of the Lisbon treaty will be a key part of the Belgian presidency. That is why you will not hear my views on foreign policy.” He said that Belgian diplomatic apparatus “will be at [Baroness Ashton’s] disposal (…) to do everything she considers the rotating presidency should do”. The main priority of the Presidency will be the setting up of the European External Action Service, the new diplomatic corps of the EU, which is expected to be up and running by the end of the year. So this semester will be crucial time for Baroness Ashton to skilfully position herself as the main person in the EU’s external relations. So far, she has received more criticism than appraisal by national politicians and observers alike.

Amidst the short description of the “strategic relationships with our partners”, the Programme of the Presidency gives a special mention to the upcoming Asia-Europe Meeting (ASEM) summit, hosted by Belgium on 4-5 October. Being one of the only two specific events mentioned in the Programme (the other one being the EU-Africa summit – Belgium has traditionally had a strong interest in the EU-Africa relationships, given its colonial history in Congo), it will, according to the Presidency, “provide an opportunity for privileged dialogue between Europe and Asia” in order to find a “common ground on the reform of economic and financial governance in the wake of the crisis and on sustainable development in particular”.

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It Is Time for Fiscal Consolidation, Says the G20


Trade & Investment Partnerships and Regulations

2 July 2010

It was under the theme of “Recovery and New Beginnings” that the leaders of the G20 countries met in Toronto, on 27-28 June. It was intended to be the first session that would mark the G20 role as “the premier forum for our international cooperation” yet the results from the summit were not particularly convincing. Differences still remained on what the G20 members should do to ensure that the fragile economic recovery would not stall. The EU in the face of sovereign debt crisis preferred fiscal consolidation and many of the EU member states have embarked on a series of austerity measures.  However, the Obama’s administration while acknowledging the dangers of excessive debt felt that it is necessary to continue with fiscal stimulus so as not to derail the economic recovery.  Mr Obama called the EU countries to avoid too aggressive measures to curb spending. To this, German Chancellor Angela Merkel answered that the EU needs a growth built on solid economic fundamentals rather than debt-based growth. 

As the debate was more about the timing than the general belief that it is necessary to attain balance in public finances, the Toronto Declaration seemed to have a reassuring line for everyone: “There is a risk that synchronized fiscal adjustment across several major economies could adversely impact the recovery. There is also a risk that the failure to implement consolidation where necessary would undermine confidence and hamper growth.” The Declaration states expectations (not binding requirements, as stressed by the French President Nicolas Sarkozy) that countries would halve their deficits by 2013 and the ratio of government debt to GDP would be stabilised by 2016. “The Summit’s result reflects widespread convergence around Europe's approach,” European Commission President José Manuel Barroso and President of the European Council Herman Van Rompuy said in a joint declaration.

Apart from this broad policy statement, there were no other major breakthroughs. Countries continue to disagree on how to proceed with financial regulation reform. The EU came to the summit with a proposal to create a global bank levy (see the analysis on the 17 June EU summit outcomes), but the idea received a frosty welcome at the summit. Although there was “a common position of all the European countries” and the European representatives were “determined to defend it in Toronto, the EU did not succeed in convincing the rest of the G20: the idea was supported by the US, but opponents, including Canada, Australia, Japan, China, Brazil and other emerging economies, managed to rebuff the proposal. The Declaration simply noted that there are various policy approaches to make private banks pay a “fair and substantial” contribution towards any government interventions: “Some countries are pursuing a financial levy. Other countries are pursuing different approaches.”

This now leaves the EU Member States with a difficult calculation: how much they can make their banks pay, so that not to see them shifting operations to more tax-friendly places. The European Commission will come out with a report on the issue in October, following the broad agreement reached at the 17 June summit of EU leaders that countries should enact “levies and taxes on financial institutions to ensure fair burden-sharing and to set incentives to contain systemic risk”. In the meantime, various EU Member States are already working on this. On 22 June, the British Chancellor of the Exchequer, George Osborne, unveiled plans for a bank levy in the United Kingdom, to be introduced from 1 January 2011 (the tax will charge 0.07% of a lender’s total liabilities, although a lower rate of 0.04% will apply in the first year). A similar tax has been already implemented in Sweden, whose “stability fee” charges banks 0.035% with the money dedicated to a fund for future bailouts. Germany is expected to propose legislation this summer, with France following in the autumn.

In fact, a majority of G20 countries considers that it is more important to address the question of bank capital and liquidity rules – the so called Basel III reforms, named after the Basel Committee on Banking Supervision, based in Switzerland. The idea is to raise the capital, in order to create financial buffers for banks to ensure that in future they can better endure economic shocks. The G20 leaders stressed: “The amount of capital will be significantly higher and the quality of capital will be significantly improved.” Yet, the implementation timeline was weakened, with the previous target of achieving the new standards by the end of 2012 being dropped and allowing different speeds for different countries. France, Germany and Japan feared that demand to build up such capital, if implemented too quickly, would stifle lending and harm a fragile economic recovery.

Altogether, the G20 meeting did not resolve the existing short-term differences; it rather gave the countries plenty of flexibility. Much of the technicalities will have to be decided by November this year, when the next G20 summit will take place in Seoul, South Korea.

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The EU to push for a global bank levy, to consider financial transaction tax


Trade & Investment Partnerships and Regulations

23 June 2010

At the 17 June EU summit, EU leaders were determined to bring forward a message of unity after months of “crisis meetings” over the eurozone debt problems. They were also eager to show the world that, despite all the difficulties, there are still countries that show confidence in the EU and the eurozone and want to join them! It was decided that the EU would start the accession negotiations with Iceland, while Estonia would join the eurozone on 1 January 2011, thus becoming the 17th EU Member State using the shared currency euro.  More importantly, the news that Chinese and Greek companies were signing multi-hundred million shipbuilding and construction contracts with the Chinese government determined to “encourage Chinese businesses to come to Greece to seek investment opportunities,” was perhaps a clear indication that confidence in Europe remains.

EU leaders also adopted the EU’s 10-year strategy for jobs and growth – “Europe 2020” – setting headline targets in various fields, for example, 75% employment rate for men and women (male employment is currently 76%, while female employment rate is only 63%), and the reduction in greenhouse emissions of 20%. The hope is that “the strategy will help Europe recover from the crisis and come out stronger (…) by boosting competitiveness, productivity, growth potential, social cohesion and economic convergence”.

Much of the time, however, was spent on dealing with short and medium-term financial issues. EU leaders tried to find a common ground for the upcoming G20 meeting in Toronto, Canada (26-27 June). Following the German-French initiative, the summit gave a broad mandate to push ahead with a system of national bank levies, which should ideally be implemented in all G20 nations. The idea is to “ensure fair burden-sharing and to set incentives to contain systemic risk,” says the final communiqué of the Council. It would be designed to finance the rescue of banks in the event of future crises. However, even within the EU there was no consensus about this (the Czech Republic reserved “the right not to introduce these measures”) and the proposal was not spelled out in detail, saying only that this should be “explored and developed” together with other G20 countries. Canada, China and Brazil, whose banks suffered much less during the 2008 global financial crisis, may however have reservations about this.

Besides, France and Germany failed to push through their proposal on financial transaction tax, with the final communiqué stating only that such possibility “should be explored and developed further”. This idea is also expected to face fierce opposition in the G20. German Chancellor Angela Merkel said that, in case of rejection, the EU would have to consider implementing alone (and, very likely, without Britain and some EU countries outside the eurozone). This was reaffirmed by Mr Sarkozy, saying that France and Germany were “ready to put it in place, even if other European governments have problems with it.”

Still on the financial sector, EU leaders agreed to make public the bank stress tests (these measure “the overall resilience of the banking sector to shocks” and also “the dependence of EU banks on public support and on the amount of capital available for further lending”), currently being carried out by the Committee of European Banking Supervisors on the EU’s 25 biggest banks. The results are to be published in the second half of July. This was particularly advocated by Spain, trying to repel the rumours dominating the press headlines and financial newswires that it was on the brink of seeking a bailout. Spanish Prime Minister José Luis Rodríguez Zapatero emphasized that “there’s nothing better than transparency to demonstrate solvency, to give confidence and to leave all these unfounded rumours behind us.”

The leaders also agreed on the need for “a stronger and more demanding economic government”, in words of Mr Zapatero, meaning closer policy coordination and tighter financial regulation. The sanctions for countries that breach EU budgetary rules would be based on “levels and evolutions of debt and overall sustainability” rather than absolute figures, in order to avoid punitive sanctions on many of the Member States. Indeed, under current rules, twelve of 27 Member States would be found breaching the Stability and Growth Pact, under which the debt has to be less than 60% of GDP.

However, differences still linger. Mr Sarkozy said: “Nothing has been decided definitively. This is only the beginning.” While the French President has been pushing for a stronger economic governance of the eurozone, he has finally agreed with Chancellor Merkel, who, fearing the politicisation of the European Central Bank and monetary policy, maintains that the new arrangements should concern all 27 Member States. This, conversely, is opposed by Mr Cameron. His priorities in the summit were to ensure that penalties for breaching the EU’s rules would not apply to non-eurozone countries and that peer review of member state budgets would not mean that the British budget would have to be first submitted to Brussels, even before Westminster. To his liking, the final communiqué mentioned that the new peer review system will “take account of national budgetary procedures”.

While the details are still contested, the modalities of implementation will be clearer on 30 June, when the European Commission is due to outline the legislative proposals on budgetary discipline and coordination. Separately, in October, the special task force led by the President of the European Council, Herman Van Rompuy, will come out with a report and recommendations on the economic governance.

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The EU on Track with Its Climate Change Pledges, as the UNFCCC Talks End in Bonn


Environment, Climate Change & Energy Security

17 June 2010

After two weeks of negotiations between delegates from 185 countries at the United Nations Framework Convention on Climate Change (UNFCCC) climate talks in Bonn (1 – 11 June), the outcome was a 22 page long document that nobody seemed to be happy with. The document is intended to guide discussions leading up to an eventual treaty aimed at curbing greenhouse gas emissions, as the only international agreement which legally commits countries to cut emissions – the Kyoto Protocol – expires in 2012. Prepared by Ms Margaret Mukahanana-Sangarwe from Zimbabwe, the document says developed countries should reduce greenhouse gases by 25 to 40% by 2020, but does not set a reference year. In the long term, it sets a goal of cutting emissions by up to 85% by 2050 compared with 1990 levels. Although the new targets are more ambitious than those included in the non-binding Copenhagen Accord (see the analysis on the Copenhagen climate talks), none of the negotiating parties expressed satisfaction with the document.

One of the most controversial issues was the inclusion of 2020 as the global emissions peak year, a clause strictly opposed by developing countries which called the document “unbalanced”. China, India and other developing countries complained that this would force them to reorient their economies away from the fossil energy sources within a very short timeframe. That would be an impossible task, given the limited financial resources and the urgent need to improve the lives of their people through economic development, developing countries argued. Many also perceived that the document aims to do away with the binding character of the Kyoto Protocol, another contentious issue between the developing and developed countries. Indeed, the draft text does not refer to any legally binding compliance mechanism like the Kyoto Protocol, where the countries would have to list their emissions pledges.

Many of the delegates said there is no chance that a new binding treaty could be adopted at the next UN climate summit, to be held from 29 November to 10 December 2010 in Cancun, Mexico. Mr Artur Runge-Metzger, the European Commission’s chief negotiator, said: “There are many things that are pointing not to convergence but to divergence.”  If there were not a binding treaty, then the world would be left with individual country commitments. However, there is a huge discrepancy between what is recommended by scientists as the minimum cuts (to keep the temperature rise below below 2°Celsius from pre-industrial levels, developed countries need to make cuts of at least 25-40%) and what has been pledged by countries. Mr Yvo de Boer, the outgoing UNFCCC executive secretary, said: “As things stand now we will not be able to halt the increase of global greenhouse gas emissions in the next 10 years. The 2°Celsius world is in danger.” The US, for instance, is still trying to commit itself to 17% cuts by 2020 on 2005 emission levels (the climate bill is stalled in the US Senate). This would be, in fact, a reduction of less than 4% below the UN benchmark year of 1990.

The EU Member States so far have committed themselves to 20% cuts by 2020 from 1990 levels that could be raised to 30%, if other countries followed suit. Currently, there is no unanimity regarding the possibility to unilaterally raise the pledge of 20% to 30%, an issue discussed at the environment ministers meeting in Luxembourg on 11 June. The Commission will conduct further analysis of the costs and benefits involved at national level, and the ministers will come back to the issue in the autumn. In the meantime, the EU is reducing the emissions faster than before – partly as a result of the implemented policies, partly as a consequence of the economic crisis. In 2008 they dropped by 1.9% in EU-15 and by 2% in EU-27, with the EU’s 27 Member States’ total emissions now standing 11.3% below their 1990 level, while the EU-15 has reduced the emissions by 6.9%. In the meantime, the European Commission has estimated that, due to the economic slowdown, it will be less expensive to implement the current EU’s emissions reduction pledges: €48bn instead of €70bn annually. The Commission estimates that raising the target to 30% would cost €81bn a year. While these numbers look good on the balance sheet, the downside is that the economic crisis has reduced EU Member States governments’ and private sector’s ability to invest in green technologies.

Another contention in the UNFCCC negotiations is the financial assistance from developed to developing countries. Although the Copenhagen Accord says that US$100bn a year will be needed by 2020, there is no agreement reached on how this might be achieved. It also states that developed countries will provide “new and additional funding” for the Copenhagen Green Climate Fund, “approaching” US$30bn from 2010 to 2012, for immediate mitigation and adaptation needs in developing countries. The European Commission presented a report on its pledged “fast-start” funding of €2.4bn annually, a sum amounting to about a third of the collective commitment. According to the report, the EU is on track to meeting its pledge, with confirmed sums from the Member States to date amounting to €2.39bn for this year and €7.55bn for the entire three-year period, even more than the EU’s stated commitment of €7.2bn. However, the official report did not give details on the Member States’ contributions (EUobserver reported that only 15 of the 27 Member States have made financial commitments), nor did it provide clear answers whether these sums would come in addition to existing official development aid commitments – an issue consistently raised by developing countries and different NGOs.

All this indicates that there is still a long way towards a global agreement on climate change, not to mention a binding treaty. Even if in Bonn “countries talked to each other instead of shouting at each other”, in words of Mr de Boer, major deadlocks over emissions targets and climate finance remain unresolved. Therefore, it is important for the EU to reassert its somehow faded leadership in climate negotiations.

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An Era of Austerity Looming over the EU


Trade & Investment Partnerships and Regulations

10 June 2010

One after another, the heavily indebted eurozone countries – Greece, Portugal, Spain – have announced stringent austerity measures in order to regain credibility and raise market confidence. Italy has recently joined them by approving an austerity package worth €24bn. Even Germany, the EU’s biggest economy  whose  budget deficit will be smaller than previously expected (5% of GDP instead of 5.5%), has announced “the biggest austerity drive since World War Two” (€80bn by the end of 2014) to bring the budget deficit within EU limits by 2012 (3% of GDP, as set by the Stability and Growth Pact). Other countries are likely to follow, as the eurozone leaders are trying hard to prove that they can get their houses in order.

It was under this wave of stoic commitment to austerity that the EU’s finance ministers met in Luxembourg on 7-8 June. They finalised arrangements for a special purpose vehicle (the European Financial Stability Facility [EFSF]) to raise up to €440bn in loans and loan guarantees for the eurozone countries that run into financial difficulties. The EFSF, a limited liability company based in Luxembourg, will be able to raise money on markets by issuing bonds guaranteed by governments of the euro zone. Luxembourg's Prime Minister and chairman of the eurozone Jean-Claude Juncker said the EFSF would be operational this month. The ministers also agreed in principle on the need to submit national budgets to peer review and to impose tougher penalties for countries that breach EU deficit limits or misrepresent their statistics, as Greece infamously did. Simultaneously, ministers agreed to strengthen Eurostat’s auditing powers. This is an important step forward, since many countries initially were unfavourable to the Commission’s proposal (see the analysis on the Commission proposals). Still, the British have stressed that they would not agree on budgets being submitted to Brussels prior to offering for approval at Westminster.  This will be still discussed in the coming EU summit in Brussels on 17 June.

Despite all these efforts to overcome the crisis, the markets are still very cautious. Many economists have also warned about the adverse effects that simultaneous cuts in so many countries could pose to the fragile economic recovery in the EU, currently at meagre 0.2%. That the austerity measures could “derail the global recovery” is also feared in Washington, where the US and IMF have been calling on the EU’s financially sounder Member States to postpone cuts in order to stimulate economic growth.  These concerns are similar to the ones previously voiced by some eurozone countries, especially France which has criticized Germany in recent months for adopting policies that dampen demand in Germany and aggravate imbalances within the eurozone. However, now everyone seems to be focused on restoring healthy public finances. This was echoed by all participants, except the US, at the G20 finance ministers and central bank governors meeting on 4-5 June in South Korea, pressing the EU to sort out its finances as soon as possible. South Korean Finance Minister Yoon Jeung-hyun said that “the recent events in Europe and volatility in the financial markets clearly shown us the global recovery is still fragile,” stressing that “we can’t afford to be complacent”. French Finance Minister Christine Lagarde confirmed: “For the vast majority, addressing finances, budget consolidation, is priority number one.” However, the final communiqué only said that “those countries with serious fiscal challenges need to accelerate the pace of consolidation”, avoiding more precise or concrete initiatives due to the variety of views, thus creating an “impression of a group on the back foot”, as described by Reuters.

Not only the eurozone countries, but the whole of the EU will have to face some lean years. British Prime Minister David Cameron lamented that the country’s finances are “even worse than we thought”, requiring decisions that will affect “our whole way of life”. Hungary has also hit the headlines last week, when a spokesman for the recently elected Prime Minister Viktor Orban said that the Hungarian economy was in a “very grave situation”, saying that a possibility of a default is not “an exaggeration”. This was apparently a misleading statement, since the Hungarian government later tried to reassure investors that it was nowhere near bankrupt. Also, Jean-Claude Juncker said that there is “no problem at all” with Hungary, except that “politicians from Hungary talk too much”. In the meantime, the euro had already reached four-year lows.

This, however, is not so bad for the EU, since the sliding euro is set to increase eurozone exports (over the first quarter, exports rose by 2.5%). For years to come, exports will have to be the main driving force behind the recovery of eurozone countries, since the harsh austerity measures will undoubtedly affect household spending. European consumers are expected to bear the heavy burden of measures such as direct or indirect-tax increases and public-sector pay cuts. Besides, the average unemployment rate in the eurozone has already reached a 10-year high of 10.1% in April (with up to 19.7% in Spain). Apart from extra welfare expenditures for governments, rising unemployment comes with heavy economic and social consequences, as the unemployment benefits do not allow to maintain the same level of living (and consumption), and these are granted for limited time only. The latest data from Eurostat show that the household spending and consumer confidence are both declining. This will probably weaken demand for imports and the growing need to export will have to be accommodated by consumption in other regions. In fact, what is good for the EU is not always good for other regions. As it was said by the Japan’s Deputy Finance Minister Naoki Minezaki at the G20 meeting in Busan: “Weak euro has a significant impact on exports from Japan and other countries to EU, as well as on stock markets (…) In a short term, it has a negative impact on Japanese exports.” The good news is that the global growth is expected to reach from 4.25% (IMF’s forecasts) to 4.5% (OECD’s forecasts), even if these numbers are judged as rather optimistic by many, given recent developments in the EU.

The EU is entering into an era of austerity, which will, in fact, only bring things back to normal: the countries will have to spend within their own means. The hope is that this will give a more solid base for future growth. The European Central Bank President Jean-Claude Trichet said: “There is a real problem of terminology here. What you call austerity, I call gradual return to wise budgets. Wise policies always foster growth because they boost the confidence of households, companies and investors - and confidence is vital for recovery.”

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Where does the EU-ASEAN relationship stand, as the Foreign Ministers meet in Madrid?


External Relations of the EU

2 June 2010

“Partners in Regional Integration” – this is how the EU and ASEAN see themselves, according to the title given to the EU-ASEAN Ministerial Meeting that took place in Madrid, on 26 May 2010. Dr Surin Pitsuwan, the Secretary-General of ASEAN, noted that the EU and ASEAN are “the two most advanced regions in regional integration”, and it is very important to develop the cooperation between them.  The meeting had an additional importance, since it marked the 30th anniversary of the ASEAN-EC Cooperation Agreement signed on 7 March 1980 in Kuala Lumpur.

Looking back at the past 30 years, the Ministers duly expressed “satisfaction at the significant development of co-operation and its diversification into new areas”. They also adopted a list of activities for the Plan of Action to implement the Nuremberg Declaration on an ASEAN-EU Enhanced Partnership (2011-2012) and discussed a variety of issues relevant to both regions: from piracy and terrorism to the situation on the Korean Peninsula.

However, the meeting passed largely unnoticed by the both the European and Asian media, and this leads one to  question about the true significance and importance of the EU-ASEAN partnership. The fact itself that the dialogue between the two regions is only at ministerial level indicates the relatively low place of ASEAN in the list of the EU’s political priorities.

Of course, economically the ASEAN is an important and attractive partner for the EU. Dr Surin Pitsuwan  said: “In the EU, they are increasingly more aware of the importance of South East Asia as an entry port for the region's markets.” While the EU is struggling to get over the euro crisis and the economic projections for the future are perhaps rather bleak, ASEAN’s economy is expected to grow from 4.9 to 5.9% in 2010.

The EU is ASEAN’s second largest trade partner, with a total trade volume of over €169.8bn in 2009 which amount to 11.2% of the ASEAN’s total trade.  Conversely, ASEAN is the EU’s 6th largest trading partner, with a 4.7% share of the EU’s total external trade, ahead of Japan and EU candidate countries.   Both regions are highly dependent on open trade and it is no wonder that Spanish Foreign Minister Miguel Ángel Moratinos said the EU is hoping for “an open and understanding attitude”, so that both regions “can fight together, decisively, against the temptations of protectionism, to open up markets, to create favourable frameworks for investments and cooperate in efforts to reform the economic and financial institutional framework at a global level”.

However, politically ASEAN is not on the top of the agenda for the EU. This is exemplified by the foreign policy priorities of the EU’s Spanish Presidency, largely dominated by the two geographic areas associated with Spanish traditional national interests: Latin America/Caribbean and the Mediterranean/Maghreb. With Latin America in particular, the Spanish Presidency was determined to bring about a “qualitative leap”. In the Programme of the Presidency, Spain has put the cooperation with Asia as the last one after all other regions of the world (“Looking at Asia” is the exact title of the subchapter, which might invite the reader to see a kind of a distanced engagement…), proposing “to pay special attention” to the cooperation with ASEAN and promising that “the already existing high levels of cooperation (…) will be further promoted”.

The lack of higher level dialogue could be explained by the “Myanmar factor”, since the EU has continuously expressed its concerns about the situation in the country. The EU-ASEAN FTA negotiations were scuttled probably partly because of the problems with Myanmar but mainly also because of the difficulties associated with the wide development gaps within ASEAN.  Hence, the EU is adopting a more pragmatic step-by-step approach by concluding bilateral FTAs with individual ASEAN states, starting with Singapore. Negotiations with Vietnam would likely be next.

With regards to Myanmar, there has also been a rethink in EU’s approach. The EU is still maintaining sanctions and insisting on democracy and human rights, while “opening the door to dialogue”. The experience has showed that “purely and simply isolating” Myanmar had brought “very few results”, according to a Spanish diplomat quoted the Deutsche Presse-Agentur. During the ministerial meeting, the EU also expressed hope to send a mission to Myanmar to discuss the elections scheduled for the end of November 2010, and they appealed to Myanmar to make the elections a “credible, transparent and inclusive process”.

The next EU-ASEAN Ministerial Meeting will be held in Brunei Darussalam in 2012.

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The European External Action Service: Getting it right?


The EU's Institutions

19 May 2010

While attention is focused on the Greek deficit crisis, the European Union (EU) is quietly working on some of its institutional reforms contained in the Lisbon Treaty.  For one, the contour and design of the new External Action Service (EAS) are now being finalised.

On 26 April, EU’s foreign ministers came to a political agreement on the design of the EAS. The plan is to have it as a “functionally autonomous body of the European Union, separate from the Commission and the General Secretariat of the Council.”  The EAS, consisting of a central administration in Brussels (with “geographical desks covering all countries and regions of the world as well as multilateral and thematic desks”) and Union Delegations,  would be “placed under the authority” of the High Representative of the Union for Foreign Affairs and Security Policy, Baroness Catherine Ashton.

The ball is now in European Parliamentarians’ (MEPs) court. Although the European Parliament is simply consulted on the functioning of the EAS, it has a right of veto over the budget and staff; this means that, in fact, their consent is needed on the general setup of the EAS as well. Despite the reassurances by Baroness Ashton that many of the Parliament’s concerns have been “taken on board”, all signs from the MEPs show that lengthy negotiations lie ahead.

Baroness Ashton is in a difficult position: if she compromises too much with the MEPs, she would have to go back to the Council and Commission, which have already agreed to the outline of the EAS proposal. So far, Baroness Ashton has offered MEPs specific promises on political accountability and budgets within the EAS, committing herself to consulting the Parliament on Common Foreign and Security Policy (CFSP) matters before taking action: Parliament will be consulted on the "adoption of strategies, mandates for CFSP missions financed out of the EU budget or for the appointment of EUSRs [EU special representatives].” The Parliament had also wanted authority over the appointments of the new heads of delegations and special representatives, but Baroness Ashton refused this, instead agreeing that they would appear before Parliament's Committee on Foreign Affairs prior to their postings. All this signals that the European Parliament want and will have an increased say in the EU’s external relations.

Another contentious issue will be the staffing of the new EAS (which will employ some 7000 people). The idea is that it will be formed by the staff from external relations services in the Commission and the Council and from the diplomatic services of the Member States. So far, most discussions have been about the very top jobs in the EAS. The “draft decision” on the table, as agreed by the Member States, envisages creating a board of three directors with elevated “executive secretary-general” and two other “political” and “operations” positions. Given the institutional importance of these posts (they will be responsible for the day-to-day functioning of the EAS), Member States are already lobbying to fill these posts with their candidates.

Whatever the agreed nuances of the institutional setup, similar manoeuvring between different institutional and national interests will be inherent to the EAS.  The most significant political decisions will still be taken at the Council between the Member States and the EAS will have to follow the guidelines given by the Council. There has been much talk whether the High Representative and EAS should be closer to the Commission or the Council (indeed, Baroness Ashton has two “hats” – she is accountable to the Council in carrying out the EU’s foreign policy, but serves also as a Vice President of the Commission). The issue here is primarily about the principles behind the decision-making: Member States want to be reassured that those questions that are still intergovernmental (like CFSP) would not be affected by the “Community method”, but the MEPs are critical of backtracking on Community principles because of the independence of the EAS from the Commission. Therefore, the two Parliament’s general rapporteurs on the EAS have asked for the EAS to be integrated into the Commission in administrative and budgetary terms, so that Parliament could better oversee its budget. They also want the High Representative to be “totally accountable” to the Parliament. It means that the whole institutional setup might still change.

When looking at the lengthy process of compromising between so many different interests, it is easy to forget that the idea behind all these efforts is to give the EU a greater international visibility and let it “speak with one voice” on the global stage, especially so, if one observes the whole process from the outside. As it was stressed by the Finnish Foreign Minister Alexander Stubb: “We live in a new, multi-polar world with a plethora of players ranging from China to Brazil, India and Russia. They could not care less if Europe cannot get its act together (…) It's time to stop the Brussels-centred infighting and the institutional fundamentalism. We simply have to give a green light to this” It is in the interest of all to reach an agreement as fast as possible (the hope is to do so by the next European Council meeting on 17-18 June, but this seems overly optimistic in the light of many objections put forward by MEPs), so that it can “bring together in a joined-up way our response to the issues that we face in the world and promote comprehensive policies,” as hoped by Baroness Ashton.

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The Eurozone Crisis: the fire is out, what next?


Trade & Investment Partnerships and Regulations

13 May 2010

The previous weekend which marked the 60th anniversary of the Schuman Declaration on 9 May, was one of the busiest in the EU’s history. After 11 hours of discussions on Sunday, the EU’s finance ministers agreed on the €500bn emergency fund (plus another €250bn from the International Monetary Fund), not only to help Greece but to prevent  further attacks on other heavily indebted eurozone countries such as Portugal, Spain and Ireland.

The agreed fund is a mix of loans and loan guarantees, which would fit under the existing fund for non-eurozone countries, known as the balance of payments assistance facility, which will be extended to eurozone countries. The financial markets have responded positively to this decision, and it seems that the eurozone leaders have managed to stop the contagion in the eurozone, at least for now.

However, to seriously address the systemic problems of the Eurozone, it is time for the European Union to reconsider the whole structure of the Economic and Monetary Union. The European Commission has come forward with the Communication “Reinforcing economic policy coordination”, where it proposes that the eurozone countries should review each others’ draft budgets in the first half of each year (called “European Semester”) before they are adopted by national parliaments. The idea is to achieve a closer economic surveillance, because it was the “chronic failure” of the countries to comply with the Stability and Growth Pact, a commitment EU leaders made in 1997 to aim for balanced budgets, which led to the current crisis.

On the one hand, the Commission proposes punitive measures for countries that infringe the EU’s existing rules, like cutting regional aid and imposing interest-bearing deposits.  On the other hand, countries which accumulate large surpluses during periods of economic prosperity would be allowed to spend more during downturns without being subjected to an excessive deficit procedure. The Communication also addresses the issue of macroeconomic imbalances (thus touching upon the politically sensitive issue of big trade surplus of Germany and its negative impact on the competitiveness in other countries), saying that assessments of national economic reform programmes would be synchronised with budget discipline reviews. A regularly monitored scoreboard would review macro-economic indicators such as, among others, developments in current accounts, productivity, unit labour costs, employment, and private sector credit in order to detect asset price booms and excessive credit growth at an early stage. The proposed system would imply “deeper surveillance, more demanding policy co-ordination and stronger follow-up”. As part of the reforms, the Commission aims to create a permanent crisis-resolution mechanism in the eurozone that would replace the temporary facility agreed this weekend.

As bold as they are, these proposals could still be watered-down by member states. It is difficult to predict at the current stage what new rules would be adopted and how strongly they would be enforced. Previously, EU Member States have reserved the final authority over taxation and spending for their national parliaments, and there are already signs of resistance in various eurozone countries, especially in Germany and France. However, as it was stressed by José Manuel Barroso, President of the European Commission: “You can’t have a monetary union without having an economic union. Member States should have the courage to say whether they want an economic union or not. And if they don’t, it’s better to forget monetary union all together.” The ideas put forward by the Commission are now up for discussion by eurozone finance ministers next week. The heads of state and government will have their next summit on 17-18 June.

In the meantime, the heavily indebted eurozone countries will have to reinforce their efforts to solve their fiscal problems. Portugal has already postponed big investments projects like its new airport, and Spain has announced further spending cuts. However, the strict austerity measures in Greece have already caused violent protests and the recent polls are showing declining trust in Prime Minister George Papandreou’s handling of the economy. Moreover, the underlying concern is that the huge budget cuts might have adverse effects, plunging the economies into a deeper recession thus prolonging the debt crisis. The €500bn rescue fund may have calmed the financial markets for a while, but the eurozone is still facing difficult times ahead.

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Help on Horizon for Greece as Europe's Leaders Approve Massive Aid Package


Trade & Investment Partnerships and Regulations

3 May 2010

Greece has reached an agreement with the European Union and International Monetary Fund to secure a massive rescue loan package of €110bn over three years to deliver Athens out of its debt crisis. Greek leaders called on the country to accept deeply unpopular austerity measures in return for help. Eurozone heads of state and government are expected to meet on 7 May “to conclude the whole process,” since the eurozone countries still have to pass the necessary national legislation in order to allow them to transfer the money to Greece.

The Greek troubles began following the revelation that the Greek budget deficit had rocketed to 13.6% last year- debts expected to balloon to €290bn this year. Fears that the rescue plan could stall amid allegations of feet dragging by eurozone partners led credit rating agency Standards & Poor’s to downgrade Greek debt to junk bond status. Despite efforts to tackle its debt crisis by introducing a slew of austerity measures and issuing new bonds to raise capital, Greece has failed to stop the crisis of confidence which had shaken global markets and sent the euro to new lows. Further contagion was feared when Standard & Poor’s also downgraded Portuguese and Spanish government debt.

Athens officially asked to activate the support mechanism agreed earlier by the EU and IMF. The first installment of the eurozone-IMF aid package due on 19 May (€8.5bn) will be paid within weeks.

Essentially the Greek debt crisis has tied the hands of European leaders. German Chancellor Angela Merkel called the bailout “the only way to ensure the stability of the euro”. Along with world leaders, Germany has warned Athens to live up to its promises. Germany is expected to foot the lion’s share of this domestically unpopular aid package. IMF Managing Director Dominique Strauss-Kahn and the European Central Bank President Jean-Claude Trichet had visited Berlin to woo German parliamentarians to back the EU-IMF rescue package. The EU and ECB Presidents have assured that a Greek default or debt restructuring is out of the question. Angela Merkel has expressed hopes to have the approval of the German contribution through Bundestag by this Friday.

Beyond the technicalities of the assistance mechanism, there are some more general questions raised by the Greek crisis. First of all, how will Germany and other eurozone countries “bailout” Greece, if there is a strict “no-bailout” clause in the Lisbon Treaty? Although José Manuel Barroso, President of the European Commission, underlines that payments to Greece would not constitute a bailout, but rather, “coordination of loans”, this is how it is seen by many German taxpayers, 57% of whom consider financial support for Greece to be a “bad decision”, according to a recent poll. The “no-bailout” clause was one of the main arguments put forward in order to convince Germany to adopt the euro in the first place. Now many in Germany believe that they have been cheated when they were told that what is happening now would never occur because of the strict rules of the Maastricht Treaty and the Stability and Growth Pact. With regional elections looming on May 9 in the most populous and economically powerful state of Germany, North Rhine-Westphalia, and the majority in the upper house of parliament at risk, German Chancellor Angela Merkel has to manoeuvre between electoral rallies (“Greece has to accept harsh measures”) and official press conferences intended to calm the financial markets (Germany “feels an enormous obligation towards the stability of the euro”).

In the meantime, the Greek government is under intense domestic pressure, as the protests continue to dog the country. Unions have vowed to resist austerity measures, which include the scraping of 13th and 14th month bonus for civil servants and pensioners. The ECB warned Athens to be ready to make more cuts. This was also stressed by Greek Prime Minister in his televised statement to the nation, where he urged Greeks to accept “great sacrifices,” stressing that he “will do everything not to let the country go bankrupt.”

This leads to the third question about the functioning of the European Monetary Union. Since the establishments of the euro, there have been many cautious voices expressing doubts whether the monetary union can be successful without unified fiscal policy. The Greek crisis has clearly highlighted the need to reform and strengthen the economic governance of the eurozone. However, it is too early to see what concrete measures will be taken. As the lukewarm reaction to the idea of a “European Monetary Fund” (see the analysis on the “EMF”) has showed, it is not clear yet how much additional sovereignty each eurozone nation is willing to surrender in pursuing more complete economic and monetary union. European leaders are expected to “draw the first conclusions of the crisis for the governance of the Euro area” at their meeting.

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EU’s Fragile Recovery and the Eurozone Crisis


Trade & Investment Partnerships and Regulations

11 March 2010

On 25 February 2010, the European Commission published its Interim Forecast for 2010, giving an updated overview of the EU’s economic health. The previous fully-fledged forecast was published in November 2009 and the next one is scheduled for May 2010. The Commission estimates that the EU’s GDP will grow by 0.7% in 2010 (in 2009, GDP contracted by 4.1% in the EU and 4.0% in the 16-state eurozone). For most of the EU’s seven largest economies (which account to about 80% of the EU’s GDP) economic growth is expected to be positive: 2.5% in Poland, 1.2% in Germany and France, 0.9% in the Netherlands, 0.7% in Italy and 0.6% in the United Kingdom. However, Spain will still be in recession (-0.2%).  The Commission estimates that the world GDP will grow by 4.5% in 2010. Especially, the recovery in Asia is much stronger than previously expected. EU Commissioner for Economic and Monetary Affairs Olli Rehn said the EU “should certainly be concerned” about lagging behind the rest of the world, stressing “the necessity of modernising our economies”.

The main problem is that, even though the recovery in other parts of the world might fuel EU exports, investment outlook is very weak and the labour market in many countries continues to deteriorate (in December 2009, the overall unemployment rate was 10.0% in the eurozone and 9.6% in the EU). This will, in turn, further dampen private consumption. It is clear that consumers are not going to “buy out” the EU from its economic troubles, as the consumer confidence level, according to the February Economic Sentiment Indicator, has been further deteriorating in both the eurozone and the EU. They remain cautious and worried about their employment prospects, probable tax increases, as well as the continuing “Greek drama”.

No doubt, Greece currently is the top priority for the EU, where both political and economic stakes are high (see the analysis on the Greek debt crisis). Moreover, the concerns about shaky government finances, rising debts and budget deficits have also spread to Spain, Portugal, Italy and other heavily indebted countries, whose leaders, on their part, try to show to the rest of the world that their situation is not in any way similar to Greece. However, even if other countries avoid the Greek scenario, it is clear that they will have to tighten their belts, because, as it was said Mr Rehn, “the state of public finances in clearly unsustainable”. Even Germany’s budget deficit is expected to rise to 5.6% of GDP, according to the Economist Intelligence Unit.

It is in this context that EU leaders are contemplating a new rescue fund (already dubbed European Monetary Fund, EMF) in order to help eurozone member countries better deal with a future economic crisis. The idea of an “EMF”, first officially expressed by German Finance Minister Wolfgang Schäuble on 6 March, has been supported by German Chancellor Angela Merkel, saying that the current instruments “are not sufficient”. So far, there are more questions than answers regarding this idea. It is not clear, for instance, whether the new fund would be just a financial instrument or a new institution, which would then, most probably, require renegotiation of the Lisbon Treaty, which already took so long to negotiate and ratify.

Also, not everyone is supporting this idea, even in Germany. Thus Axel A. Weber, the President of the Deutsche Bundesbank, the German central bank, has stressed that the focus now should be on the most urgent problems, saying that “it’s not helpful to talk about ways to institutionalize help when the question is how to implement the budget reforms”. It has also been criticized by Jürgen Stark, European Central Bank Executive Board member, who has said that such a mechanism would penalize countries with solid finances and encourage excessive spending. Some of the questions regarding the future “EMF” might be answered after the eurozone Finance ministers meeting on 15 March, and the Commission is already “working closely with Germany, France and other EU member states” on more concrete proposals that should be ready by June.

Whatever form or function an “EMF” takes, it has shown that eurozone member states are determined not to involve the International Monetary Fund (IMF) in solving their internal problems (apart from Greece itself, which has repeated many times that it does not exclude the possibility to approach the IMF – this could be, perhaps, a Greek ploy to put the pressure on other eurozone member states to come up with concrete help to ease the debt problems in Greece). If EU leaders opt for a veritable “EMF”, it might also have wider repercussions in the international financial system. This could revive discussions about other regional financial arrangements, particularly in Asia, where the idea of an Asian Monetary Fund (proposed by Japan in the wake of the 1997 financial crisis, but turned down at that time by the  IMF and the US worried about their influence) has never been forgotten. As it has been argued by Kishore Mahbubani and Simon Chesterman, “Asian countries must take more leadership in regulating financial markets (…)  the possibility of an Asian Monetary Fund remains on (or at least not far off) the table.” In this context, it will be important to observe developments regarding the Chiang Mai Initiative, a US$120bn worth fund between ASEAN, China, Japan, and South Korea, to be launched on 24 March 2010, which will provide financial support through currency swap transactions. Given the developments in the EU, Asian countries might also decide to pursue a path towards more elaborated regional financial architecture. All this would bring into question to the role of the IMF, an institution associated with American financial prowess, which is clearly in decline. The head of the IMF, Dominique Strauss-Kahn, has indicated that “regional institutions are welcome”, nevertheless stressing that they should work together with the IMF.

It remains to be seen how the EU will address the multiple problems of slow economic recovery, high unemployment, ballooning deficit and the euro under pressure. Perhaps the solution is to be found in “Europe 2020” - EU’s growth strategy for the next decade.  To be discussed by the EU’s heads of state and government at the EU summit on March 25-26, this strategy focuses on three main priorities: “developing an economy based on knowledge and innovation”; “promoting a more resource efficient, greener and more competitive economy”; and “fostering a high-employment economy delivering social and territorial cohesion”. This is not the first time that the EU has come forward with a grand strategy for growth: the previous Lisbon Strategy (adopted in 2000) contained many ambitious goals for the EU, and yet most of them were not achieved. It is now up to the EU’s leaders to review the Commission’s proposal and to say how they envisage the future economic development of the EU.

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EU’s Climate Policy after Copenhagen


Environment, Climate Change & Energy Security

25 February 2010

More than two months have passed since the UNFCCC Copenhagen Conference, but the EU seems to be still struggling to find the way forward after the “great failure”, as the Swedish environment minister Andreas Calgren described the climate negotiations in the Danish capital. Apart from the failure to achieve any of its main negotiation objectives (except the agreement on climate financing; see the analysis on the Copenhagen Accord), the EU had to cope with being left out of the negotiations where the US, China, India, Brazil, and South Africa were drafting the Copenhagen Agreement. This was a diplomatic slap in the face of the EU, which has long aspired to play a leadership role in the international climate negotiations.

The most important lesson to be learned from Copenhagen fiasco is that when the EU’s position is fragmented, it is much weaker than when it acts in unity. EU leaders left some of the important issues concerning the EU’s final offer to the last-minute discussions during the Copenhagen Conference, thus attracting even more attention to the internal squabbles. Besides, leaders of individual Member States competed for international attention with national initiatives and individual bilateral negotiations (for instance, only the United Kingdom and France took part in a finance package presented in Copenhagen to protect tropical forests, while Germany would prefer to act alone in employing its own bilateral instruments). The EU’s actorness was clearly undermined by its fragmented representation in Copenhagen. That “in unity there is strength” has been well-known for years, but now there is a hope that with the new Treaty of Lisbon the EU’s representation could indeed be streamlined. Whether this hope will be realised depends on the new EU’s leadership team. Although climate change issues are not under the exclusive competence of the EU and the Commission is not negotiating on behalf of the Member States as in the trade talks, the Commission, particularly the High Representative of the Union for Foreign Affairs and Security Policy, Baroness Catherine Ashton, and the climate action commissioner, Connie Hedegaard, and the European External Action Service should assume a significant coordination role in climate negotiations. However, much will depend on the political will of the Member States to pool various endeavours into a concerted European action.

The EU can seize the moment to reassess its efforts to play a leadership role in the fight against climate change, to engage more actively in “climate diplomacy”. The EU must deepen bilateral dialogue with important players in the climate negotiations, in particular with the large developing countries, and to try to brokerage an international binding agreement. This will be a difficult task for the new EU commissioner for climate action, since the international commitments that countries can make are clearly determined by domestic politics.

Perhaps more realistically, the EU can stick to its commitments, as underlined by José Manuel Barroso, President of the European Commission.  By maintaining its pledges, the EU could assume normative leadership. Effective domestic climate policies and implementation of its international commitments would give the EU additional leverage in negotiations.

The EU could also try to assume leadership in developing a global carbon market. However, first it will have to deal with problems within its own Emissions Trading Scheme (ETS) which was badly affected by the economic crisis. The carbon price (around €15 per tonne) is too low to encourage the development of new low-carbon technologies. According to the report by the Environmental Audit Committee of the British Parliament, the price should be at least €100 per tonne by 2020 in order to trigger enough investment for shifting to a low-carbon economy (the price is expected to be around €30 by then). According to the report, the problem is that in the first phase of the EU ETS (2005-2007) the “carbon allowances were clearly over-allocated.” Contrary to the intended effect, it resulted in the increase of the overall amount of CO2 emissions in that time period (by 38 million tonnes, from 2012 to 2050 tonnes). The report points out that currently there is also a risk of over-allocation, because economic recession already would diminish the amount of emissions: “the recession has only served to loosen what little constraint the cap provided.” After addressing the price issue, the EU should focus on how to link the ETS with other cap-and-trade systems in the world, in order to make the carbon market an effective instrument in climate protection. The EU has declared that it wants to establish an OECD-wide carbon market by 2015 and to include developing countries by 2020. But the aforementioned political hurdles in the US are not going to ease the task. 

It is also expected that the EU will take a second look at carbon tariffs on imported goods. Industry would not allow implementing a 20% emissions reduction target without any kind of protection. This has also reverberated in political circles, with French President Nicolas Sarkozy stating that “I will fight for a carbon tax levied on EU borders.” The new EU’s commissioner for trade, Karel de Gucht, has stressed that he does not agree with the idea of introducing such a “border adjustment tax”, stating that this would lead to “an escalating trade war on a global level.” However, this position could change if more EU Member States would rally behind the tax proposals. It remains to be seen how such tariffs would correspond to the WTO rules. Again, much would depend on the US, because the current climate bill already includes a carbon tariff provision. If internationally agreed, this could be used convince China, India and other developing countries to come forward with higher emission reduction commitments.

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Greek Debt Crisis – A Test for the Eurozone and EU’s Economic Recovery


Trade & Investment Partnerships and Regulations

19 February 2010

Euro, the single currency adopted by 16 of the 27 EU members, faces the biggest crisis since the European monetary union came into existence in 1999. It is a confidence test for both the euro as an international currency and for the solidarity between the 16 eurozone countries. The trigger was the ballooning budget deficit of Greece which stood at 12.7% of GDP. Given that the Stability and Growth pact has set a limit to budget deficit of 3% of GDP in the eurozone, the situation has been perceived as critical.  Greece has been given time until 16 March to take austere measures to reduce its deficit. Further denting confidence is the fact the EU regards Greek statistics, in the words of Swedish Finance Minister Borg, “basically fraudulent”.

Meanwhile, it is still unclear how much the rest of its eurozone partners are willing and able to help the Greeks. Although the EU leaders pledged to support Greece while meeting for an informal summit in Brussels last week, they mostly reiterated that Greece would need to take additional austerity measures, while remaining reticent on specific assistance. This reticence reflected EU’s concern not to create a moral hazard by bailing out Greece. This could also set a precedent that would encourage other weak economies to seek aid in the future. It is perhaps also to do with the politicians wariness of the response from its own public. A poll done in Germany (reported in Reuters) showed that 67% of Germans did not want to pay to bail out Greece, and 53% felt that Greece should, if necessary, be expelled from the eurozone.

By giving Greece only 30 days to cut its ever-raising deficit and debts, the eurozone finance ministers have clearly showed that Greece is expected to demonstrate a persuasive effort to regain market confidence. Luxembourg's Prime Minister and chairman of the eurozone Jean-Claude Juncker expressed his concern over the irrational behaviour of financial markets. The investor’s nervousness also showed in the euro’s continuous slide to a nine-month low against the US dollar. Besides, bond markets have punished Greece for years of financial overspending, pushing yields higher. As a result, Greek bonds are now trading three percentage points above German bonds (The yield on the German 10-year bond was at 3.19% on 15 Feb, while the Greek 10-year yield was at 6.15%).

It is obvious that the EU cannot afford bankruptcy of one of its Member States. It is of little importance that Greece’s share of the EU's GDP is only 2.6%. There are also financial interests involved as Greece owes US$75.5bn to French banks, and US$43.2bn to German banks. Altogether, Greece owes foreign financial institutions US$302.6bn.

There is also fear that the crisis in Greece could trigger a domino effect in the EU. Public finances are also weak in Portugal, Spain and Italy. Experts have indicated that Spain could become the next, even bigger threat to the stability of the euro, because the Spanish economy is four times of the size of Greek economy. The fact that the competitiveness of Spain and Portugal has been going down since the introduction of the euro, is of particular worry. However, instead of putting in place necessary reforms, low euro-zone interest rates in recent years have motivated these countries to rely heavily on borrowing. Ireland is faced with similar situation as it also has large public deficit. Nevertheless, the quick measures taken by the Irish government eased the fears of national default. Investors are worried that the eurozone countries that are stable for the time being, such as Germany, Finland or the Netherlands could eventually be affected; that they may be forced to pay for the financial errors of Greece and the others; that the euro will continue to slide against the US dollar. This would bring certain benefits to European exporters who have been complaining for years about a too-strong euro, but it would also mean paying more for imports.

Greece is not the only problem facing the eurozone at the moment. As a result of the financial crisis, public debt has gone up across the continent. In fact, only seven out of 27 Member States are currently complying with the eurozone rules on budget deficit. Plummeting tax revenues together with expensive economic stimulus packages have severely stretched the budgets. The general worry for the eurozone is that the growth last year was to a great extent induced by government spending, reflecting ongoing fiscal stimulus. In addition, it is doubtful that consumer spending has had any considerable input to the economic growth considering that retail sales within eurozone fell by 0.2% quarter-on-quarter.

This threat to the EU single currency is in not just a short-term one. Even if Italy and Spain avoid bankruptcy threats for the time being, the question remains about the ability of their governments to push through the necessary reforms. The protests have already started in Portugal and Greece as a result of budget cuts. No doubt, profound reforms are needed to avoid that the gap between the strong and weak members of the eurozone becomes ever wider.

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New Trade Commissioner – Priorities & Challenges


Trade & Investment Partnerships and Regulations

9 February 2010

As the new Commission starts work after the approval by the European Parliament on 9 February, the new trade commissioner, Karl De Gucht will have to take up a difficult task: to represent and defend "European interests", while manoeuvring between different Member States and their particular interests, and at the same time dealing with other Commissioners and facing increasing scrutiny by the European Parliament. Overall, the EU trade policy will now become more complicated, as it will comprise more actors and longer lead-in times. Moreover, it will have to be implemented in a more politicized environment, which, in turn, leaves many questions open as to the actual day-to-day implications on the EU’s Common Commercial Policy that Treaty of Lisbon might have.

The EU has been a very dynamic player in the multilateral trade system at the same time building up its network of bilateral agreements. However, the EU has been cautious not to indicate a willingness to see bilateral agreements as a framework that could potentially replace a well functioning multilateral system.

In his introductory remarks, De Gucht emphasised his commitment to open markets, with a rules-based multilateral system. "Free trade must be used to promote prosperity and development. With rules, trade could be a win-win instrument. The EU has to show the lead, but that does not mean that we should accept unfair practices," he warned, giving assurances that he understood the interaction between trade and development and the need to help developing countries join global trade. He made the conclusion of the Doha Round multilateral negotiations his number one priority.

De Gucht’s second priority is to enhance trade and investment relations bilaterally and regionally to supplement what has been done on a multilateral basis. Thus, negotiations with India, Canada, Ukraine, Latin America, the Mediterranean area and Singapore would dominate the EU trade agenda over the next two years. The EU will start free-trade agreement (FTA) negotiations with Singapore in March, which is the first step in a radical rethink of the Union's trade strategy towards South-East Asia (the EU had initially preferred an inter-regional, EU-ASEAN FTA). By launching FTA negotiations with the most affluent ASEAN member, the EU hopes to trigger a ‘domino effect’ that would encourage other countries in the region to follow. Thus, Singapore has an advantage to set a precedent that could make it easier for other countries to launch bilateral negotiations with the EU.

De Gucht made cooperation with the EU's major trading partners - the US and China - his third priority, the aim being to remove non-tariff trade barriers, as well as social and environmental dumping. He has called for a "higher level" of cooperation with China – the second largest trading partner - on matters of trade and investment. He has told journalists that the currency issue, i.e. the undervaluation of the Yuan against the Euro was the main "problem" when it comes to EU-China trade relations. EU leaders regularly complain that the undervalued yuan is holding back European efforts to export to China. China "must show its responsibility by being able to address thorny questions (of trade), such as currency misalignment," De Gucht said. "It is clear to me that this is a deliberate policy and we should address this on all possible occasions, bilaterally and also multilaterally."

Although China claims that international pressure regarding its currency policy is "unfair," as it has contributed more than its fair share to help the recovery of global economy, De Gucht's comments reflect a "growing frustration within DG Trade," as reported by Europolitics. Such effort would mirror the approach of the Obama administration, which has been consistently raising the exchange rate question. De Gucht's position was welcomed by many member states such as France or Italy, who are advocating a tougher approach towards China.

De Gucht also pointed out that he would enforce a strict anti-dumping policy. This is another sensitive area of conflict with Beijing, which has counter-accused the Commission of anti-dumping behaviour. In reaction to the tariffs slapped on Chinese leather shoes, Beijing has started to retaliate by triggering its own antidumping measures against European products and has made a complaint (4 February 2010) to the World Trade Organisation (WTO) over the EU’s decision last December to extend anti-dumping duties against Chinese and Vietnamese leather footwear imports for 15 months.

China's ministry of commerce said the EU tariffs "damage the legitimate rights and interests of Chinese enterprises". Many European retailers and shoe brands that cooperate with China, opposed the move by the EU. This is only second time that China has taken the EU to the WTO's formal dispute resolution process and coincides with Beijing becoming more assertive on the world stage. Many see it as a test of the EU's commitment to free trade in the middle of recession. It has also caused disadvantage to small shoemakers compared to large retailers that have increasingly outsourced production to Asia.

The dispute coincides with US President Barack Obama’s vow to take a "much tougher" stance on China, trying to ensure that it opens its markets to US exporters. On the other hand, China’s decision has been interpreted by some analysts as a sign of Chinese greater trade assertiveness that its partners will henceforth have to face, including the EU. China’s assertiveness might bring about increasing tensions that the new Trade Commissioner would have to manage carefully to avoid harmful trade war that might jeopardize the slow and uncertain economic recovery in Europe.

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EU Leaders Disappointed with Copenhagen Accord


Environment, Climate Change & Energy Security

23 December 2009

The European Union (EU) leaders have expressed their disappointment with the Copenhagen Accord, a five-page-long document which, after an extremely bitter debate, was not adopted, but merely “noted” by the delegates. ”It will not solve the climate threat,” said Fredrik Reinfeldt, Sweden's prime minister representing the Presidency of the EU. José Manuel Barroso, President of the European Commission, said that the outcome is “clearly below our ambitions.”

The text states that “deep cuts in global emissions are required” and that countries will take action to limit the increase in global temperature below 2°Celsius from pre-industrial levels. However, it lacks any mid-term greenhouse emissions reduction targets for 2020, and even a previous long-term target of cutting the emissions by 80% by 2050 was abandoned. The EU, on its part, has committed to cut its emissions by 20% from 1990 levels by 2020, but it did not raise the target from 20% to 30% as previously offered, saying that the reduction targets of other countries were not sufficiently ambitious. Nevertheless, Mr Barroso insisted that “this is not the final say” and such a move was not ruled out at some point in the future.

The accord states that developed countries will provide new and additional funding for the Copenhagen Green Climate Fund, “approaching” US$30bn from 2010 to 2012. For long-term finance, developed countries agreed to support a commitment of jointly mobilizing $100 billion a year by 2020 to address the needs of developing countries.

Reporting on the Copenhagen summit, the European press laments the modest role of the EU in the final negotiations, despite its leadership ambitions. The Copenhagen Agreement in fact was negotiated and drafted by the United States, China, Brazil, India and South Africa, without the participation of most of the world’s countries. The EU was practically ignored in this process. As it was described by Mr Reinfeldt: ‘‘We had very tough negotiations two and a half hours after I read on my mobile telephone that we were already done.’’

Countries are supposed to submit their emission reduction plans for 2020 to the United Nations and the next UN Climate Conference set to be held Mexico City next November/December. However, the implementation of the Copenhagen Accord will be reviewed only by 2015.

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EU pledges €7.2b in COP 15 to fight climate change


Environment, Climate Change & Energy Security

16 December 2009

The European Union (EU) has committed €7.2b over the next three years to help developing countries deal with the effects of climate change. The EU leaders hope that this offer, agreed at the end of a two-day European Council meeting on 10-11 December, will provide a motivation to reach an ambitious deal at the UN Climate Change Conference in Copenhagen. Yvo de Boer, the UN Framework Convention on Climate Change Executive Secretary, hailed the EU’s pledge as a “huge encouragement to the process.” By setting its contribution at €2.4b a year, the EU will give a major contribution to the global ”fast-start” €7b annual fund to help the least developed and most vulnerable countries adapt to the effects of climate change before a new climate treaty comes into force in 2012.

However, representatives of developing countries and aid agencies said not enough money is being committed, describing the EU’s pledge as “insignificant” (Ambassador Lumumba Stanislaus Di-Aping, negotiator for 130 developing countries in the Group of 77) and criticizing it as “a recycling of past promises, and payments that have already been made” (Tim Gore, Oxfam EU climate change advisor). The EU leaders conceded that the pledged money is “a combination of new and old resources.” José Manuel Barroso, President of the European Commission, said that it would have been “extremely difficult” to ask governments for additional financial resources in the current economic situation. Therefore, the EU is considering other means to find the necessary finances for fighting climate change. In this context, the EU leaders urged the International Monetary Fund to consider “the full range of options, including insurance fees, resolution funds, contingent capital arrangements and a global financial transaction levy” in its forthcoming report next April on how to respond to the financial crisis. This suggestion, however, is in itself highly contentious, and hence, developed countries have to be prepared to answer to their critics on their “insignificant” pledge to the climate fund.

The EU leaders also underlined the need for a significant increase in public and private financing, but the amount of the EU’s contribution to the €100b a year until 2020 considered necessary is yet to be decided. The EU also confirmed its offer to reduce greenhouse gas emissions by 30% compared to 1990 levels, if other developed countries commit themselves to comparable reductions and developing countries contribute adequately. EU leaders will hold an informal summit in Copenhagen on December 17 to decide on the unilateral reduction of 30%.

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EU Leaders Push for Successful Outcome in Copenhagen


Environment, Climate Change & Energy Security

24 November 2009

The European Union (EU) still holds hope that the United Nations climate change conference in Copenhagen (7-18 December) could be a success, despite the unlikelihood of agreeing on legally binding carbon emission reduction targets. Meeting ahead of the special European Council of 19 November, German Chancellor Angela Merkel and French President Nicolas Sarkozy met with Danish Prime Minister Lars Løkke Rasmussen, president of the Copenhagen conference, to discuss the prospects for rallying political support within the EU and internationally, and the possible measures that could be implemented to reach an agreement.

Angela Merkel stressed that “Copenhagen must be a success; we will get there”. “As of the first half of next year, we must have a binding agreement and be able to check that the (emission reduction) targets are really achieved. Political commitments must be taken as of Copenhagen,” she said. Nicolas Sarkozy emphasized that all EU heads of state and government will be present in the high-level session in Copenhagen on 17 and 18 December. Lars Løkke Rasmussen stressed that the agreement must be “binding”. The three leaders said they will increase diplomatic activity over the next two weeks to convince other world leaders to convene in the Copenhagen UN conference.

Climate change was also high on the agenda at the EU-Russia Summit on 18 November in Stockholm, Sweden, where Russian President Dmitry Medvedev announced that Russia is planning to commit to raising energy efficiency by 40%, which will help the country cut greenhouse emissions by 20-25% by 2020. By committing to a 10% higher emissions cut—initially Russia had agreed to 15%—Russia is putting its policy in line with the EU, which has pledged to reduce emissions by 20% by 2020. Russia’s emissions reduction pledge would strengthen the EU's position in Copenhagen. It could also put additional pressure on countries like the US, China and India to come forward with their emission cut targets. The EU has promised to reduce its own greenhouse gas emissions by 20 % by 2020, raising the target to 30 %, if other industrialised countries agree to do the same.

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Top EU Posts Unveiled


The EU’s Institutions

24 November 2009

At an informal meeting on 19 November, European Union (EU) heads of state and government unanimously backed Belgian Prime Minister Herman Van Rompuy, 62, as the first permanent President of the European Council and current Trade Commissioner Baroness Catherine Ashton, 53, as High Representative of the Union for Foreign Affairs and Security Policy. The two new posts are created under the Lisbon Treaty, which will come into force on the 1 December 2009.

Herman Van Rompuy will chair the European Council's meetings at which decisions are taken about the political position of the EU. Mr Van Rompuy, whose term runs for two-and-a-half years (renewable once), said he would be "discreet" in his new job, saying that climate change and Europe’s high unemployment will be the key concerns in the coming years. Mr Van Rompuy, a Christian Democrat who has been Belgium’s prime minister for less than a year, is well-respected as a consensus builder and has been praised for bringing Belgium's Flemish and French-speaking communities closer together. He will assume his duties on 1 January 2010.

Baroness Ashton will chair the meetings of the Foreign Affairs Council and will hold the post of Vice-President of the European Commission. She said that she would pursue a policy of "quiet diplomacy". Baroness Ashton is a member of the British House of Lords, representing the Labour party. She has also served as Leader of the Lords, where she was responsible for the examination of the Treaty of Lisbon. She was then appointed to the European Commission in October 2008 where she has earned a reputation as being a skilled negotiator. She will assume her duties on 1 December 2009. However, Baroness Ashton still needs to be approved by the European Parliament.

These new posts are meant to articulate and communicate the common position of the 27 Member States. Moreover, given the close links between diplomacy and trade, the choice of Baroness Ashton reflects the EU's aspiration to tie its economic strength to political influence. She has negotiated the Free Trade Agreement with South Korea, most important ever negotiated between the EU and a third country, and is widely credited with bringing the United States and India back to the table to help push forward stalled Doha round of world trade negotiations.

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Eurozone Out of Recession


Trade & Investment Partnerships and Regulations

24 November 2009

The EU's statistics office Eurostat has stated that the gross domestic product (GDP) in the eurozone (the 16 Member States that use the euro) increased by 0.4 % while the GDP in EU-27 countries gained by 0.2 % in the third quarter. The rise in eurozone output was the first in six quarters. However, these results were not as positive as the 0.6 % that most economists had predicted for the eurozone. Nevertheless, many analysts caution that the EU’s economic recovery would be very slow, as it could be hindered by high unemployment. The jobless rate in the eurozone and 27 EU hit 10-year highs of 9.7 % and 9.2 % respectively in September.

In this context, the eurozone achieved a trade surplus of €3.7bn with the rest of the world in September after a deficit of €2.3bn in August. Both exports and imports showed an increase from August (5.5 % and 1.1 % respectively), making a positive contribution to growth in the third quarter.

So far, this year EU trade with all of its major partners has fallen (both exports and imports down by 18 % and 24 % respectively in September from the year before), including Southeast Asia. The eurozone recovery, however sluggish and fragile, is a good sign for the global economy, given that the EU is the world’s largest trading bloc.

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New European Commission Designates Chosen


The EU's Institutions

2 December 2009

On 27 November, President of the European Commission, José Manuel Barroso, announced his new team of commissioners. Of the most influential portfolios overseeing economic matters, Barroso nominated Spain’s Joaquín Almunia for competition, Belgium’s Karel De Gucht for trade, Finland’s Olli Rehn for economic and monetary affairs, and France’s Michel Barnier for internal markets.

Mr Barroso said the new Commission will face huge challenges in “steering Europe towards recovery and a sustainable social market economy that works for the people.” The most important tasks for the incoming Commission will be reducing soaring budget deficits, resisting protectionism, reforming the financial system in order to avoid another financial crisis, and deciding when to curtail emergency financial measures that were used to support the economy.

The important trade portfolio will go to Karel De Gucht, currently commissioner of development and humanitarian aid. Mr De Gucht will be replacing Baroness Catherine Ashton, who has been appointed as High Representative of the Union for Foreign Affairs and Security Policy. Mr De Gucht, Dutch-speaking Liberal who served as a Belgium’s Foreign Minister from 2004 till 2009, will inherit the task of trying to advance the stalled Doha round of international trade negotiations, as well as take charge of negotiating bilateral trade deals, including the stalled FTA negotiations with ASEAN.

The new Commission must be approved by the European Parliament before it takes office for a five-year term running until 31 October 2014. The commissioners will appear in individual hearings before Parliamentary committees from 11-19 January. The final vote of consent on the new Commission as a whole is planned for 26 January. The new Commission is expected to take office on 1 February 2010.

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The EU preparing for the Copenhagen Summit


Environment, Climate Change & Energy Security

2 December 2009

The EU environment ministers at an extraordinary meeting on 23 November endorsed and reiterated the mandate for the Copenhagen climate talks agreed by the EU leaders last month. The ministers concurred that Copenhagen would push for a sort of binding agreement, that would include carbon reduction targets for industrialised countries and commitments to reduce emissions below business-as-usual levels from developing countries. It would also have to include fast-track financing in the range of €5-7bn annually between 2010 and 2012, before a new legally binding treaty enters into force, to pay for immediate action on adaptation, mitigation and capacity-building in developing countries. The ministers said that the EU leaders would further discuss the specific figure for the Copenhagen negotiations at the EU summit on 10 December.

The European Parliament added weight to EU’s final push for a successful outcome at the Copenhagen Summit by calling for an ambitious, legally-binding agreement to be reached in Copenhagen. The Parliament called on EU heads of state and government to commit to providing €30bn in climate aid. In a resolution adopted on 25 November by a vast majority of 516 votes to 92, with 70 abstentions, European deputies said developed countries should reduce emissions by 25-40 % by 2020, while developing countries should limit their emissions increase to 15-30%. The Parliament supported the proposal to come up with €5-7bn of fast-start funding.

As a signal that climate change would remain very high on the agenda of the EU, the new European Commission announced by President José Manuel Barroso includes the first-ever climate action commissioner. This is in addition to the Environment Commissioner position which will be held by Janez Potočnik from Slovenia. The Climate Action Commissioner will be Connie Hedegaard, Denmark’s climate minister, already involved in preparation of the UN conference in Copenhagen. Mr Barroso stressed that the climate concerns will be included in all other policies, such as trade and industry, and the new commissioner “will promote the climate agenda both internally and externally”. The ratification of the Lisbon Treaty has also firmly put combating climate change on an international level for the EU. All these could imply that the climate change and environment would become a major issue in all sorts of trade or partnership agreements that the EU negotiates with third countries.

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EU-China Summit


External Relations of the EU

2 December 2009

The 12th European Union-China Summit was held in Nanjing, China on 30 November 2009. Chinese and European Union (EU) leaders signed five agreements covering science and technology, a near-zero emission coal project, energy performance and quality in the construction sector, the sustainable development of China’s trade and investment, and EU-China environmental governance.

One of the most contentious issues between the EU and China is the yuan exchange rate. The yuan is pegged to the US dollar, and the euro's consequential rise against the yuan (around 20 % since the beginning of 2009) affects EU exports to China. José Manuel Barroso, President of the European Commission, said that “major imbalances because of trade or because of currencies can create problems in the future if they are not fully addressed.” Chinese Premier Wen Jiabao rejected these complaints as “unfair”, stressing that the EU maintains trade policies which are “restricting China's development”. The Summit ended without agreement on the issue and the post-summit declaration did not mention it.

China, a rising power, is increasingly more assertive, and the EU would have to manage this relationship well so as to have a productive partnership. Having China on board is key to solving many of the global challenges including climate change which was also a key issue in the EU-China summit agenda. Fredrik Reinfeldt, Swedish Prime Minister and the current president of the European Council, acknowledged China’s pledge announced on 26 November to reduce its carbon intensity per unit of GDP by 40-45% on 2005 levels by 2020, but said it does not do enough to keep the planet from warming. “We can’t solve the climate challenges for mankind without China being part of the solution,” Mr Reinfeldt said.

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Difficult Challenges Ahead as Baroness Ashton Passes Parliament Hearing


The EU's Institutions

21 January 2010

Since the beginning of the last week, much of the activity within the European Institutions centered around the European Parliament (EP). Members of the European Parliament (MEPs) have been “grilling” the 26 commissioners-designate, including Baroness Catherine Ashton, the High Representative of the Union for Foreign Affairs and Security Policy, who will also be the Vice-President of the European Commission.

It is a very crucial test for the nominated commissioners, because the MEPs can reject the proposed Commission as a collective body, if they consider any single candidate unsuitable. So far, after questioning all 26 nominated commissioners, parliamentarians have expressed their discontent with Bulgaria’s Rumiana Jeleva, who failed to answer charges of conflict of interest and provided unsatisfactory answers on various policy issues. Ms Jeleva announced her resignation on 19 January, and Bulgaria has already nominated another candidate, Kristalina Georgieva, currently vice-president of the World Bank. However, it is still unclear whether Ms Georgieva would be given the same portfolio (humanitarian aid and crisis response). There are many suggestions that a reshuffle could take place, because two other commissioners-designate – Finland’s Olli Rehn and Dutch Neelie Kroes – during their first hearings gave performances, which EurActiv called ‘unconvincing’. The vote of confidence on the new Commission is scheduled for 9 February.

If the problems with Ms Jeleva’s appointment have raised a hurdle for Mr Barroso, the outside world was more interested to observe the hearing of Baroness Catherine Ashton on 11 January, where she called for “a stronger and more credible European role in a fast-changing world”. Notwithstanding some small blunders (like admitting her lack of knowledge when asked whether the EU should have its own seat in the United Nations Security Council), she avoided errors that might put her appointment at risk. Although the MEPs are unlikely to reject her, she failed to impress a number of deputies who said that “there was a certain lack of ambition to make [the] office strong” (Alexander Count Lambsdorff) and that there is “no reason for enthusiasm” (Elmar Brok).

Assuming the Commission is approved, the most difficult challenges for Baroness Ashton are still ahead, both within and outside the EU. In fact, the biggest difficulties for the EU’s foreign policy chief will be internal, at least in the first half of the year 2010. There are at least three major challenges that she will have to deal with:

First, the coming months will be crucial for establishing the institutional balance in the complex and multi-layered governance system created by the Treaty of Lisbon. Baroness Ashton will have to find her place between Herman Van Rompuy, the new President of the European Council, José Luis Rodríguez Zapatero, the Spanish Prime Minister, whose country now holds the rotating presidency, and José Manuel Barroso, President of the European Commission. Although Mr Van Rompuy will be primarily concerned with forging consensus between 27 Member States within the EU, he will also chair summits with third countries. Mr Zapatero, however, has managed to arrange that many of the summits will take place in Spain. Mr Van Rompuy, in return, has made it clear that once Spain’s Presidency finishes, all future summits will be held in Brussels, as stipulated in the Treaty of Lisbon. (Incidentally Belgium will be holding the next rotating presidency from July to December 2010.) These first signs of incoherence indicate that much will depend on the personal chemistry between the top EU representatives.

Second, Baroness Ashton will have to take a determined stance with regard to the Member States. The Programme for the Spanish Presidency states that it “will fully support all the new High Positions so they can exercise their competencies under the best possible conditions”. However, the practical arrangements between Baroness Ashton and, for instance, Spanish foreign minister Miguel Ángel Moratinos are yet to be established. This will be observed very carefully by other Member States which will still want to exercise their influence through the rotating Presidency and other channels. The choice of Baroness Ashton, a low-profile candidate with no foreign policy experience (one year of serving as EU trade commissioner is her only international experience), already indicated the unwillingness of some of the Member States to relinquish their leverage in foreign affairs.

Third, Baroness Ashton will have to set up the European External Action Service (EEAS), the new pan-European diplomatic service with representations throughout the world. Baroness Ashton has expressed her preference that the EEAS should be independent of other EU institutions, apart from its budget that will form part of the general EU budget and will be entirely under the European Parliament’s control. She will have to work on a legislative proposal, which would set out the functioning of the EEAS, its budget, areas of competence, and recruitment procedure. After consultations with the European Parliament, the proposal will have to be adopted by the European Council by the end of April 2010. This process will involve much contention between the institutions that are to provide its staff: the European Commission, the secretariat-general of the European Council and the national administrations. Some of the Member States have already accused European Commission of wanting to keep out national diplomats from senior EEAS positions.

Outside the EU, Baroness Ashton will have to work hard to make the EU’s voice heard on the international stage. This will test her diplomatic skills and repeatedly voiced belief in “quiet diplomacy”, when dealing with issues like non-proliferation, counter terrorism, human rights, energy and climate change. In the parliamentary hearing, Baroness Ashton said that Afghanistan and Pakistan, Iran, the Middle East, Somalia and Yemen were at the top of her list of priorities. Among other priorities, she mentioned the EU neighbourhood, the Balkans, Ukraine, Moldova, the Caucasus and the Mediterranean. Asia seemed to be missing from her priorities though she added that her first foreign visits would be to Washington DC, Moscow and Beijing.

Time will tell whether Baroness Ashton can live up to expectations despite a rather reserved beginning and help the EU present a stronger and more coherent voice. But she cannot do everything alone; it is the political will of EU leaders that will be decisive in the coming months.

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