Setting the EU agenda: The next six months

Opinion by Catherine Feore

The past year has been another bruising one for Europe, while Juncker has tried very hard to set an agenda for the new Commission, events from LuxLeaks to the Greek crisis have stolen the headlines. To use Juncker’s surprisingly frank analysis: “Europe is not in a good place.” Greece may have been knocked off the headlines by the refugee crisis, but with high levels of unemployment and fragile growth across Europe, the EU’s and the eurozone’s problems, in particular, certainly haven’t gone away. We look ahead at some of the external factors that might really set the EU agenda and the key ‘scheduled’ developments expected over the next six months.

External forces

It looks like the debate will yet again be dictated by forces outside the EU’s control. The refugee crisis continues unabated. With countries closing borders and others facing a disproportionate burden, urgent EU agreement is needed. Juncker has called for solidarity; while a number of countries have closed their borders, there is a large question mark over the future of Schengen in this febrile atmosphere. Finding a political resolution to the war in Syria appears to be bleak. Neither the Syrian president nor his opposing forces are interlocutors with whom the West wishes to engage. Russian support for President Assad is also widening the rift between the EU and Russia, though it increasingly looks as though Assad will have to be part of the solution.

The Ukrainian-Russian conflict also appears to be impervious to a diplomatic resolution, with continual breaches of Minsk II. The big question here, especially for Europe’s more eastern countries, is will there be a further escalation. In the meantime, the stand-off is damaging EU agriculture but is helping to drive the EU’s plan for energy union, in particular the need for security of supply.

The problems of emerging markets are renewing concerns about the global economy. The volatility of China’s markets over the summer has caused concern across the world about a further slowdown in growth. It is hard to assess the impact, but with most of the BRICS (Brazil, Russia, India, China and South Africa) struggling with their own structural and growth problems, it doesn’t look like they will be able to reinvigorate the wider economy.

Finally, there are the many challenges from within the EU, the UK’s renegotiations before a Brexit referendum and a series of elections from Greece to Spain that – if inspired by the recent Labour leadership election – will result in a seismic shift in Europe’s political landscape.

Growth and job creation

Quantitative easing (QE) has raised asset values and assisted the financial sector but there haven't been many signs to date that the increase in liquidity has done much to reach the real economy and create growth. Interest rates are historically low, inflation remains well below its target and unemployment is stubbornly high, particularly for the young. The constraints of the eurozone and the Growth and Stability Pact mean that while QE might be a flawed instrument, it’s about the only one that the EU is willing to use.

The Commission’s response is the Juncker Plan, an investment fund that will use funds from the European Structural and Investment Fund, Horizon 2020 as well as loans and guarantees from the European Invesment Bank and Fund with the objective of leveraging more than €240 billion in private funds. The Juncker Plan hopes to make use of some of the liquidity sloshing around for substantial investments in energy, transport and digital infrastructure and research, creating growth and jobs. Agreed in record time, we now move into the implementation phase. To have a much-needed impact, a fast take-up rate is being facilitated – but unless there are enough ‘shovel-ready’ projects, delivery will be slower than hoped for.

In response to the continuing eurozone crisis, Juncker launched the ‘Five Presidencies’ Report’, on deeper and fairer economic and monetary union. The report outlines three stages, of which the third is meant to reach completion by 2025; one would hope that by then the crisis would have run its course. So, in the face of clear and immediate problems, the five presidents have agreed to concentrate on ‘deepening by doing’ over the next two years with some tinkering around the edges of the stability pact and a new ‘social dimension’ – read measures to increase labour -market flexibility – sorry, flexicurity. There are some more concrete proposals, such as the creation of a European Deposit Insurance Scheme modelled on the US Federal Deposit Insurance Scheme, but this proposal, which has been mooted for some time, has failed to receive German support – and that most dreaded of things – might require a further treaty change. Let’s say that we expect a few more late nights for eurozone finance ministers.

Following the launch of the Capital Markets Union in February, an action plan with detailed proposals will be unveiled shortly. One of the main planks will be plans for the revival of securitization markets – think collateralized debt obligation, subprime mortgages, the bubble that burst and the crisis we’re in. This time, however, the Commission will assure us that it will be safe, standardized and transparent. The Commission estimates that it will allow banks to provide around €100bn of additional credit to the private sector. Let’s hope for some real vigilance…

Taxing times

Ironically, Luxembourg is in the Council hot seat just in time to oversee the publication of several in-depth investigations into tax rulings, including 'LuxLeaks' which uncovered the scale and extent of multinational corporation tax avoidance and the role of state actors in facilitating this practice. The fact that Juncker was prime minister of Luxembourg when the Duchy was encouraging companies to channel billions of dollars through the Duchy at ‘beggar-thy-neighbour’ tax rates of less than 1% might give some pause for thought when our 'Spitzenkandidat' calls for European solidarity, but let’s put that behind us, it’s all about transparency in the exchange of information and a level playing field now. Moves will be taken by to re-examine the possibility of a common corporate tax base and further co-operation with the OECD on BEPS (Base Erosion and Profit Shifting).

Fair COP

The UN-organized Conference of the Parties (COP) is organizing its 21^st annual get-together on climate change. One dreads to think of the carbon footprint of 40,000 participants from across the globe gathering to agree in Paris, but hopefully it can be offset with a legally binding deal that will reduce greenhouse-gas emissions to aim to keep global temperatures within a two degrees increase by 2050. The EU has already done a great deal by agreeing to cut emissions by at least 40% below 1990 levels by 2030. Ongoing negotiations between now and the deadline for agreement on 11 December will be difficult, but Europe will play a leading role in reaching a universal agreement and the demise of Australian Prime Minister and climate-change denier Tony Abbot might make targets more achievable.

And there’s more...

The Commission has much ambition in other fields too. An area that has been embraced with particular gusto is the Digital Single Market. Again, the Commission suggests that in providing the right conditions for this market to flourish, ‘hundreds of thousands of new jobs’ will be created. The DSM has many elements from promoting interoperable standards to the reform of data protection where rules should be finalized by the end of the year.

Is it all getting too much? Are you tired of Europe’s terrestrial problems? Never fear, the Luxembourg Presidency will also outline an integrated and comprehensive EU strategy on space.

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