2 July 2018

The EU is storing up problems for the future


It was dubbed the “Mother of All EU Summits.”

June’s European Council was hotly anticipated, with discussions scheduled on the next long-term budget, Eurozone reform, and of course Brexit. Other issues crept onto the agenda in the last few weeks – trade wars with The Donald, the Macedonia-Greece row (which seems close to a solution) and sanctions against Putin’s Russia.

And then there’s the ever-present issue of migration, a particular thorn in the side of Angela Merkel, whose coalition partner threatened to bring down the German government unless she got a good deal.

Indeed, migration seemed to be the only topic that really mattered late last week, especially when Italian Prime Minister Giuseppe Conte, making his Council debut, blocked all joint conclusions from being passed before the debate on migration even started. “Nothing is agreed until everything is agreed,” one Italian official said, showing a wry mastery of Brussels-speak.

On this decisive topic, it seemed Europe’s leaders had come to an agreement which keeps everyone happy – and which may have saved Merkel’s skin (though Germany’s coalition battle is still in limbo at this point).

A glance at the summit conclusions, however, and one quickly starts to wonder what was actually agreed upon: as so often with these things, it’s long on warm words and very short indeed on content. There are lots of calls to stop illegal immigration, and “to swiftly explore the concept of regional disembarkation platforms,” i.e. migration camps outside of the EU.  Within the EU, the Council wants “controlled centres, including relocation and resettlement”, all of which is on a voluntary basis. The Council also demanded a strengthening of the EU border force, Frontex.

Questions abound: where should those “disembarkation platforms” be set up? Probably more importantly, how much will those countries be paid for setting them up on their soil? Where will the money come from? What does it mean to have “relocation” of accepted refugees in the EU on a voluntary basis? How will it work, considering the “mandatory” quota system of 2015 completely failed (only two countries have fulfilled their allocation so far and the system has fuelled anti-immigrant sentiment)?

And just how big an increase should Frontex get? Somewhere from 500 to 10,000 employees, according to the Commission’s budget proposal – but then again, you might as well take a guess.

One of the great “successes” for Italy meanwhile was that migrants arriving in Italy will not be deemed Italian refugees but arrivals “in Europe”. What does that actually mean? Search me –  but European leaders seem to think that as long as it makes Conte happy, you can put it in the summit conclusions.

Overall, the Council thinks “a speedy solution” should be found. What does “speedy” mean? Put bluntly, the summit produced far too many questions and far too few concrete proposals. While it is true that this topic does not have any easy answers, as Pieter Cleppe pointed out on CapX last week, one still wonders why European leaders are putting such stock in the “decisions” they have made so far.

Given the dominance of the migration issue , most other topics didn’t even really get a hearing. The news that the name dispute between Greece and Macedonia (or North Macedonia) was close to a solution after decades received no more than kind words in the “Other Issues” section.

The Council did, however, manage to insert a long paragraph on “ensuring fair and effective taxation” and a commitment to more closely at a digital tax – after all tech companies simply don’t pay enough taxes (which is not true).

The Council was unusually concrete when it came to free trade – or rather, its opposition to free trade. While there were the usual bromides about “the importance of preserving and deepening the rules-based multilateral system” and pledging to “continue to negotiate ambitious, balanced and mutually beneficial trade agreements with key partners across the world,” the conclusions also include a “modernisation of trade defence instruments” and the adoption of “screening of foreign direct investments” as soon as possible.

The Council also attacked the US over the Trump administration’s protectionism, while also promising to respond with protectionism (or “rebalancing measures”) of its own. Of course, slapping tariffs on bourbon and blue jeans will only end up hurting poor Kentucky farmers and European consumers, leaving Trump himself largely unscathed.

And there was no real progress on the three areas most people had been gearing up to before the summit.

The next long-term budget, which EU leaders supposedly want to finish before next year’s European Parliament elections, was relegated into the “Other Issues” section, with a quick line saying the “European Council takes note of the package of proposals” made by the Commission.

That’s more than was afford the other two big issues, namely eurozone reform and Brexit, which didn’t even get a mention in the conclusions. Leaving Brexit aside was not too surprising, given that the British government has still not made its own mind up about what it wants. It is a bit unnerving, however, how little the EU-27 seems to care about the approaching departure of one of their biggest member states and the potentially stark economic consequences for Europe.

The sluggish pace of eurozone reforms is even more shocking. For one thing, Germany and France had already agreed to several proposals just a week before the summit in their “Meseburg Declaration,” paving the way for some agreement at Council level. But the opposition, which is becoming ever more confident (and has its own leading figures), seems to have stopped any discussion of reform in its tracks.

The eurozone budget, the cornerstone proposal of Merkel and Macron in Meseburg, was not even mentioned in the Council conclusions. When the Council ended on Friday afternoon, European leaders seemed happy and quite relieved of the job they had done, apparently averting disaster once more. While that might be true, avoiding catastrophe is not a very high bar and major decisions have been kicked even further into the long grass. Yes, an agreement was reached on migration, but it had very little substance. There was also an agreement on free trade, just one that happened to make very little mention of…free trade.

Discussions on reform, the next budget, the eurozone, Macedonia and EU enlargement were all postponed, meaning all of Macron’s best laid plans could turn to ash if “populists” win big in next year’s elections.

Just to add to the toxic brew, the whole Brexit deal now needs to be figured out by the autumn to avoid a no-deal scenario. It seems as if the poor bureaucrats in Brussels have a long, hard summer ahead.

Kai Weiss is a Research and Outreach Officer at the Austrian Economics Center and a board member at the Hayek Institute