Mike Hancock News
Headline Issues of the EU Agenda
•1. EU FOREIGN POLICY
•1.1 EU ENLARGEMENT
Background: The enlargement process requires candidate countries to adopt the body of EU law. This requires transposing 33 chapters of legislation, a considerable undertaking and one that often requires painful reforms and adjustments. The EU provides considerable financial & technical support to help this process. In addition, candidates must be stable and peaceful countries, adhering to European values as set out in the Treaties (human rights, democracy, rule of law etc...).
Current State of Play: Candidates - Current candidate countries, ranked broadly according to their proximity to accession, are:
- Croatia: On 30th June, the EU formally closed accession negotiations with Croatia, clearing the way for the signing of the Accession Treaty by the end of the year. After the Treaty has been ratified in Croatia and all 27 member states, Croatia will join the EU on 1st July 2013.
- Iceland: Accession negotiations with Iceland on 17th June 2010. Negotiations on 4 out of 33 chapters have opened and 2 have closed. Icelandic law is already around two-thirds compliant with EU law so the distance it has to travel is relatively short. Problem areas are the outstanding debts to many member states citizens as a result of Icelandic Banking collapse, and bringing Iceland into the CFP which is considerably more stringent than domestic fishing rules.
- Macedonia: An EU candidate country since 2005. A key obstacle to full membership is the ongoing dispute with Greece over the country's name. The country has been criticized for politicisation of some institutions and respect for minority rights. Nevertheless, the Commission has recommended the accession negotiations be launched and this is expected to be approved by the European Council. Accession is a medium to long-term prospect.
- Montenegro: The European Council granted Montenegro official candidate status in December 2010. Although formal negotiations have not yet begun, they are expected to do so in the next year or so. Montenegro is experiencing ecological, judicial and crime-related problems that may delay accession.
- Turkey: Turkish accession negotiations were opened in 2005. Currently, the country has opened 13 of the 33 chapters and closed 1 chapter. Negotiations have largely stalled over failure to fully resolve the Cyprus issue and the slow down in domestic political & economic reforms. Public opinion inside the Union is split on Turkish accession, some member states are hostile (e.g. France, Austria). Other problems persist including adherence to EU values, internal instability caused by the Kurdish problem and fractious relations with some neighbours. There is also a new, more prosperous and externally confident Turkey appearing, one which is questioning whether the long & uncertain path to EU membership is the best route for the country.
Current State of Play: Prospective Candidates - Current prospective candidate countries, ranked broadly according to their proximity to becoming candidate countries, are:
- Serbia: Serbia submitted its application for EU membership in December 2009. Following the arrest and extradition of Ratko Mladic to The Hague, a key precondition for serious accession discussions, Serbia announced its intention to apply for full EU candidate status in December 2011. It's highly likely that this will be approved. Nevertheless, Serbia will need to undertake some considerable domestic reforms in order to meet the EU's accession criteria. While the Government has called for the status of Kosovo not to be part of the accession deal, it is hard to see how this can be avoided and some recent progress has already being made. Serbia is unlikely to join the EU before 2015.
- Albania: Albania has been a prospective candidate since 2003. The Commission did not recommend candidate status for Albania following its application in 2009 due to the ongoing political deadlock in the country following disputed 2009 elections, widespread corruption and organised crime, and the lack of domestic reforms.
- Kosovo: Kosovo faces many obstacles to EU accession, not least that several EU member states do not recognise it as a separate country, but as an UN protected region of Serbia. Currently, following the boost to Serbia's membership prospects, some progress in normalising relations with Serbia has been achieved.
- Bosnia-Herzegovina: The EU maintains a peacekeeping force and a police mission in Bosnia-Herzegovina, where most Serbs live in the autonomous Republika Srpska. Bosnia's ethnic quarrels remain a worry for the EU, along with corruption and organised crime. Constitutional changes are required to create a functional state in line with EU human rights standards and the ECHR has ruled that Bosnia's electoral laws discriminate against Jews and Roma (Gypsies). Bosnia has not yet formally applied for EU membership.
1.2. EUROPEAN NEIGHBOURHOOD POLICY (ENP)
Background: Launched in 2005 following the Eastern enlargement, the ENP's objective is to create a ring of 16 well-governed, prosperous and stable countries at the EU's land and sea borders. Modelled on the enlargement process, the ENP sought to offer conditional sizeable carrots (short of actual EU membership) - trade access, visa liberalisation, financial support etc... - in return for undertaking domestic economic and political reforms. Following the Arab Spring, a reassessment of the ENP was undertaking, with a view that the original ENP needed strengthening and much better implementation, especially over insisting on political reforms in return for rewards. The UK has been a strong advocate of this process. The Commission published its proposals for a relaunched ENP strategy on 25th May 2011.
Countries covered by the ENP: Algeria, Armenia, Azerbaijan, Belarus, Egypt Georgia, Israel, Jordan, Lebanon, Libya, Moldova, Morocco, Occupied Palestinian Territories, Syria, Tunisia and Ukraine.
New Elements:
- Stricter Conditionality: Ensure rewards are given for implementing agreed priorities, especially political reforms.
- Greater Integration Offer: Offer greater opportunities for EU integration including participation in EU programmes, policies, agencies, customs Union and possible EEA membership.
- Asymmetric Trade Access: Offer asymmetric access to the single market, including in sectors of high importance to neighbourhood countries with a view to agreeing Deep & Comprehensive FTAs further down the line.
- Mobility Partnerships: Offer greater people-to-people contacts (esp. students) and visa facilitation/ liberalisation in return for cooperation in strengthening borders, combating organised crime and reducing illegal immigration.
- Extra & New Sources of Financing: Increase ENP development funds by €1.25bn for the period 2011-13 to a total of €5.7bn. Increase the European Investment Bank's (EIB) lending capacity to the southern neighbours by €1bn. Allow the European Bank of Reconstruction and Development (EBRD) to extend their operations to the MENA, starting with Egypt. Annual lending volumes are expected to reach around €2.5bn by 2013.
- Involvement in Resolving Protracted Conflicts: Greater EU role in helping resolve protracted conflicts in the neighbourhood by joining up the EU Common Foreign & Security Policy with the use of other EU instruments and through international fora. One concrete innovative new initiative in this area is EU preparedness to develop post-conflict reconstruction scenarios as incentives for conflict settlement, which may be particular relevance to Libya.
Next Steps: EU Foreign Ministers meeting on 20th June warmly received the proposals. They have invited the Commission & High Representative to bring forward the policy details to implement the new headline strategy. There will be a further EU Ministers discussion on the ENP reforms on 18th July and in October.
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2. EU BUDGETS
2.1 MULTI-ANNUAL FINANCIAL FRAMEWORK 2014-20 (MFF) - ONGOING
Background: The MFF is like the EU's CSR. It sets annual ceilings on the total EU budget and under each policy heading over 7 years. The current MAFF runs from 2007-13. The Lisbon Treaty brings new/ enhanced responsibilities/ institutions at the EU level and will require new financing. The EP must give its consent to the budgetary settlement and has budgetary oversight over the whole budget (including the entire CAP). The MFF also deals with national rebates and how the EU budget is funded.
Timeline: Commission published their proposals on 29th June. Negotiations will not seriously begin until after the summer break and there is no real prospect of a deal until after the French presidential elections (May 2012). The new MFF needs to be agreed by the end of 2013.
Size of the Budget: The Commission proposes increasing the size of the 2014-20 EU budget by 5% compared to 2007-13 - commitments rising from €975.77bn to €1,025 billion. As a share of the EU Gross National Income (GNI), the proposals would see a cut from 1.11% of EU GNI in 2007-13 down to 1.05% in 2014-20. However, the Commission is also proposing to move some big-ticket spending items (e.g. €2.7bn ITER nuclear fusion reactor project) outside the MFF, to be funded separately. If those items were included in the count, it would remain at 1.11%.
Shape of the Budget: The Commission is also proposing some spending reprioritisation:
- Mainstreaming Climate Change Funding in all EU Instruments
- Establishing a variety of new Innovative Financing Instruments.
- CAP & CFP spending down from 41% of the budget to 37%.
- 5% cut in the number of staff working in all EU institutions by 2018.
- 25% increase in funding for external policies.
- €50bn dedicated to energy, transport & ICT infrastructure.
- 35% increase in EU R&D funding.
- Cohesion Policy more focused on poorest states and regions but a new 'transition region' (those with income of 75% - 90% of EU average). This could cover Cornwall, Scotland, Wales, North East & North West.
Policy Reforms: In parallel to the MFF, the EU is also negotiating reforms to the mechanics of the major policies that compose the EU Budget - CAP; CFP; Structural & Cohesion Funding; Framework Programme 8 (EU R&D) etc... The budget negotiations will inevitably feed across to these policy negotiations and vice versa.
Own Resources & Rebates: Commission proposes to (i) scrap all national rebates (UK, Ger, Swe, Neth, Austria) in the next MFF, (ii) offer a lump sum rebate compensation payment in 2014 (€22.8bn for the UK), (iii) reduce the size of national budget contributions to the EU budget by around one-third and (iv) substantially increase the 'own resources' financing of the budget (direct revenue sources) by replacing the existing VAT contribution with a new VAT contribution, and establishing an EU Financial Transaction Tax (FTT). Proposals for both are expected before the end of 2011.
Political Considerations:
- Net contributors vs. net recipients - UK, Germany, France, Netherlands & Finland (all net contributors) have all called for a freeze, though it is not clear whether this means a freeze in real terms or an absolute freeze (i.e. a cut). The net recipients, led by Hungary & Poland (EU Presidency until end of 2011), are organising to resist this.
- UK Rebate vs. French & CAP - High possibility of some form of deal between France & UK over the size of the CAP in return for leaving the rebate alone. But this may leave the UK sidelined over debate on spending priorities.
- Freeze & Rebate vs. Modern Budget - One possibility is that the UK secures a freeze in the size of the budget, and retains the rebate with a trade off on the size of the CAP with France and on cohesion funding with the new member states. But this will put considerable pressure on modern spending areas - R&D, innovation energy, climate change etc...
- French Presidential elections (May 2012) - Little prospect for a deal (especially on CAP) until afterwards (during the Danish Presidency). From July 2012 onwards, the Cypriots hold the Presidency. Doubtful whether they will have the institutional capacity to facilitate a deal and so European Council President Van Rompuy is likely to play a key role.
- Delay the Decision? - If no deal can be secured, the budget will role on under the existing MFF.
LDEPP view: LDEPP want to see a modern EU budget spending a far higher proportion of the budget on modern priorities and where the EU adds value - R&D, innovation, climate change, energy, environment, infrastructure etc... In addition, LDEPP are pushing for real reform of some of the major policy and spending areas of the budget. E.g. George Lyons (AGRI) is pushing for the direct payments to farmers under the CAP to be dependent on achieving carbon emissions targets through a climate change top up payment. E.G. Chris Davies & Graham Watson are pushing for a fundamental overhaul to the CFP including ending discards and scraping subsidies to industrial fisheries.
2.2 EU BUDGET 2012 - ONGOING
Background: Within the MFF ceilings, the specific spending of the EU is decided on an annual basis. The stage is set for another very tough set of negotiations between the Council and Parliament, as well as within the Council (net contributors vs. recipients). Britain, France & Germany have co-signed a letter calling for limited growth in 2012 and 2013 annual budgets below 2.91%.
Proposals: The Commission's 2012 budget proposals represent € 132.7bn in payments (4.9 % increase on 2011) and commitments of €147.4bn (+3.7%). While a lower increase than the proposals for the 2011 budget, this has still attracted serious criticism from the UK and some other member states. The Commission protest that member states have agreed to projects that they now do not want to fund (e.g. ITER) as well as the new spending commitments acquired under the Lisbon Treaty (e.g. funding the External Action Service).
Next Steps: The Council will come to initial agreement on the size/ shape of the 2012 budget on 22nd July. The European Parliament will vote on the budget in October 2011. The Commission, Council & Parliament will then enter into trialogue negotiations to come to a final agreement.
LDEPP View: LDEPP recognise that given the current fiscal austerity in the UK and across the EU, the EU budget needs to share in the pain. That is why they are supporting a freeze to the 210 EU Budget.
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3. THE EUROZONE CRISIS
3.1 EUROZONE CRISIS
- Using the temporary €60bn EU-funded European Financial Stabilization Mechanism (EFSM) and the temporary €440bn Eurozone-funded European Financial Stabilization Facility (EFSF), as well as IMF loans, Greece has received a conditional bailout package of €110bn (May 2010), Ireland of €85bn (Nov. 2010) and Portugal of €78bn (May 2011).
- Following a vote of confidence in the Government and in favour of a new round of austerity measures, Greece was released the next tranche of funds under its bailout package.
- However, all the indications are that the current measures are not working with interest rates government borrowing for peripheral countries rising again, new fears over the ability of Italy to manage its debt and Greek debt downgraded to junk status by credit rating agencies despite the new austerity measures.
- The question that Eurozone Ministers are increasingly being forced to look at is some form of default. The key reason is austerity measures risk damaging already negative or very low growth rates in those countries and further undermining the prospects of repaying loans. Meanwhile, the risk/ fears of contagion grows.
- The ECB remains fiercely opposed to a default or restructuring of debt, while Germany has only suggested a very modest form of restructuring. Nevertheless, it now seems almost unavoidable that some form of organised debt restructuring will be essential.
- Mervyn King recently stated that the Eurozone crisis is now the single greatest threat to the UK's financial stability.
3.1 TREATY ON THE 'EUROPEAN STABILITY MECHANISM' (ESM) - AWAITING RATIFICATION
Member states have agreed a limited Treaty change in order to replace the two temporary bail out funds - the €60bn EU-funded European Financial Stabilization Mechanism (EFSM) and the €440bn Eurozone-funded European Financial Stabilization Facility (EFSF) - with a permanent Eurozone-funded €700bn European Stability Mechanism (ESM) from 2013 onwards. The Treaty must now be ratified in all 27 member states by the end of 2012. It is possible that the UK will seek to ratify this with the Bill needed to approve Croatian Accession to the EU.
3.2 EU ECONOMIC GOVERNANCE - ONGOING
In parallel, negotiations between Parliament and Council over a 'six pack' of legislative measures on improving the system of EU economic governance are nearing completion. Broadly speaking the package will provide for:
•· Monitoring of national public finances to ensure convergence towards Stability & Growth Pact (SGP) targets. The Commission may issue warnings for significant deviations from prudent fiscal policy (Euro area only).
•· A new set of gradual financial sanctions for eurozone Member States only (i.e. this would not apply to the UK).
•· Severe imbalances (either excessive deficit or surplus) could to lead to a Council recommendation for an "excessive imbalance procedure (EIP)" - the member state must present a corrective action plan, vetted by the Council, with deadlines for corrective action. Repeated failure to take corrective action will incur sanctions (Eurozone only).
•· If a euro-area Member State repeatedly fails to act on Council EIP recommendations to address excessive imbalances, it will have to pay a yearly fine equal to 0.1% of its GDP.
•· Sanctions for the provision of false or manipulated statistics and the obligatory establishment of independent national statistics agencies.
LDEPP Lead: Sharon Bowles MEP, Chair of the Economic & Monetary Affairs Committee (ECON), is playing a leading role on the 'six pack' and has been the chief negotiator for the EP with the Council.
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4. SINGLE MARKET ACT (SMA) - ONGOING
Background: In October 2010, the Commission unveiled 12 proposals (collectively called the Single Market Act) designed to relaunch efforts to complete the single market and encourage economic growth. The objective is to have agreed all of these measures by the end of 2012. The new Polish Presidency of the Council has made this a priority area:
- 1. Access to finance for SMEs - Common rules for venture-capital funds to allow for cross-border investment and thus provide innovative SMEs with funding and at an attractive price. A consultation on this has now been launched.
- 2. Worker mobility in the Single Market - Enhanced mobility for qualified workers by modernising the rules for recognising professional qualifications so as to simplify procedures, review the scope of the regulated professions, and strengthen confidence and cooperation between the Member States, first and foremost by issuing a European Professional Card. A consultation on a green paper has been launched.
- 3. Intellectual property rights - Agree the new arrangements for a single EU unitary patent so that the first EU patents can be issued in 2013. The UK is a leading player in the 'enhanced cooperation' on this. The Commission has also published a comprehensive strategy on IPR, including on digital services.
- 4. Consumers - Agree new mechanisms to allow for cross-border alternative dispute resolution, including for all online commerce.
- 5. Services Sector - Revise the legislation on the European standardisation system to extend it to services and make standardisation procedures more effective, efficient and inclusive.
- 6. Stronger European networks - Adopt legislation on energy and transport infrastructures in order to identify strategic projects of European interest.
- 7. Digital Single Market - Legislation to guarantee mutual recognition of electronic identification and authentication across its territory, and a revision of the e-signature Directive to permit safe and unobstructed electronic interaction. The UK is very supportive.
- 8. Social entrepreneurship - A European framework for mutual investment funds, so as to amplify the effect of the existing national initiatives by offering these funds the opportunities provided by the Single Market.
- 9. Taxation - Revise the Energy Tax Directive to guarantee consistent treatment of the various energy sources and thus take better account of the energy content of products and their CO2 emissions.
- 10. More social cohesion in the Single Market - Legislative proposal for strengthening the application of the Posting of Workers Directive, so as to prevent and penalise any abuse or circumvention of the rules.
- 11. Regulatory environment for business - Simplification of the accounting Directives as regards financial reporting obligations, and a reduction of the administrative burden, especially for SMEs. Legislation has been agreed at Council to exempt micro-entities from stringent reporting standards. The EP must approve later this year.
- 12. Public procurement - Modernise the legislative framework to arrive at a balanced policy sustaining the demand for environmentally friendly, socially responsible and innovative goods and services, provide contracting authorities with simpler and more flexible procedures, and give SMEs easier access. A consultation has been launched.
LDEPP actors: Fiona Hall MEP (ITRE), Sharon Bowles MEP (ECON), Diana Wallis MEP (JURI), George Lyon (IMCO).
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5. CLIMATE CHANGE & 30% TARGET
- Under the 202020 targets, the EU has already agreed a binding 20% emissions target and renewable energy target by 2020, and a non-binding 20% energy efficiency target by 2020.
- Part of this package deal included a promise for the EU to unilaterally move to a 30% climate change target for 2020 in the event that there is an ambitious global UNFCCC to establish a successor to the Kyoto Protocol.
- While considerable progress was made at the Cancun COP, a global deal has not yet been agreed.
- Nevertheless, the Commission and several member states, led by the UK's Coalition Government, are calling for the EU to move to a binding 30% target in any case.
5.1 LOW CARBON ECONOMY ROADMAP & 25% TARGET
- In March 2011, the EU Commission published a draft 2050 Low Carbon Economy Roadmap - see here.
- The Roadmap sets out a proposed path, proposed measures and strategic milestones for the EU to take in order to meet its target of cutting EU emissions by 80% by 2050.
- The Roadmap states that "If the EU delivers on its current policies, including its commitment to reach 20% renewables, and achieve 20% energy efficiency by 2020, this would enable the EU to outperform the current 20% emission reduction target and achieve a 25% reduction by 2020."
- It should be noted, however, that while the EU is broadly on target to meet its binding 20% renewable and carbon emissions target, it is a long way off meeting its non-binding 20% energy efficiency target.
- Chris Huhne has secured the public support of a large number of EU Climate Change Ministers for a 30% target including Germany, France, Spain, Portugal, Denmark, Sweden and Greece.
- On 22nd June, the EU Energy & Climate Change Ministers discussed the Roadmap and whether the EU should move to a 25% target. The latter was blocked by Poland, see here.
- Poland relies on coal for around 90% of electricity needs. Poland also holds the EU Presidency from July 2012 until the end of the year.
- However, thereafter, Denmark will hold the Presidency from January 2013 to July 2013. It is also worth noting that the proposed Multi-Annual Financial Framework includes considerable extra funding for energy efficiency measures as well as a larger and more focused Cohesion Budget which would benefit new member states particularly, including Poland.
5.2 TORY MEPS VOTE AGAINST 30%
- On 5th July, the European Parliament held votes on a non-legislative 'Own Initiative Report' including the 30% target.
- The vote was lost by 9 votes with 17 Tory MEPs voting against a 30% target including the leader of the Tory Delegation, Martin Callanan.
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