Welcome to Better Europe’s weekly update on EU Affairs.
THE BIG BOYS CLUB: FROM G7 TO E6
So as we reported previously, the leaders of the world’s seven largest economies will meet in June in Évian. But first, finance ministers from the EU’s six largest economies are having their own summit in Berlin, next week. The topics on the agenda include ongoing EU legislative initiatives, such as the integration of financial supervision as part of the Savings and Investment Union, leaving smaller member states with a significant financial sector, such as Luxembourg and Ireland, out of the discussions. In addition, even if the central supervision proposal is nowhere as ambitious as what happened in the banking sector with the the European Central Bank supervising the 130+ largest banks for well over a decade, some countries are feeling increasingly isolated with their view that supervision must remain national where most appropriate. Irish Finance Minister and former MEP Simon Harris already warned in February that the E6 was getting too powerful. Coalitions of the willing or “enhanced cooperation” groups should be formed around willingness to take action outside of the EU’s usual qualified majority voting, not around size, he argued. It didn’t help either that Commissioner Albuquerque, speaking at ESMA’s 15th anniversary this week in Paris, reiterated her desire to ultimately transform the body, that once was called the Committee of European Securities Regulators before being given agency status in 2011, into a fully-fledged European SEC. But above all, the numbers game shows that financial markets move faster than legislators can come up with new rules, and that decision-making at the full 27 country level is considered by many to be insufficient. But by creating ad-hoc groups where only the 21 Eurozone members or only the 6 largest Member States are allowed, the role of traditional decision-making by 27 is even further eroded. And not relying on decision-making with the EU as a whole in turn fragments the EU internal market, the very reason why the Commission proposed the Savings and Investment Union in the first place.
PARLIAMENT’S ARM TWISTED INTO EU-US TRADE DEAL
Ten years after the negotiations on the Transatlantic Trade and Investment Partnership grinded to a halt, only to be formally ended a few years later after the election of Donald Trump for his first term, the same Donald Trump pushed the EU into a new trade agreement. Or rather, the “EU-US Joint Statement on Trade” aka the Turnberry Agreement. With its preferential tariffs for certain American agricultural and seafood products, it might not be blindly allowing U.S. goods on the EU market in a Transatlantic Cassis de Dijon-style bromance — it is still giving them significant economic advantages. This week, the European Parliament’s plenary approved the tariff part of the deal under a threat from Trump to blow it all up if no deal was found by the 4th of July, a highly symbolic deadline as the U.S. will celebrate its 250 years of independence. MEPs had insisted on a “sunrise clause” to ensure the agreement would only apply if the U.S. would play its part, but Member States wanted legal certainty for their exporting industries, so naturally MEPs bowed. Another pyrrhic victory for Parliament is the rather toothless suspension clause, which would stop the agreement if the United States would again threaten an EU Member State, but its activation is now left to the discretion of the Commission rather than automatically triggered as the Parliament had wanted. The full text still needs to be scrutinized in June in the Trade Committee and then endorsed in plenary in mid-June, just ahead of the big USA 250 deadline. Meanwhile, the U.S. embassy in Brussels is planning a huge private party in the huge Cinquantenaire Park. The park was created to celebrate the 50th anniversary of Belgium’s independence and is a favourite lunch and jogging spot for many Eurocrats. What better place to celebrate a free trade deal?
ROLLING OVER THE COMMON DEBT
Never waste a good crisis — and the Covid recovery response was a good one for mutualised European debt. “The Recovery and Resilience Facility (RRF) is a temporary instrument that is the centrepiece of NextGenerationEU” according to the Commission website. Yet, while the RRF might be temporary, the concept of EU bonds issued with the EU budget as collateral is not, as many had predicted back in 2020. The plan was to pay back a large part of the debt by new “own resources” or EU taxes, such as the Emissions Trading System, a tax for large multinationals, increased tobacco excise duties, and the CBAM carbon border tax. But now that it is clear that some of these income streams are not as big as expected, the question is what to do with the debt? The obvious answer is to roll it over, by issuing new bonds to repay the old ones, a technique that countries and companies have been using for ages. But politically, that means the EU is silently accepting a perpetualised form of joint debt, which means the EU becomes what some call a fiscal union or even a transfer union. Even if it might be economically unavoidable to use common debt to finance the green, digital and security challenges that the EU faces, the political message is a hard sell in countries like Germany where voters expect “black zero” fiscal discipline at home and abroad. Without joint debt, the money has to come from somewhere else, be it agriculture or cohesion policy. First steps to sort out the mess will be taken next week, as General Affairs ministers meet to prepare the June Summit, where their leaders will be called upon to agree on the “negotiating box” for the EU’s budget. Delaying tough decisions too long will move the negotiations into murky waters with elections such as those for the French President coming up next year — between a rock and a hard place.