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16 July 2021

An important ruling about Russian gas

The fight against Europe’s gas dependency on Russia is fought on several fronts. Joe Biden is outwardly keen to mend relations with Angela Merkel, who is in Washington right now on what is likely to be her last trip to the US. But on substance, the US position on NordStream 2 has not changed. It looks likely that the pipeline will be completed this summer, but it is far from clear whether or when the gas will flow. Just as the US can impose sanctions on those who build the pipeline, it can impose sanctions on those who use it.

Another battle is being fought in the courts. Yesterday the Court of Justice ruled in favour of Poland and against Germany in a case involving Nord Stream 1, and Opal, the pipeline that connects from Nord Stream 1 at the Baltic Sea in Germany and runs through to the Czech Republic.

The case is superficially about whether it was acceptable for Gazprom to raise the throughput. But more important is the establishment of a legal principle. Poland had argued that the increase in flow volumes constituted a violation of the principle of energy solidarity in the EU. Germany argued that energy solidarity constituted a purely political concept. The Court of Justice rejected Germany’s position, and ruled that the European Commission was under a legal obligation to take into account the security of gas supplies to EU markets, as Reuters reports.

The Commission had previously given the green light to the increase in throughput, but Poland challenged the decisions in a tribunal. Germany then took this case to the Court of Justice, and lost again. As with successive cases involving economic policy, the Court is filling vast legal grey zones with concrete decisions.

What this specific decision will do is to raise the hurdle for profitability of Russian gas projects - fight them with bureaucracy. Even if Nord Stream 2 becomes operational, it is far from clear that it will become profitable. If the Commission is formally required to take into account the energy security of Poland and the Baltic States, it is quite likely that NordStream 2 will also be subject to throughput caps. Gazprom criticised what it considers the creation of artificial barriers to investment in the European gas system. That is exactly what this is. But the official legal view now considers these barriers to be a feature, not a bug.

15 July 2021

Le Pen's divorce letter to the Germans

Marine Le Pen pledged to divorce from Germany if she comes to power in 2022 to focus on more strategic alliances with the UK and the US. In l'Opinion she paints the image of a great nation betrayed by Germany time and again. She is clearly fishing for votes from the military and those with nostalgia for la grande nation, where France, with its nuclear and military might, accuses Germany of not following suit despite signing on to the idea of a common defence union. This may have traction, and as such should not be easily dismissed.

Whoever wrote this for her did a good job tapping into the emotional quagmire of French identity and linking it to some hard facts, ignoring the other 93% of policy cooperation. Le Pen accuses Germany of pulling a diplomatic stunt on France by participating first, then taking over to finally lead the project. Faced with this, Paris gives in driven by emotions, altruism and cowardice. This is not limited to the military. The narrative resonates with some hard feelings from France's fallouts with Germany over the monetary union. Le Pen does not even have to mention it. And as always, the good and the bad are clearly defined in this story. France hoped that Germany would change, but no. Nor has France since Charles de Gaulle in this story. The only way for change to happen is to change the story. 

The article made some points too. German identity narrative is in itself full of obstacles: anti-nuclear, neutral and pacifist. Its doctrine in international engagements is to engage in everything and exclude nothing. France and Germany are apart on objectives about military platforms and the diplomatic means to pursue them. Le Pen accuses Germany of blackmailing and withdrawing without any consideration for Paris. The Schwerin space project was brought up as an example where the Germans ditched the project with France to pursue their own satellite in competition with the French. Another difference is that German's perspective makes it look more to the East. And as for the industrial dimension, Germany looks more at technology than at military capacity building while France has the order reversed.

The article says the UK is a much more natural partner, sharing diplomatic status and nuclear capacities. Le Pen also advocates negotiating an alliance with the US to face the challenges in the Indo-Pacific and in space. And with allies around the world she aims to unite in the fight against Islamic terrorism. 

This article comes clearly from a military historic perspective. The UK a better partner? Forget trade or the standoff over vaccines France and the UK recently went through. Using the la grande nation narrative to define French identity can still get Le Pen votes, but it will not define the future.

14 July 2021

Weaponising humans

Yet another country is weaponising asylum seekers in an effort to push back against the EU, and this time the story is almost unbelievable.

Frontex announced yesterday that it plans to launch a rapid border intervention to the Lithuania-Belarus border to assist with growing migration pressure, after more than 800 illegal border crossings were reported in the first week of July alone, out of a total of 1700 this year.

Frontex reported that while most migrants recorded during the first half of the year came from Iraq, Iran and Syria, authorities had noted a change in the composition of migratory flows. Today, most arrivals come from the Republic of Congo, Gambia, Guinea, Mali and Senegal. This could be indicative of an extraordinary new strategy.

Gabrielus Landsbergis, the Lithuanian foreign minister, has accused Belarus of flying in migrants from abroad and sending them over the border to EU countries, telling Reuters that asylum seekers are being used as a political weapon. Lithuanian MEP Rasa Jukneviciene, meanwhile, said Belarus and Russia are organising human smuggling networks, with the assistance of Iran, to fly people to the Lithuanian border. A 550-km razor wire barrier is now being built, and Fabrice Leggeri, the executive director of Frontex, has said the agency will fly migrants right back out of Lithuania using commercial and charter flights if they are not granted refugee status.

If Lithuania's accusations are true, it could have profound implications for EU asylum policy. Until now, asylum seekers had simply been allowed to cross borders unchallenged in disputes between the EU and its neighbours. To actively seek out and assist asylum seekers in reaching EU borders underscores just how valuable such a strategy can be for disgruntled governments and sanctioned countries. The EU’s immigration and asylum policies remain weak and fragmented. Whatever the outcome for the migrants themselves, the political costs will be high. Unable to hit the EU with any effective economic sanctions, and unconcerned about the collateral damage to desperate and innocent people, Belarus might have found a much more effective way to hurt the union.

13 July 2021

Opposition to 2035 CO2 phase-out

FAZ writes this morning that there is opposition within the European Commission to the phasing-out of the fuel-driven motor car by 2035. Valdis Dombrovkis, Commission vice president, and Thierry Breton and Adina Valean, commissioners for the internal market and transport, favour a postponement to 2040. This debate reminds of us of the postponement of the exit from coal in Germany, which has been put back to 2038. What is happening right now all over Europe is that governments and the Commission are buckling under pressure from industry, and are choosing the soft option of delaying most of the adjustment to the next decade.

Among governments, France is leading to those who favour 2040 as an exit, but there are others, including Sweden, who argue that such a long transition phase is likely to take the pressure off. That’s also our own view on this matter. In our experience there are two types of transitions - those that encourage and accelerate innovation, and those that postpone it. A 14-year transition phase is beyond the life span of current management boards of car companies. It’s the next guy’s problem.

The other area of disagreement concerns interim targets. The original Commission proposal foresaw a 65% reduction until 2030. Realistically, that would only be achievable if manufacturers already start making and selling electric cars in large quantities by then. It will be interesting to see whether this number, too, will be watered down. If you pick 2040 as your zero target, it would be logically consistent to pick a lower reduction target for 2030 as well - in the order of 50%. That would mean that the whole timeline gets pushed back.

Another important number is the prescribed minimal distance of electric charging points on motorways, which the Commission wants to set at 60km.

It is also important to remember that this is just the proposal itself. We would not be surprised if the EU Council waters it down even further.

12 July 2021

Fourth wave, no lockdown?

Yesterday France joined the UK and Greece in rejecting the notion of new lockdowns to contain Covid-19, with Clement Beaune, European affairs minister, telling media the country must learn to live with the virus instead.

Although he didn’t rule out reintroducing limits on the number of people allowed in bars and restaurants, and to extend the use of a Covid health pass, Beaune said positions aren’t as hard as they used to be because vaccines are available.

He was echoing Kyriakos Mitsotakis, who announced last week that while he can’t make vaccinations mandatory, Greece will not close again to protect a few unvaccinated people at the expense of the vast majority of the Greek population. The Greek prime minister also cited the availability of vaccines as the primary factor in his decision, arguing that there are some people who consciously choose not to protect themselves and their loved ones, and whose behaviours always carry the risk of a new wave. In the UK, Sajid Javid said the same late last month, stating that data on vaccinations was heading in the right direction and that the UK must learn to live with Covid.

This no doubt came as a relief to many, but as some countries are learning, opening too fast too soon carries its own risks. We previously noted that Catalonia’s fourth wave was rising after the government allowed nightclubs to reopen until 3.30am, with new positive cases among the 15-29 year old demographic in Barcelona rising eightfold in just 15 days, and hospitalisations rising by 33% in the 10 days to 7 July.

A similar situation is playing out in the Netherlands, where the number of new cases rose to 10,283 on Saturday, an eightfold increase compared to one week ago, with the under-30s again accounting for the bulk of new infections.

On Saturday Mark Rutte announced cafes and bars will close at midnight, and nightclubs will have to close entirely, stating that it is not a question of blaming an age group or sector, but of protecting the vulnerable. At the same time, the Dutch prime minister said there was no indication masks should be brought back in shops, and that testing for entry will continue at theatres and sports stadiums, which will remain open.

A new trend is clearly emerging, in which young people free to socialise but not fully vaccinated are the most-affected by the fast-spreading Delta variant. Mortality is not surging as it has in previous waves, which is likely the deciding factor for many governments in rejecting new lockdowns, but rising hospitalisations among young people could soon overwhelm health systems in hotspots. Any hopes that this summer will be like the last are quickly fading. We also note that the most vulnerable segments of the population would have received their second doses around six months ago by now. Booster shots will likely be on many country’s pandemic agendas by the end of the summer.

9 July 2021

Women leaders in far right parties

A new generation of women is emerging to lead far right movements. There is Giorgia Meloni of the Fratelli d'Italia. In Germany Alice Weidel had been a leader of the German AfD since 2017. And there is, of course, Marine Le Pen.

The Finn's party is to elect a new leader in August and Riikka Purra, vice president of the party, said she wants the job. She is close to the current leader Jussi Halla-aho, who said he would not stand for re-election. Like Meloni, Purra is tough on immigration. Purra wants zero immigration into Finland, even for humanitarian reasons. She cited the Danish Social Democrats as an example. She has no problems with international laws on refugees, and sees no reason why every country has to take in immigrants. Unlike Meloni, Purra has been in politics only shortly, and this may be her biggest handicap. What they have in common is that they are blond and attractive, and thus may pull in a new kind of voter. They can be charming and can have other identity hats too. Purra is a vegetarian and juicer, Weidel is a lesbian. These identity mixes allow them to transgress the traditional boundaries of far-right politics.

Le Pen is old school by comparison, more of a maternal type. So is Pia Kjærsgaard, co-founder of the anti-immigration Danish People’s party, or Siv Jensen, leader of the country’s similarly anti-immigration Progress party. Le Pen clearly went the furthest of them all, getting into the second round of the presidential elections in 2017 and predicted to do so again next year. If she were to fail to get into the Elysee palace next year, it may clear the way for niece Marion Maréchal to emerge as the next-generation leader in France. 

8 July 2021

How to fight Orbán

Viktor Orbán is the most dangerous of Europe’s new breed of far-right/populist leaders because he is smart. Last December he held the EU hostage when he blocked the budget. In return the EU effectively agreed not to use the rule-of-law-mechanism against him. We think the compromise killed the mechanism in all but name.

The best way to get to Orbán is by doing what the European Commission did yesterday: Withholding funds from the recovery fund unless Hungary fulfils the strict compliance criteria. This is not about the LGBTQ law. The EU has no effective means to stop this. The argument in this case is about corruption and procedures to deal with it. That’s where he is most vulnerable.

At stake is €7.2bn, which includes a €1bn tranche planned for this year. The Commission has blocked the payments because Hungary has not fulfilled all the criteria. Ursula von der Leyen said one of them would be a smooth co-operation with the European Anti-Fraud Office, also known as Olaf.

As FAZ reports, Olaf has found more irregularities in Hungary than in any other country. In the 2019 report, Olaf challenged almost 4% of all EU payments that went to Hungary. The second worst offender is Slovakia, but only 0.5% of payments are suspect. The country-specific recommendations for Hungary have criticised systemic irregularities and corruption at the highest level. Olaf has provided the Hungarian prosecutors with the data, but no action was taken.

The details are quite shocking. Ten companies with connection to Orbán received €6.5bn in state procurement orders from 2010 to 2018, including the company of Orbán’s son-in-law, István Tibor­cz.

The Commission wants to make sure the recovery fund money does not end up in the same channels. The recovery fund is designed with strong benchmarks countries need to fulfil to receive the next tranches. Hungary will be an important test to this commitment.

7 July 2021

Long road towards EU migration pact

The UK and Denmark are sharpening their policy tools to keep asylum seekers away from their territories, even considering offshoring them on to remote islands or countries, which would be in breach of the 1951 UN convention. A regional court in the Austrian state of Styria has just ruled that the practice of pushing back asylum seekers into Slovenia is illegal. Yet, the practice is likely to continue in other parts of Europe. In the absence of any meaningful migrant and asylum policy, the EU decided to send another €3bn to Turkey to keep refugees there. Don't come to us, is the message. 

Fuat Oktay, Turkey's vice president, warned the EU that reducing migration cooperation to just a financial dimension is a big mistake. We happen to agree with this. Turkey wants the EU to open legal migration routes for Syrians as part of the principle of fair burden and responsibility sharing.

Margaritis Schinas told L'Opinion that the EU cannot allow itself to be without a migration policy. The absence of a common approach resulted in dire humanitarian situations on the Greek islands, Calais and the Canary islands. It made the EU vulnerable to blackmailing threats from Turkey and Morocco. 

A common approach is needed also to face the next waves: 20m in Northern Africa cannot find work as the result of the pandemic, while the Taliban are about to take over Afghanistan again and climate change will force people to find a way to survive elsewhere. 

The EU Commission tabled a reform proposal for the Dublin pact last year. Schinas hopes to move forward under the French presidency early next year. But given the elections in Germany and France, it is unlikely that anything will be wrapped up before the end of next year. In the meantime, the EU continues to throw money at problems, rather than solving them. 

6 July 2021

Greenwashing European hydrogen

A positive headline for European hydrogen development yesterday, when Armin Laschet, the CDU chancellor-candidate, launched the continent's largest hydrogen electrolyser at a Shell refinery in Germany.

The unfortunately-titled Refhyne polymer electrolyte membrane project will use electrolysis to produce hydrogen gas, a clean burning fuel that has been touted as the future of European renewable energy. Refhyne is capable of dealing with fluctuations in energy supply, making it particularly suitable for use with variable renewable electricity derived from wind and solar.

But there is something fishy about this project. We noted a strange description of how it will work in a Euractiv article sponsored by the Fuel Cells and Hydrogen Joint Undertaking, a public-private partnership between the EU and the European hydrogen lobby. According to the article, the new plant will produce around 1300 tonnes of green hydrogen annually, provided sufficient amounts of renewable energy are available.

If they are not, the alternative will be to used natural gas to produce the hydrogen. And funnily enough, hydrogen produced by the new electrolyser will be used to refine petroleum at Chemicals Park Rheinland, Germany’s largest refinery.

We thought it was strange that Laschet would tout a renewable project given his backing for coal-fired power plants and general aversion to all things green. But we wonder now whether Refhyne will be green after all. Authorities have announced plans to scale up production at Refhyne to 1.3m tonnes per year by 2024 – will enough renewable energy be available to meet this target?

We think it is plausible that the EU’s hydrogen development will wind up being dependent on Russian gas. Let's hope all future electrolysers will also be designed to handle fluctuations in energy supply. Or that they are actually built on green inputs and used for green applications, rather than greenwashing a rather ugly reality.

5 July 2021

Vaccine take-up is slowing

We note that vaccination campaigns tail off after a while. The US is now falling behind schedule, and even in the UK, where the campaign has been well organised, it is becoming progressively harder to get the remaining part of the adult population vaccinated. In Germany, 37.9% of the population have received a full vaccination, and the campaign is now slowing down - from a relatively low absolute level.

What happened in Germany is that the government has now decided to ditch the AstraZeneca vaccine altogether for second shots on the ground. People get superior protection if they receive an mRNA vaccine as a second shot after a first shot with AstraZeneca. The problem is that AZ is widely available, whereas this is not the case for the mRNA vaccines, like those of Pfizer and Moderna. The result is that health centres will have to cancel vaccination appointments. The health ministry of Hamburg warned that the vaccination campaign will slow down as a result, and that it will become harder to vaccinate the younger people in particular.

An FAZ commentator made the astonishing statement on Saturday that people with two AZ shots did not receive the best possible protection. Germans still see vaccinations as a private luxury good, where everybody tries to get the best.

Objectively, it is not yet clear at all which vaccines work the best against the delta variant. Preliminary data suggest that the Pfizer and AZ vaccines are both effective. As Germany and the rest of the EU are now in a race against time with the delta variant, it seems odd to us to slow the vaccination campaign at this point. Is this industrial policy? Given the lack of hard data to support strong conclusions on relative vaccine effectiveness, we think this decision is worth investigating in detail.