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23 December 2020

The three-body problem

China’s rising influence was one of the biggest stories of 2020. China surpassed the US to become the EU’s top trading partner this year but, as the EU’s economic relationship with China has deepened, so too have security and human-rights concerns. Rising Sino-American tensions have simultaneously left Europe caught in the middle of a new cold war. A late-year push to finalise the long-awaited EU-China comprehensive agreement on investment looks increasingly incompatible with efforts to reset the transatlantic relationship. The EU doesn’t want to pick a side, but in 2021 it might have to.

Europe once welcomed Chinese investment, particularly in the wake of the global financial crisis and the eurozone crisis. However, concerns about China’s divide-and-conquer strategy have been rising since China's launch of the 16+1, now 17+1, format in 2012, since subsumed within the Belt-and-Road Initiative. But it wasn’t until the Covid-19 pandemic hit that the EU began to see China less as a valued investor, and more as a worrying rival. Highly-publicised Chinese donations of medical equipment deepened north-south EU divisions at the onset of the pandemic, and a gradual shift towards more aggressive wolf-warrior diplomacy enraged some member states.

Tensions boiled over during the late-summer European tour of Wang Yi, the Chinese foreign minister, with EU leaders scolding China for its human rights record and for making threats against some member states. A subsequent EU-China videoconference summit held in mid-September ended with the EU calling on China to offer reciprocal market access. It appeared to be the final nail in the coffin for the EU-China investment agreement. 

Wang’s visit was one of the few times the EU presented a united front. Divisions between member states have been particularly visible in 5G development. Only Sweden and the UK have definitively excluded Huawei from future 5G development. Huawei has already been instrumental in building many 4G networks in Europe. Decoupling from the company will be costly and time-consuming, and raises questions about whether European companies are capable of replacing it. Nokia, for example, still cannot manufacture its own 5G chipsets, and plans to sink most of its profits into R&D next year as it scrambles to catch up.

Replacing Huawei equipment is expected to cost billions in the US, which has taken a much stronger stance against China in recent years. The US position has undoubtedly impacted EU 5G development strategies, and American officials have repeatedly and aggressively lobbied European allies to drop Huawei from 5G development.

Sino-American relations deteriorated rapidly under President Donald Trump. So did transatlantic relations. We expect EU-US ties will continue to face challenges in 2021, particularly given the surprise announcement earlier this month that the EU is hoping to ratify the investment agreement with China by the end of the year.

The European Parliament was outraged. Will no one think of the Uighurs? But, as Angela Merkel made clear last week, forced labour in Xinjiang is a secondary concern. 

The EP has vowed to block the investment agreement. A bigger concern for the European Commission might be that the US may try do the same. Views differ, but most observers agree that president-elect Joe Biden will maintain a tough line on China. This certainly appeared to be the case yesterday when Jake Sullivan, Biden’s incoming national security advisor, gently scolded the EU over the investment agreement. Sullivan tweeted that the Biden-Harris administration would welcome early consultations with European partners on common concerns about China’s economic practices.

So, while the agreement might be billed as a victory for Merkel as she exits the political stage, it will also pose a major challenge to any potential transatlantic reset.

Some in Europe have objected to the notion that the EU should have to call the US before signing an investment agreement. Strategic autonomy is a priority for Ursula von der Leyen’s geopolitical Commission, and an agreement with China should not require US approval. Others argue that the agreement has already stirred up trouble between the EP and the Commission, and that China has succeeded in driving a wedge between the EU and US before Biden even takes office. This means that, even if the deal is not ratified, it’s still a win for China. 

This all raises the question: what does strategic autonomy really mean? The freedom to trade, the freedom to take a principled stance, or the freedom to avoid choosing sides? Josep Borrell, the EU's high representative, says it means not being dependent on other countries. If this is true, we do not expect the EU will make much progress on strategic autonomy next year. Germany’s large trade surplus with China has been the single largest obstacle for EU efforts to adopt a tougher stance on China. This might continue to be the case, depending on the outcome of next year's elections in Germany. Lacking its own tech giants and dependent on trade surpluses, the EU is at high risk of remaining hamstrung by its mercantilist foreign policy in 2021.

22 December 2020

How to beat a rigged system

Leaders of six Hungarian opposition parties officially joined forces on Sunday, announcing they will back a single candidate for prime minister in the 2022 elections, and a single challenger in each district.  

The parties will also run under a single election manifesto. This was revealed in part yesterday by Ferenc Gyurcsány, former prime minister and leader of Democratic Coalition, one of the opposition parties. The united opposition intends for Hungary to join the European Public Prosecutor’s Office, and will put a new constitution to a national referendum. According to a tweet by Hungarian journalist Katalin Halmai, Gyurcsány said the new constitution will be drafted in close collaboration with political parties and Hungarian society.

This comes in response to another round of constitutional amendments that make it more difficult for opposition candidates to run for office. Unveiled on 8 November, hours after parliament passed a new law imposing a state of emergency, the new rules increase the number of individual candidates required for national lists. Originally, the amendments would have required opposition parties to nominate at least 50 candidates in single-member constituencies, and in at least nine of Hungary’s 19 counties. The previous minimum number of candidates had been set at 27 constituencies and nine counties.

As if this were not enough, the amendments were themselves amended in late November to mandate candidates in 71 constituencies in at least 14 counties. This means smaller parties have no hope of fielding a national list. Parliament approved the changes last week, marking the ninth round of amendments to the constitution in as many years.

Opposition parties were already facing numerous challenges. 106 of 199 seats in Hungary’s single-chamber parliament are elected using first-past-the-post rules, similar to the UK and US. Hungary used to have a two-round majority system, like France, but the government abolished this in an earlier round of reforms. Previous electoral reforms have also included gerrymandering of electoral districts. According to a 2018 analysis by Political Capital, a think tank, left-leaning constituencies in Hungary now contain 5000 more voters on average than right-leaning ones, making it harder for left-wing parties to win overall.

In the absence of an effective rule-of-law mechanism, opposition parties were left with only one choice: form a united front.

This is not a new idea. While the far-right Jobbik party teaming up with liberal and left-leaning parties such as DK and Momentum seems implausible, observers have been calling for a united opposition for years.

The strategy has already worked before, most recently during a round of local and municipal elections held in October 2019. Gergely Karacsony, the liberal candidate, ousted conservative incumbent Istvan Tarlos to become mayor of Budapest. Support for Viktor Orbán’s Fidesz party slipped, and the unified opposition was able to take 14 of 23 districts in the capital as well as 10 of 23 major cities. Fidesz officials were reportedly surprised by the results, which offered a lesson in how to outmanoeuvre a rigged system.

However, opposition parties will face a more difficult challenge in 2022. Support for Fidesz remains extremely strong in small towns and villages. Fidesz won in all 19 county assemblies last October, and the party still holds a parliamentary supermajority which makes it all but impossible to prevent further amendments to the constitution.

The opposition also needs to find someone who stands a chance of beating Orbán. Gyurcsány’s announcement yesterday might signal his own interest, but he is also best remembered for an infamous, profanity-laced speech he delivered at the congress of the MSzP, the Hungarian Socialist Party, in 2006. The speech was leaked to the media, causing widespread national outrage, and it is thought to have paved the way for Orbán’s resounding election victory in 2010.

Gyurcsány left the MSzP in 2011, and fourteen years is a long time in politics. But memories of the speech linger even today, and some experts still view him as damaged goods. Opposition parties have taken an important step forward by joining forces, though, and recent polls show that combined support for all opposition parties outweighs support for Fidesz. It will still be a steep uphill slog to 2022.   

21 December 2020

Is EU to blame for vaccine shortages?

Spiegel had a blood-curdling story over the weekend, accusing the European Commission of gross mismanagement of vaccine procurement. We have no way of ascertaining whether this story is true. But if it is, the political consequences would be potentially serious.

We and others have already questioned why the EU is so late with the approval of the two vaccines that are ready to roll out: one is the German-developed vaccine by BioNTech. The other is a US-developed vaccine by Moderna. The UK started vaccinations on December 8. The first EU vaccine will not be deployed until December 28, almost three weeks later. Considering current infection and death rates, thousands of people could die because of this delay alone.

But, as Spiegel reports, the situation is even worse. The EU did not buy adequate supplies of the two vaccines currently ready for roll-out. Under the EU distribution key, Germany will receive only 55.8m doses of the BioNTech vaccine. You need two doses per person. For Germany, with a population of over 80m, the estimate is that you need some 140m doses to reach herd immunity. But as Spiegel reports, there will not be enough vaccines unless governments start to go rogue, decouple from the EU, and buy their own supplies. This is something Germany had studiously hoped to avoid in order to preserve solidarity among member states.

Why is there a vaccine shortage? The reason, according to Spiegel, is that the European Commission wanted to achieve parity between the German BioNTech and the French firm Sanofi. We want to point that we have no means to ascertain the veracity of that accusation. Sanofi is also developing a vaccine, but its trial has not gone well. So, the article is making the serious accusation that the European Commission is risking the lives of people for the commercial benefit of a French company. The article also says that the Commission denied that it had been under pressure from Paris on this issue.

The publication of this story has already had one effect: As Bild reports this morning, the Germans are now starting to secure their own national supplies, bypassing the EU. The German government is considering an order of another 30m BioNTech doses. That, plus supplies from the US Moderna vaccine, would constitute a total of 136m doses to be rolled out in 2021, enough to achieve herd immunity. The EU, meanwhile, is waiting and hoping for other manufacturers to catch up.

We would like to make one observation: the combination of a delay of vaccine approval and a procurement policy under suspicion of prioritising producer interest would be a shock from which the EU would struggle to recover. The reason why European competition policy, for example, is successful, is related not only to scale but to the quality of the policy itself. If the EU is less effective in a particular field than national governments, it is best to forgo European integration in that particular field. Especially if people die as a consequence. This is the reason why we are warning against ill-thought-through concepts of a European army. From now onwards, Covid deaths may be EU deaths.

18 December 2020

Advocate general vs Karlsruhe

There are two European court cases of interest to us today for the legal principles they establish. The first concerns an opinion by Evgeni Tanchev as advocate general, on a case involving the appointment of Polish judges. Tanchev referred to two rulings, one by the German constitutional court, and another by Poland’s Supreme Court. Both of them ruled that the Court of Justice of the EU had transgressed its responsibilities, or gone ultra vires in EU legal jargon. Karlsruhe made this accusation in its QE ruling. We argued at the time that this was a far more important aspect of the ruling than the issue of proportionality. The request to demonstrate proportionality of the policy was ultimately and relatively easily satisfied. But it was a big deal for Germany’s constitutional court to claim that the CJEU had gone ultra vires. The Polish supreme court also took the view that a ruling by the CJEU was not binding on the Polish legal order, and should therefore be ignored.

Tanchev accuses Karlsruhe of undermining the legal order of the EU, which he calls a sine qua non for European integration. He reiterated the principles that the CJEU has the final say in the application of EU law, and that it was not up to the German constitutional court to overrule a CJEU ruling. The Germans fundamentally disagree with that approach. Their argument is that this only applies to EU law, but not to areas over which member states remain sovereign. Tanchev argues that, if this principle was accepted,

"the entire legal basis of the EU would be called into question. In other words, if a national constitutional court deems that an EU act or a Court of Justice ruling clashes with its constitution, it cannot simply find that the act or ruling is inapplicable in its jurisdiction."

17 December 2020

Diesel's tobacco moment

The single most important story this week might not have anything to do with the themes we normally write about. It might well be the news that a British coroner listed diesel fumes as an official cause of a death. If this verdict turns into a precedent, which we believe it will, car companies are heading in the same direction as big tobacco: the outer perimeter of what societies consider to be legal and ethical.

We see parallels to an event that took place in the US on January 11, 1964. Then, the US surgeon general released a report entitled smoking and health. By then, there had already been many discussions about the health impact of smoking, but that was the moment when it became official. It was the beginning of a sequence of events that started with health warnings, followed by ever-rising tobacco taxes, smoking bans in airlines and offices, and leading to the outright discrimination of smokers in public life. The coroner’s verdict this week raises the possibility of class-action law suits against car companies, producers of oil heaters, and any company whose products emitted toxic fumes in the past.

The case in question concerns the 2013 death of a 9-year-old girl from an asthma attack. Ella Kissi-Debrah and her family lived off the South Circular ring road in London. Yesterday’s verdict was the culmination of the family's long legal battle, as the courts initially resisted including air pollution as a formal cause of death. But evidence subsequently emerged of extreme emission overshoots in the area where Ella lived, particularly nitrogen dioxide and PM2.5 pollution. The latter stands for particulate matter, or small air-borne particles. The number refers to the diameter of 2.5 microns. By comparison, the diameter of a human hair is around 70 microns.

NO2 and PM2.5 pollution has been found to exceed official EU, UK and World Health Organisation guidelines in the area, according to the Guardian. This is the reason why coroners can now identify pollution as an official cause of death. The introduction of legally-binding emissions targets also constitute the legal basis behind the decisions by some European cities to introduce restrictions for diesel cars. Courts have so far held up these decisions because they are based on official legal targets.

In the case of Ella, the coroner ruled that the failure to reduce emissions levels, and the failure to provide her mother with information about the link between air pollution and asthma attacks, had been possible contributors to her death.

16 December 2020

All drones down

Forget the 2%. The real problem with the Bundeswehr, the German armed forces, is a political gridlock that has resulted in a state of chronic underfunding. In the past we reported on the state of disrepair of the Luftwaffe and on a dysfunctional military procurement service. Yesterday, the SPD Bundestag group shelved the next generation of drones for fear that it could, in theory, be armed. It is no surprise that Germany's only drone maker has recently gone into administration. The military tech industry is where German mercantilism reaches its limits. 

The issue hit a raw nerve. The SPD's defence spokesman yesterday resigned after the parliamentary group's decision, saying his position had become untenable. The SPD's leader in the Bundestag said he accepted the principle that drones can be useful and protect German soldiers in military action abroad. He also said, correctly, that drones had been the decisive weapon in the recent Armenia/Azerbaijan war. 

These views at the top of the Bundestag's group are not shared by the majority, though. The party's leaders favoured a ban on the grounds that there has not been enough discussion. We can state categorically that this is not true. The issue has been discussed to death. The SPD opposes drones on principle but uses the lack of discussion argument as a fig leaf. The vote will be binding on the current government. 

The Greens also opposed armed drone on the grounds that the benefits stand in no relation to the costs. This reflects a prevailing view in Germany, one we think will hold until contradicted by facts. The Bundeswehr currently uses an older generation of drones, for reconnaissance only. We reported recently that only France and Germany have any meaningful reconnaissance capabilities in the EU. With the latest decision, we see Germany falling further behind in the modern high-tech arms race. This is a military story on one level, but it is ultimately a tech story too.

15 December 2020

The EU's morbid conundrum

The US has joined the UK in granting emergency authorisation for the Pfizer/BioNTech Covid-19 vaccine. Rumblings about why it has yet to be approved in the EU are growing louder.

In the UK last week, 90-year-old Margaret Keenan was the first in the world to receive the vaccine. Predictably, celebrations were co-opted by politics when Matt Hancock, UK health secretary, claimed that the UK had been able to approve the vaccine first because of Brexit. He was quickly rebuffed by the UK’s Medicines and Healthcare products Regulatory Authority. The MHRA stated that it had been able to authorise supply of the vaccine using provisions under European law, which applies until 1 January. The agency was referring to the human medicines regulations of 2012, which permits rapid licensing of medicines in emergencies such as pandemics.

But Hancock was right about Europe moving more slowly, and he is not alone in pointing this out.

Jens Spahn, German health secretary, tweeted Sunday that the EU successfully developed the vaccine together, and that all necessary data on it is available. He urged the EMA, the European Medicines Agency, to approve the vaccine as soon as possible. He also stated that Germany’s federal and state governments are ready to begin delivering the vaccine starting from today.

The EU could have approved the vaccine earlier because the 2012 emergency provisions are available to any individual EU member state or country. We think that one other problem the EU could face is vaccine scepticism.

As we’ve previously noted, Europeans, particularly the French, are reluctant to get vaccinated. That could explain why the EU is waiting for the EMA to issue a conditional marketing authorisation, which lasts for one year, rather than use the 2012 emergency provisions. Conditional marketing authorisation requires two independent scientific assessments, as well as consensus among EU members. The involvement of all 27 member states undeniably extends the process. As a result, the agency’s deadline to make a decision is set at 29 December. This type of approval will hold drugmakers liable for any adverse reactions. The UK waived this right.

European leaders want to reassure reluctant citizens that the vaccine is safe. They are worried about populist politicians such as Margarita de la Pisa Carrión, a Spanish MEP from Vox, the far-right party. She recently warned that the approvals process is moving too fast. The EMA and European Commission clearly hope that a longer approval process will convince more people to get the vaccine, allowing vaccination campaigns to reach critical mass and European countries to achieve herd immunity. The morbid conundrum now facing the EU is which will cause more deaths: a vaccine that is delayed, or one that is rejected by the public?

14 December 2020

Transactional diplomacy with Turkey?

Greece lobbied its EU partners for countermeasures against Turkey that could include targeting the EU-Turkey customs union, sectoral sanctions and an arms embargo. None of those were picked up by the European Council last week. Italy and Spain strongly opposed any reference in the statement to restricting measures in response to Turkey's delinquent behaviour. Angela Merkel referred the arms embargo discussion to Nato, while Emmanuel Macron's outspoken rhetoric against Turkey evaporated within the European Council over concerns of a Franco-German rift. The only concessions were an extended version of the sanctions list from last year, adding names of individuals and companies involved in drilling in the eastern Mediterranean, a nod towards Cyprus that was symbolic but not substantial, writes To Vima. Josep Borell is to prepare a report for the next Council meeting in March and to work on a multilateral conference on the eastern Mediterranean. We are looking at a transactional relationship between the EU and Turkey. 

Turkey already demonstrated how little the council's statement achieved. Shortly after the Council meeting Ankara issued a new Navtex, raising the issue of demilitarisation of six Aegean Greek islands.

11 December 2020

How to admonish a Nato ally?

Sanctions against Turkey as a Nato partner, and the rule of law spat with Hungary and Poland as members of the EU, have something in common. They both raise the question of how to admonish a member for behaviour that is contrary to an alliances' principles and values. In both cases European leaders opted for a weak compromise, simply maintaining pressure and threatening some consequences in the future. Regarding Turkey, it looks like the new US administration might be the first one to move and impose sanctions on its Nato ally.

Last night, after some heated debate, European leaders agreed limited sanctions on Turkey and drew up further lists for the next summit in March 2021. Sanctions will be imposed on as-yet unidentified individuals involved in drilling activities off the shores of Cyprus and Greece, in addition to the names already listed in 2019. Greece and France advocated more and wider sanctions, but Germany, Italy and Spain prevailed with their push to give diplomacy more time. In the final statement, sanctions are not mentioned once. The emphasis is on dialogue and a positive agenda with Turkey, condemning what they call Turkish unauthorised drilling activities. Criticism has been dimmed compared with an earlier draft statement. EU leaders now expect Josep Borrell to come forward by March with a broad overview of the bloc’s political, trade and economic relations with Turkey and to prepare a multilateral conference on the Eastern Mediterranean. 

The US, meanwhile, is poised to impose sanctions against the Turkish defence industry over its acquisition of Russian S-400 air defence systems last year, according to several Reuters sources. The defence bill that included those sanctions was voted through congress two days ago. Once the senate adopts the bill, the US administration has 30 days to implement the sanctions. The list is narrower than the severe scenarios that have been put forward since sanctions were tabled in 2019. They never came through thanks to the special relationship between Recep Tayyip Erdogan and Donald Trump. This is about to change with the Biden administration.

Turkey already warned that they will not accept unilateral impositions, and that sanctions would backfire and hurt ties between the two Nato members. We are still in the realm of rhetoric at the moment. But, if the US imposes sanctions, circumstances will change for the EU too. If the US moves first, Europeans may find it easier to stand up against Turkey. 

9 December 2020

How a deal is done

The EU and the UK yesterday wiped away the controversy around the internal market bill in one fell swoop. The agreement between Maroš Šefcovic and Michael Gove is a reminder of how quickly and unexpectedly a breakthrough can happen. It’s best to regard this as a necessary but insufficient precursor to a trade agreement.

For that, we need a lot more. Tonight, Boris Johnson and Ursula von der Leyen will meet for a dinner. We are wary about any news headlines with the word final in them. We are hearing that the two sides are now treating Dec 31 as their deadline, with ratification pushed into the New Year. We do not expect an agreement tonight. Johnson and von der Leyen are no trade negotiators. But they could both send a political signal of renewed willingness to compromise on the outstanding issues: fish and level-playing field, in particular the EU’s demands for unilateral sanctions.

For the EU the issue is the preservation of the single market. For Johnson it will be the appearance of sovereignty. We are fairly certain that he wants a deal but not at any cost, very much as he says. We confidently rule out the two corner options. We don't believe that he has already decided against a deal and is running down the clock. Likewise we don’t believe that he will sign up to any deal. For a deal to happen, both sides will need to compromise. Only when that happens will the two sides enter the final phase of negotiation and start making the trade-offs.

The separate agreement between Šefcovic and Gove at a meeting of the EU-UK joint committee resolves most of the uncertainties regarding the status of Northern Ireland after the end of the transition period: on border controls and entry points, export declarations, and the supply of medicines and food products. There will be lists of criteria for goods deemed not to be at risk, exemptions from state aid rules for agricultural and fish subsidies, a dispute settlement system. EU officials will have access to Northern Ireland, but the EU agrees not to have a permanent office in the province.

In turn the UK drops from its internal market bill the three contentious chapters that breach international law. And it won’t become a repeat offender. The agreement is provisional, and due to be finalised at the next meeting of the joint committee before the end of the year.