Opinion & analysis

Policy Insight | The EU-China Comprehensive Agreement on Investment. An in-depth reading | CEPS

Striking a different note from most commentators on the EU-China Comprehensive Agreement on Investment (CAI), this paper finds that the Agreement does deliver on the EU’s negotiation mandate. It notes that much criticism of the CAI surfaced before the provisional agreement was actually published.

This text-based analysis considers how the Agreement lifts the barriers to market access that European businesses have been confronted with, advances the EU’s WTO reform agenda on a number of procedural requirements in a WTO-plus manner, and locks in the European Union’s values under international commitments on sustainable development.

It does acknowledge, however, that reducing coal dependency will be a challenging undertaking for China, in view of the country’s economic growth plans. And ratifying the ILO Forced Labour Conventions will be a long process due to the legislative changes involved. Even so, both commitments on ‘non-trade issues’ are legally-binding, which is a victory for the EU since such an approach to trade negotiations was inadmissible to China in the past.

As the Agreement does not solve all the trade issues the EU is facing vis-à-vis China, the EU should work with its allies and continue to engage with China to further address a number of WTO ‘structural’ disciplines. Also, since China’s focus is now on basic research and its domestic market, the EU needs to accelerate its own technological advancement.

At the moment, the prospects of the European Parliament endorsing the Agreement look remote, especially following the sanctions China imposed on certain MEPs in March 2021. Sanctioning parliamentarians violates their parliamentary privilege and legal immunity to speak without fear or favour. China should therefore consider lifting these sanctions as soon as possible, as a first step towards relaunching the EU legislative process to ratify the CAI.

Find the full report here

Policy Insight | Criminal Justice, Fundamental Rights and the Rule of Law in the Digital Age | CEPS

Technology has played a crucial role in ensuring the continued functioning of criminal justice at the EU and national level during the Covid-19 emergency. At the same time, the use of (old and new) technologies can profoundly affect the roles, prerogatives and rights of professionals and individuals involved in, or concerned by, the administration and delivery of criminal justice. Verification of the impact that ‘digitalisation of justice’ initiatives can have on all criminal justice stakeholders is therefore necessary to prevent problems for fundamental rights and rule of law.

The High-Level Expert Group (HLEG) on Criminal Justice in the Digital Age has examined how different technologies can affect the functioning of a variety of criminal justice systems, processes and practices at the national and European level. The HLEG’s discussions provided the expert knowledge needed to set out recommendations towards better EU policy and law making in the area of criminal justice in the digital age.

Find the full report here

The EU’s recovery funds should be released when Europe’s economies can reopen | Europp – LSE Blog

Featured image credit: European Council

The Covid-19 vaccine rollout in some EU member states may interact with the effective use of grants and soft loans from the EU’s 672.5 billion euro pandemic recovery fund. Renato Giacon and Corrado Macchiarelli write that with national spending plans for the recovery fund still awaiting approval, the next challenge for policy-makers will be to ensure that funds are released as economies reopen. Special attention will need to be paid to Central and Eastern Europe, where some countries are lagging behind in their vaccine rollout and preparation for their use of the recovery funds. This is likely to be an important test for the EU’s institutions and will help determine the stability of the European project.

Almost a year since the French president Emmanuel Macron and German chancellor Angela Merkel threw their weight behind the idea of the EU Recovery Fund, and nine months after EU leaders agreed to the 750 billion euro (in 2018 prices) Next Generation EU Programme, many EU governments have started to formally submit their national Recovery and Resilience (RR) Plans to the European Commission, with the euro area’s “big four” – Germany, France, Italy and Spain – having all presented their plans well ahead of the Friday 30 April soft submission deadline.

Four out of the five countries previously at the centre stage of the European sovereign debt crisis – Italy, Spain, Greece and Portugal – have so far emerged in a rather positive light with most of their plans receiving initial praise from the European Commission for their high-quality and serious level of ambition in terms of investments and policy reforms. The process will still be relatively long, as the plans will be vetted by both the European Commission and EU member states in the Council, with the earliest date for disbursement not expected to be before the second half of July for most member states. Yet, previous experiences and the ability to implement reforms in front of market and institutional creditors seems to have served many of the Southern European economies well in taking seriously the Commission’s requests to allocate EU funding efficiently.

While the approval process of the EU funds might appear cumbersome, especially when compared to the US fiscal package approved in the early days of Joe Biden’s presidency in March, such protracted planning could well represent serendipitous timing which could match the longer than expected European pandemic recession. With most EU countries experiencing a technical recession between the fourth quarter of 2020 and the first quarter of 2021, the summer deadline could mean EU Recovery and Resilience Facility (RRF) disbursements might coincide with the reopening of some EU economies. Overall, this could play out well, as rebounding economies could get a breath of fresh air from EU funds just when vaccinations are ramped-up in meaningful proportions, allowing for an efficient and timely use of the European fiscal resources. These interactions might contribute to building-up private investors’ trust in the EU and national governments’ institutional efficiency and help the return of free and unfettered mobility of people, especially for those EU member states most dependent on tourism receipts.

The recovery fund’s initial disbursements

The road ahead is still long with several key milestones creating potential hurdles for the rollout of the Recovery and Resilience Facility funds. First, eight EU countries – Austria, Estonia, Finland, Hungary, Ireland, the Netherlands, Poland and Romania – have yet to ratify the EU’s so-called ‘Own Resources Decision’ (ORD). The ORD’s entry into force requires approval by all EU member states according to their constitutional requirements to make it possible for the European Commission to be legally authorised to borrow up to 800 billion euros (in current prices) on capital markets until the end of 2026.

Second, there is the submission and approval of Recovery and Resilience Plans. By mid-May 2021, 17 EU governments had submitted their investment and reform proposals to access their allocation of funds. This represents around 88% of the available Recovery and Resilience Facility grants as most EU countries receiving the largest amounts of grants have already applied, apart from Romania. The European Commission will take two months to vet the plans, particularly as they will need to fulfil targets for green and digital investments, as well as show commitment to a sufficient number of structural reforms.

Finally, there is peer scrutiny. Once the Commission approves the Recovery and Resilience Plans, it will make a funding proposal to the Council; national governments will then have up to one month to pass judgement on their peers, with political pressure likely to build especially on the net recipients. Therefore, it might be late in the summer before the money starts to effectively flow into national economies.

However, the large amounts involved, and previous experiences with inefficient absorption of EU funding in the member states, justifies the Commission’s insistence on structural and long-term targets, such as productive digital and green investments, which extend to the adoption of economic and administrative reforms. In fact, as the majority of EU member states can already borrow at historically low rates on capital markets, the goal of Next Generation EU appears to be increasingly more focused on raising potential growth, improving long-term fiscal sustainability, and helping economic convergence across the EU/euro area, rather than achieving short-term fiscal stabilisation. This is particularly significant in helping the discussions on debt mutualisation in the euro-area, by moving the goalposts from legacy debt to new investment.

The Commission has foreseen that an initial fiscal transfer of up to 13% of the entire Recovery and Resilience Facility allocation can be disbursed to each member state immediately in the form of non-refundable grants, after the Commission and Council formally validate and approve Recovery and Resilience Plans. This means that, in order to remain within the recovery fund’s pre-financing financial envelope, only a limited number of countries will be given the final go-ahead between the second half of July and September 2021, with Greece widely expected to be the frontrunner.

As a matter of fact, the Commission could find it difficult to transfer the first tranche of the funds to all member states on schedule, as most of the plans are expected to be approved simultaneously. There will be limited capacity for the Commission to borrow from the markets the roughly 45 billion euros that would be needed to cover the 13% of pre-financing for the Recovery and Resilience Facility non-refundable grants. Based on the available estimates, the Commission could raise only between 15 and 20 billion euros a month to finance the Recovery and Resilience Facility and it is increasingly likely that a larger second batch of EU member states might be left high and dry until the end of the year, experiencing the double whammy of delayed vaccination supplies and European fiscal resources.

Serendipity or a missed chance?

After a first, deep, recession in the first half of 2020, the National Institute of Economic and Social Research (NIESR) figures recently published show that the euro area is not forecast to return to pre-pandemic levels until late 2022. The weight of a third wave of infections and supply-side problems in accessing the vaccines have left most EU economies lagging behind some large trading partners, such as China and the US.

However, leading indicators, such as IHS Markit’s final PMI readings for the euro area, give hope the current recession may not extend beyond the current quarter, with the PMI index rising to the highest level since 1997, climbing to 62.9 in April 2021. The accelerating pace of vaccinations across Europe and signs that the last wave of Covid-19 infections appears to have peaked already are fuelling hopes of a demand-driven economic rebound in the second quarter of this year and especially after the summer, when the initial Recovery and Resilience Facility funds are expected to be disbursed for some countries.

Based on current vaccines rollout trends in the EU and the daily average vaccine rates between January and May for individual countries, we have obtained figure estimates for the expected population coverage at both the end of September and the end of December 2021; the figures we obtained are broadly consistent with Bloomberg projections.

In the majority of EU member states the vaccine roll-out will be above 75% of the total population already by the end of September 2021, i.e., when the first Recovery and Resilience Facility tranche is expected to be disbursed by the Commission, while several Cohesion Countries in Central and Eastern Europe, i.e. Bulgaria, Croatia, Czech Republic, Estonia, Latvia and Romania are currently at risk of lagging behind.

Looking ahead towards the end of 2021, at current vaccination rates, only Bulgaria and Ireland will remain below the 75% threshold, with most EU member states reaching 100% vaccination rates (Figure 1). This allows us to assess which EU member states will be able to fully benefit from the first disbursement of EU funding as the vaccine rollout advances.

Figure 1: Projection as of 17 May 2021 of percentage of vaccinated population by EU member state by end of September and end of December 2021

Source: Authors’ elaboration based on Bloomberg Covid-19 Vaccine Tracker. Accessed on 17 May 2021

Table 1 below reports the Recovery and Resilience Facility funds disbursements’ estimates, partitioned by grants and loans, together with the estimated months needed to achieve the 75% of total population covered by Covid-19 vaccines, which – according to top infectious-disease officials – is the threshold to enable a return to normalcy.

Table 1: Recovery and Resilience Facility allocation, Recovery and Resilience Plan submission, and vaccine coverage

Sources: Authors’ elaboration based on Bloomberg Covid-19 Vaccine Tracker and European Commission

The expectation is that the Commission’s decision on which EU member states will receive the Recovery and Resilience Facility funds first will be based on merit, which include both the timing of the submission and therefore approval of the Recovery Plans as well as their compliance with the 11 criteria set out in the Recovery and Resilience Facility Regulation, including first and foremost the green and digital targets.

As shown in Table 1, Austria, Belgium, Denmark, France, Germany, Greece, Hungary, Italy, Lithuania, Luxembourg, Poland, Portugal, Slovenia and Spain are moving ahead both in terms of their vaccine rollouts – as of 17 May 2021 they are no more than five months away from the target of 75% vaccine coverage of their entire population – as well as in setting out their key priorities with the early submission of their respective Recovery and Resilience Plans. This in turn is likely to set in motion the disbursement of the 13% pre-financing as early as the end of the third quarter of 2021. Of these, only Italy, Greece, Poland, Portugal and Slovenia are expected to take advantage of the full firepower of the Recovery and Resilience Facility recovery package, by requesting loans to top up the existing grant allocation. This might change as member states, such as Spain, might still consider applying for Recovery and Resilience Facility loans until the ultimate deadline of August 2023.

On the other hand, of the 10 Member States that have not yet submitted their Recovery and Resilience Plans, Bulgaria, Czech Republic, Finland, Estonia, Ireland and Romania are also lagging behind in terms of their vaccine rollouts. Not only will this impact the ability for their economies to quickly rebound, but the situation could also jeopardise the timeframe for disbursement of the 13% pre-financing well beyond the third quarter of 2021.

Conclusion

To conclude, the evidence suggests that the summer 2021 timing of the EU recovery fund’s initial disbursements – provided that the submitted national plans are approved within the expected timeline and that the ORD is ratified in all EU member states – is likely to coincide in a serendipitous, and not entirely planned, manner with the reopening of most EU economies thanks to the recent European vaccine roll-out take-off, boding well for an efficient and timely use of European fiscal resources.

If Italy, Spain, Greece, and Portugal had created the biggest concerns to the markets and European policy-makers at the time of the European sovereign debt crisis, the same countries of Southern Europe could this time lead by example in the EU. This is true not only in terms of their recent ramp-up of the vaccine roll-out but especially in taking seriously the Commission’s requests to allocate EU funding towards the green and digital priorities of the future, while providing full details of the requested reform programmes.

While much of the focus throughout the Covid-19 pandemic and the EU vaccine rollout has been on Western Europe, little attention has been paid to Central and Eastern Europe, where the picture is more nuanced, with some countries in the region still lagging behind when it comes to either the national delivery of the EU vaccine rollout and/or the EU recovery fund’s preparedness.

After the Covid-19 pandemic, Europe must look East, and not just South. This will be an important test for the EU’s institutions, not only for the significant and necessary transformations in terms of structural reforms, climate and digital transitions, but first and foremost for the political implications for the stability of the European project as a whole.

How differentiated politicisation affects voting behaviour in the Council of the European Union | Europp – LSE Blog

Featured image credit: European Council

Decision-making in the Council of the European Union has long been characterised by a depoliticised consensus culture. Yet, as Brigitte Pircher explains, this has changed in the wake of multiple crises and increased politicisation of the integration process. Drawing on a new study, she illustrates how different facets of politicisation are uploaded from the member states to the EU level and subsequently affect governments’ voting behaviour in the Council.

The EU has been challenged and transformed by multiple crises throughout the last decade. First, member states have been asymmetrically exposed to economic stress, which has increased economic tensions and disparities among the member states. Second, the crises have enhanced politicisation in the member states, which places pressure on governments to adjust their policy positions at the EU level.

Scholars have previously identified geographical, ideological, and economic factors as pivotal drivers for governments’ position taking and voting in the Council of the European Union. A general assumption in many of these studies is that governments in the Council act largely insulated from domestic party politics and electoral pressure.

However, as these studies focus on the pre-Lisbon period, they do not account for the impact of the multiple crises that have occurred since – the financial, economic, Eurozone and asylum crises – or the increased politicisation of EU policymaking. In a new study co-authored with Mike Farjam, we focus on Council voting during the post-Lisbon era and take these recent political developments into account to explain governments’ voting behaviour.

Facets of politicisation

Politicisation can be conceptualised as a multi-faceted process where an issue (European integration) grows in saliency, while actors’ positions on this issue become increasingly polarised. Previous studies ascertained that Council voting reflects governments’ responsiveness to their domestic electorate. Therefore, we theorise that the growing Euroscepticism in the EU’s member states – which is either directly expressed by public opinion or channelled through political parties – is also key to understanding how governments vote in the Council.

We further argue that the left-right positions of national parties – both in government or opposition – as well as the growing polarisation between parties, such as increased party system fragmentation, shape Council voting. Moreover, we suggest that the effects of politicisation on voting in the Council are more pronounced in policy areas that were especially challenged by the recent crises – that is, in policy areas pertaining to economic and financial affairs, the internal market, and justice and home affairs.

We combine a new dataset comprising all member states’ votes on legislative acts in the Council between 2010 and 2019 with national-level data. To test the hypotheses, we use mixed-effect logistic regression and model government voting behaviour as a function of, among other things, party system fragmentation within the parliament, Euroscepticism separately for national governments and parliamentary oppositions, and a left-right wing positional score (RILE and RILE square), also separately for government and opposition. While RILE and Euroscepticism are based on the Manifesto Project Dataset (CPM), the variable party system fragmentation is based on the Comparative Political Data Set (CPDS).

Oppositional voting in the Council of the EU post-Lisbon

We find that 36% of all legislative acts were contested by at least one member state after Lisbon, which is a stark increase compared to previous studies. Most contestation occurred in relation to the environment and in our ‘others’ category. This was followed by the internal market; transport, telecommunications and energy; agriculture and fisheries; and, justice and home affairs. We observe the lowest level of contestation in economic and financial affairs. The United Kingdom was by far the member state that most often expressed opposition (votes against and abstentions) in all policy areas except for the environment, where oppositional voting primarily stemmed from Bulgaria, Hungary, and Poland.

Table 1: Opposition and contestation in the most frequently contested policy areas

In our cluster analysis, shown in Figure 1 below, we found a stable cluster of countries that most frequently opposed together in the Council, including the UK, Ireland, and Denmark. While Germany’s oppositional voting was relatively independent of other countries before 2015, it tended to align with the Netherlands, Belgium, and Austria from 2015 onwards. Lastly, and most importantly, after the 2015 refugee crisis, a new cluster of oppositional votes developed among the Visegrád Group.

Figure 1: Clusters of oppositional voting in the Council of the European Union

Note: Clusters are coded in colours. Countries’ positions in the figure correspond to their geo-centroids. The size of the circle surrounding a country indicates the frequency with which it opposed in the Council. Clusters were computed through a hierarchical cluster analysis.

The impact of politicisation on Council voting

We find that domestic national party politics, either directly driven by governments or indirectly channelled through opposition parties, substantially affects voting in the Council. While governments generally became more Eurosceptic in the post-Lisbon era, the impact of this on oppositional voting is only apparent in agriculture and fisheries, economic and financial affairs, and the internal market.

In contrast, in the areas of justice and home affairs and the environment, only the Euroscepticism of opposition parties has an impact on the voting behaviour of governments. This suggests that Eurosceptic opposition parties exert pressure on governments, who subsequently adjust their positions in the Council. In the context of the refugee crisis, and due to increased relevance of environmental topics, one may also interpret this as evidence for governments’ strategic voting behaviour to prevent future electoral losses to opposition parties.

Voting in the Council is, further, primarily driven by government and opposition parties with a centrist position on the left-right scale. This is plausibly traced back to the fact that the main opposers of the EU, radical right parties, tend to take a centrist position on economic issues. The position of governments on the left-right dimension only predicts voting in economic and financial affairs and the internal market. In contrast, opposition parties’ left-right positioning predicts voting in agriculture and fisheries; transport, telecommunications and energy; and our ‘others’ category. We, therefore, again find evidence that governments adjust their positions in the Council as a response to their national opposition.

Overall, governments are the main driver for position-taking at the EU level in the areas of economic and financial affairs and the internal market, whereas all other policy areas (except for agriculture and fisheries) are left to the national opposition and indirectly impact governments’ voting. Taken together, we find strong evidence for differentiated politicisation where ideological standpoints of political parties in government and opposition differently affect voting in the various policy areas. This may result in increased differentiated integration. Further research should, therefore, address the question of how EU politicisation transforms domestic political conflicts and how these conflicts are integrated into EU policy-making.

Setting Europe’s economic recovery in motion: a first look at national plans | Bruegel

Plans for spending European Union recovery funds submitted by the four largest EU countries reflect rather different priorities. So far, only Italy is interested in borrowing from the EU.

European Union countries are starting to set out how they plan to spend money from Next Generation EU (NGEU), the EU’s landmark instrument for recovery from the coronavirus pandemic. In late April, countries began submitting their recovery and resilience plans. A first quick analysis shows that the plans of the four largest EU countries, France, Germany, Italy and Spain, reflect rather different priorities, even if all meet the minimum expenditure benchmarks of 37% for climate and 20% for digitalisation.

Let’s briefly clarify what plans have been submitted. The total funding envelope for NGEU amounts to €750 billion at 2018 prices or €795 billion at current prices. NGEU includes seven instruments, of which the largest is the Recovery and Resilience Facility (RRF). This is composed of grants amounting to €312.5 billion at 2018 prices or €337 billion at current prices, and loans amounting to €360 billion at 2018 prices or €390 billion at current prices. Most recovery plans relate to RRF only, but in Italy’s plan, ReactEU (another component of NGEU) is also included. Italy also includes some extra spending from national resources in its plan. Here, we focus on spending financed by NGEU. It should be noted we do not examine whether spending plans constitute new spending, or also cover spending that was planned before the pandemic.

Of the four countries, only Italy’s plan envisages borrowing under the RRF and thus the Italian plan amounts to a much larger value (€205 billion = €69 billion RRF grants + €14 billion ReactEU grants + €123 billion RRF loans) than, for example, the Spanish plan, which amounts to €69 billion in RRF grants only. Nevertheless, the Spanish plan indicates the country might apply for RRF loans in the future.

The plans have rather diverse structures, which makes their comparison difficult. In particular, the four largest EU countries categorise differently the various spending priorities. On the green and digital components of sub-headings, France and Germany present precise numbers, Spain reports qualitative information, while Italy has a separate digitalisation and two green categories, but does not report whether other categories, such as education and health, have digital or green components. Nevertheless, all countries report the overall shares of green and digital spending. It would have been advisable to use a common template for classifying and reporting various spending categories and their green and digital components.

Thus, we can reasonably compare the overall shares of planned green and digital spending, while grouping all non-green and non-digital spending into a single group (Figure 1).

Germany plans to spend more than half of the EU money it will receive on digitalisation, while the other three countries will spend a quarter or less. In terms of euro values to be spent on digital priorities, Italy plans to spend the most at €42 billion, followed by Spain (€16 billion), Germany (€15 billion) and France (€10 billion).

France plans to spend half of its share of the EU money on green priorities, while the other three countries will spend around 40%. In terms of euro values to be spent on green priorities, Italy plans to spend the most at €86 billion, followed by Spain (€31 billion), France (€21 billion) and Germany (€11 billion).

Figure 1: Overall resource allocation in national plans

The sub-components of the plans also vary. The German plan includes little funding for non-climate and non-digital related policy areas, possibly because Germany is expected to receive the lowest amount in euros. The plans of the other three countries are much more diversified, and include policy priorities such as social inclusion, education, research, health, and even culture and sports in the case of Spain.

Table 1a: Components of the French plan

Table 1b: Components of the German plan

Table 1c: Components of the Italian plan

Table 1d: Components of the Spanish plan

Significant differences between plans can also be seen in their main spending item: climate. The plans set out similar priorities in this area, featuring, in order of importance, green infrastructure and mobility, green energy and buildings energy efficiency. But specific action plans differ significantly (Figure 2).

For instance, possibly because it receives the lowest amount in euros, Germany’s green infrastructure and mobility investments are entirely focused on the development of electric mobility, with incentives to foster the deployment of electric cars, buses and rail vehicles, and a push to develop electric car charging infrastructure. In Spain, starting from a larger euro amount, the plan foresees investments in the development of electric mobility, but also in public transport. Meanwhile, in both France and Italy, half of the investment focuses on the development of the railway system. In France, the focus is rail network modernisation and further development of rail freight and local lines. In Italy the development of high-speed trains is prioritised.

Green energy investments are also structured differently. Probably as a result of the same funding limitation, Germany focuses strongly on the development of a hydrogen economy, through a variety of instruments ranging from research funding to carbon contracts for differences to scale-up deployment. France also plans investment in decarbonised hydrogen, alongside aeronautics support projects and support for the development of key markets for green technology. Italy and Spain – also thanks to the larger resources available to them – plan sizeable investments in renewable energy and smart grids, in addition to support for hydrogen projects.

While investments in buildings energy efficiency follow a similar approach, concentrated on the renovation of both private and public buildings, Italy plans significant investment in climate change adaptation, while France gives greater attention to territorial cohesion in the context of adaptation.

Figure 2: The green components of national plans

We will build on this quick comparison of the plans of four EU countries with a Bruegel dataset covering all the plans. Stay tuned!

We thank Marta Dominguez and Mia Hoffmann for their help with the Spanish and German data.

Recommended citation:

Darvas, Z. and S. Tagliapietra (2021) ‘Setting Europe’s economic recovery in motion: a first look at national plans’, Bruegel Blog, 29 April

Policy Insight | Steering and Monitoring the Recovery and Resilience Plans | CEPS

This paper provides an extensive account of the procedures and rules of the Recovery and Resilience Facility.

It analyses the European Commission’s guidance and offers insights into how the process is being steered and how the implementation of the NRRPs will be monitored. The aim is to highlight not only the opportunities, but also the pitfalls of the RRF governance system. We find a number of difficulties on which member states and the European Commission should focus. A major risk is getting lost in administrative procedures and taxonomy exercises, and neglecting the fundamental pillar for a successful recovery, namely structural reforms that have a direct and lasting impact on the stability and resilience of the European economies and that are in line with EU priorities.

Find the full publication here

Policy Insight | Study on the Non-Financial Reporting Directive | CEPS

This report provides data analysis as part of the ongoing monitoring of implementation of the Non-Financial Reporting Directive (NFRD). The study analysed data on more than 17 million companies, gathered survey responses from more than 200 companies and conducted interviews with over 60 stakeholders.

Among the main findings is that there are about 2 000 companies (excluding exempted subsidiaries) in the EU27 that come within the scope of the NFRD. In practice, approximately 10 000 additional companies (excluding exempted subsidiaries) are obliged to prepare nonfinancial statements based on a broader transposition of the Accounting Directive and NFRD into national legislation. A further estimated 9 000 other public interest entities (PIEs) and large non-PIEs report without a legal requirement. The recurring administrative costs for providing non-financial statements under the NFRD are on average EUR 82 000 per year, of which about 40% can be fully attributed to the legal requirements. These costs depend, among other factors, on company size and sector, level of assurance, comprehensiveness and type of reporting. In addition, about two-thirds of the companies surveyed incur assurance costs, which amount to EUR 76 000 per year on average.

This is the final report of the “Study on the Non-Financial Reporting Directive” for the Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA).

Find the full report here

 

CEPS authors: Willem Pieter de Groen, Cinzia Alcidi, Felice Simonelli, Alexandra Campmas, Mattia di Salvo, Roberto Musmeci, Inna Oliinyk and Silvia Tadi.

Can the German Greens benefit from a Merkel-less CDU? | Europp – LSE Blog

Featured image credit: Bündnis 90/Die Grünen Nordrhein-Westfalen (CC BY-SA 2.0)

The German Greens have selected Annalena Baerbock as their candidate for German chancellor ahead of the country’s federal elections in September. Marco Bitschnau writes that with the ruling CDU plagued by scandals and internal divisions, there is now a viable chance that Baerbock could lead the next government.

On 14 March, the German Greens (shorthand for Bündnis 90/Die Grünen) celebrated what was arguably their greatest ever success. In the federal state of Baden-Württemberg, best known for picturesque Black Forest villages, powerful car manufacturers, and a notoriously Pietist-conservative population, they not only became the strongest party again with a record result of 32.6%, but also surpassed Angela Merkel’s CDU (their junior coalition partner since 2016) by a margin of 8.5 percentage points. It was nothing less than a show of strength – and another humiliation for the CDU in its traditional southwestern stronghold. The party that has led all state governments between 1953 and 2011 was once again forced to concede defeat to an opponent they had long refused to take seriously enough.

Ups and downs

There are many reasons why the Greens prevailed in the South. One is their incumbent Minister-President Winfried Kretschmann, a popular 72-year-old former teacher who was swept to power by the Fukushima Daiichi nuclear disaster ten years ago. A member of the Maoist Communist League of West Germany in his youth, Kretschmann, with his distinctively Swabian accent and grandfatherly appearance, has turned into the poster boy of a new Green pragmatism that is unafraid of reaching across the ideological aisle.

It is this pragmatism that has grown increasingly attractive to a centrist electorate otherwise favouring the CDU or the liberal FDP, and that has led the Greens into coalitions with both. In recent years, they have agreed to such alliances in the federal states of Hesse and Schleswig-Holstein, leaving no doubt that they want to emancipate themselves from the rigid bloc logic (CDU-FDP vs SPD-Greens) that has defined German party politics for most of the post-war era.

This emancipation was in large part enabled by the SPD’s Babylonian captivity in an unpopular grand coalition and the fallout from the climate crisis. Particularly the impact of the latter cannot be overstated: whereas the Greens were polling around 11% in June 2018, they rose to an all-time high of 27% during the climate protests the summer thereafter.

They are peaking too early, many political observers feared, and the outbreak of the Covid-19 pandemic in February 2020 seemed to prove them right. Once the virus had tightened its grip on Europe, it soon became evident that this was a crisis benefitting the governing parties – just like other crises that the public experiences as immediate, instantaneous, and unanticipated, it engendered a rally around the flag effect of considerable proportions. Likewise, it became evident that global warming, as important as it may be in principle, cannot compete for attention during a once-in-a-lifetime pandemic. For the Greens, this meant falling poll numbers at a time when they were hoping to establish a new pecking order within the German centre-left.

Coalition games

They eventually recovered a little and now once again poll ahead of the SPD by a few percentage points (e.g., 7% at Kantar, 5% at GMS and 3.5% at Allensbach in recent polls). Yet the situation remains rather volatile, and party strategists are planning for different scenarios come September. The single most likely scenario is a narrow CDU/CSU victory in conjunction with a strong Green performance, followed by a Black-Green coalition that would focus on enacting bolder climate policies and continue the Merkelian project of gradual modernisation. This is the outcome expected by most but not preferred by all.

Especially the leftist wing of the Greens, mostly located in the Northern and Eastern states, is still beating the drum for a so called ‘Red-Red-Green’ or ‘Green-Red-Red’ coalition with the SPD and the socialist Left (Die Linke). And a ‘traffic light coalition’, where the Left would be swapped for the FDP, is also considered an increasingly realistic alternative. Both of these options have their advantages in theory (as they would leave the Greens leading the government) but would possibly rely on razor-thin majorities and entail a range of secondary complications. The Left’s reliability and willingness to compromise has been repeatedly doubted, and the FDP could feel outnumbered and pushed aside by two larger centre-left coalition partners.

Other post-election scenarios are scarce, the most obvious being the continuation of the grand coalition. In theory, both parties would have good reasons to at least consider this possibility: by maintaining the status quo, the CDU could calm troubled waters and the SPD avoid the loss of cabinet representation (and thus relevance). However, at this point, such arguments seem in vain – the end of the grand coalition is widely regarded as a fait accompli, and it would require a lot to change this view.

Neither the respective party bases nor the public would be likely to accept a more of the same message after substantial election losses. But since all other options are either modifications of the grand coalition (e.g., CDU-SPD-FDP) or have been ruled out emphatically (e.g., CDU-FDP-AfD), it still remains the most realistic alternative to Green government participation. Put differently, even the most probable coalition without the Greens is exceedingly improbable. All they need to do is avoid mistakes and seize the moment on Election Day.

Eyes on the chancellery

Yet, before this, they had to answer one essential question: who their candidate for chancellor would be. This is not a formal position, as the chancellor is elected by parliament and MPs are under no obligation to cast their (secret) ballots for their party’s nominee. But the expectation that the person selected as the candidate will lead the government if a majority can be secured is hardly ever contested.

Most often, the honour of being chosen falls to the respective party leader, but exceptions to this rule are not uncommon. A prominent example in 2021 is the SPD, who have announced vice-chancellor Olaf Scholz as their candidate, giving him preference over co-leaders Saskia Esken and Norbert Walter-Borjans. The CDU came close to following suit by sidelining newly elected leader Armin Laschet in favour of the more prolific, popular, and ambitious Markus Söder (leader of the CSU). However, the party ultimately backed Laschet in a vote on 20 April.

In any case, Merkel’s successor will face a tough campaign, for the departure of the successful four-term chancellor bears severe electoral risks for the CDU. With her statesmanlike appearance and unpretentious style, Merkel attracted many who would probably not have voted for her party on ideological grounds alone – and who could now reconsider their choice. The fickle loyalty of these Wechselwähler*innen may have provided the Greens with additional motivation to field their own chancellor candidate for the first time in history.

On 19 April, they announced co-party leader Annalena Baerbock, a political scientist, international lawyer, and expert on climate policy, as their candidate. To many casual observers, the decision to select Baerbock came as a surprise – they had expected the nomination of her fellow party leader Robert Habeck instead. A professional writer with a PhD in literature studies, Habeck served for more than eight years in the state government of Schleswig-Holstein, which provided him, in addition to greater name recognition, with valuable governing experience that Baerbock lacked. But, in the end, the 40-year-old mother of two proved that massive intra-party support and strong political instincts can be more important qualities.

Not that Baerbock and Habeck are that different. Both represent an adaptive and refreshingly non-ideological style that contrasts with the intransigency of the post-Schröder years. And both are aware of their historical opportunity to replace the SPD as Germany’s foremost centre-left force and possibly even win the chancellorship by appealing to the centrist voters the CDU needs to retain at all costs. This does not mean that traditional Green politics will be neglected, but rather that the ongoing transformation from an ecologist niche party into a proper Volkspartei has to be adequately reflected on the campaign trail.

The Greens have a strong hand, and if they play it right, they could make history in September. No doubt the CDU is aware of this, as its reaction has proven to be increasingly erratic. Plagued by a series of corruption scandals, lacking orientation, and facing the most dangerous challenger in more than fifteen years, one can easily imagine its quarrelling leadership nervously glancing at the (prophetic?) lines of Emily Dickinson, who once wrote that ‘the colour of the grave is green – the outer grave – I mean…’

Populism and Covid-19 in Europe: What we learned from the first wave of the pandemic | Europp – LSE Blog

Featured image credit: Rassemblement National

Populist parties are often assumed to benefit electorally from major crises. Yet as Giuliano Bobba and Nicolas Hubé explain, populist actors have found it difficult to politicise the crisis brought on by the Covid-19 pandemic. Drawing on a new book covering the first wave of the pandemic in Europe, they identify several lessons concerning the effect of crises on the electoral appeal of populist parties.

Several authors agree that crisis situations are a precondition for the emergence and success of populists, or at least that they can favour them. While the impact of Covid-19 has not been the same around the world, in many countries the pandemic has been the biggest health, economic and social crisis since World War II.

Given the peculiar nature of the crisis, however, it is not obvious how populists can take advantage of it. Like other catastrophes or natural events, Covid-19 is difficult to politicise, that is, to become an arena for political confrontation between parties with traditional divides (us vs. others; elites vs. people), at least in its early stages.

In a new book, we have brought together contributions covering eight European countries that were affected in different ways by the pandemic (the Czech Republic, France, Germany, Hungary, Italy, Poland, Spain and the UK). Our study presents a comprehensive comparison of how populist parties in each of these countries responded to the first wave.

Table 1: Impact of the first wave of Covid-19 infections in selected European countries

Note: The table includes figures from the start of the outbreak until 10 June 2020. Source: European Centre for Disease Prevention and Control

While populists sought to take advantage of the crisis, the impossibility of taking ownership of the Covid-19 issue has made it difficult to exploit the pandemic politically. In particular, populists in power have tried to depoliticise the pandemic, whereas radical right-populists in opposition have tried to politicise the crisis, but have largely failed to gain substantial public support. In what follows, we outline what we have learned so far and what we could expect in the next future.

Populists did not gain support during the pandemic

In terms of political support, as measured by voting intentions, populists have not significantly benefited from the crisis (Table 2). This is evident both in the short term, after the first wave (end of May 2020), and in the medium term (end of March 2021).

Table 2: Voting intentions for populist parties during the Covid-19 pandemic

Source: Politico – Poll of Polls

Although the success of populism is often interpreted as the result of an external crisis (i.e., economic, financial, political, migration, traditional values), this general pattern does not work when applied to the Covid-19 crisis. The peculiar nature of the crisis, as well as the implementation of similar policy solutions across European states, has largely prevented populists from using their usual proposals and rhetoric to gain centrality in the political arena and public support.

Left-wing and right-wing populists reacted differently

Our research found evidence that right-wing and left-wing populist parties reacted in different ways to the crisis. On the one hand, right-wing populism has identified new lines of conflict: an intensified emphasis on nationalism (and neo-natalism), and the (resulting) opposition of ‘we, the national people’, not only against the EU but also against some other member states. These findings confirm that even during the pandemic, right-wing populism is strictly intertwined with Euroscepticism.

Right-wing populist parties have been prevented from using their traditional appeal to the people as a basis for support and have instead emphasised the handling of migration issues. While in the Czech Republic, Germany, Hungary, Poland, Spain and the UK this included requests to close borders to reduce the risk of contagion from abroad, in France and Italy two right-wing populist leaders, Marine Le Pen and Matteo Salvini, accused governments of taking care of migrants instead of focusing only on nationals. On the other hand, left-wing parties (Podemos, La France Insoumise, and to a certain extent the Five Star Movement) did not use this kind of discourse. During the crisis, they were more focused on denouncing the lack of public investment in national health-care systems and the disastrous consequences of years of EU neoliberalism.

Being a populist in power or in opposition matters

Whether populist parties were in power or in opposition appears to have structured their discourse on Covid-19. Opposition parties attempted to politicise the pandemic at the end of the first wave, primarily blaming parties in power for their handling of the crisis, though with only partial success. No populist party attempted to politicise the pandemic in the manner Donald Trump did, by questioning the origin of the virus. The more marginal parties such as the Brexit Party, Vox, the AfD, and Konfederacja, have clearly radicalised their discourse based on nationalist, protectionist, and neo-nationalist agendas.

In contrast, parties aspiring to govern, such as the Rassemblement National, La France Insoumise, and Lega, have been much more cautious, focusing mainly on alleged government incompetence. On the other hand, the governing parties have tried to depoliticise the crisis using technical and scientific arguments and following the recommendations of national experts. For them, the crisis was an excellent opportunity to show their political competence, managerial skills and dedication to the people. A typical case is the Czech Prime Minister, Andrej Babiš, who emphasised his ability to govern the country through the crisis with the same success that he had achieved in managing his businesses in the past.

Again, a difference seems to have emerged between the left-wing and right-wing populists in power. Podemos in Spain and the Five Star Movement in Italy, as members of coalition governments, have based their political action on the advice of scientific and technical committees, while emphasising the need for more public investment in health care. At the opposite end of the spectrum, right-wing populists in power in the Czech Republic, Poland, and Hungary have primarily used scientific arguments to justify their political decisions, emphasising their leader’s ability to make informed decisions solely on the basis of the authority of their political leadership.

Populists as ‘crisis entrepreneurs’

While populist actors often operate as ‘crisis entrepreneurs’, most of them have been unable to exploit the pandemic. Evidence suggests that populists benefit more from a situation of continual complaint against new contradictions than from the actual outbreak of a crisis such as Covid-19, or, worse still, from a solution to it, such as Brexit in the case of UKIP.

As crisis entrepreneurs, populist strive to fuel a permanent crisis cycle. This is, in fact, the condition that allows them to take full advantage of crises in terms of political centrality and voter support. Of course, as already mentioned, not all crises are the same. Populists take ownership of the contradictions that best suit their view of society. The quest for this crisis ownership is what feeds the continuous process of naming, blaming, and claiming of systemic contradictions that populists implement as a political strategy.

The pattern typically begins with the emergence of a political contradiction, triggered by populists. The next step is for this contradiction to be publicly recognised as a relevant problem, before being exploited by populist politicians, who then push it toward becoming an actual crisis. Finally, populists do not limit their focus to a single contradiction, but instead trigger this cycle for all contradictions they identify at a given time. The initial phase is when populists can benefit the most from a crisis while in the final phase, the climax, the contradiction finds a solution or a compromise that weakens the issue.

During the pandemic, all political actors suddenly found themselves in the final phase, where a crisis had broken out and a solution had to be found. This is the worst condition for populists because citizens perceive problems as real or experience them directly. Political responses must be rapidly implemented. At these critical junctures, disputes and polarisation often leave room for forms of political collaboration or non-hostile, tacit agreement in the name of national solidarity. However, as soon as this state of emergency ends, populists begin to implement the permanent crisis strategy again, fostering the emergence of new contradictions. This is exactly what happened in the eight countries we analysed between February and May 2020.

From the Covid-19 crisis to multiple crises: a new breeding ground for European populism?

In our view, crises per se do not necessarily favour populism. On the contrary, it is populists who fuel a ‘permanent crisis cycle’ that consists of a continuous search for ‘crisis ownership’ around stable or emerging political contradictions. The Covid-19 pandemic is an interesting case where populists were not able to obtain this kind of ownership at an early stage of the crisis. However, the consequences of the management of the pandemic – in health, economic and social terms – are multiplying critical situations that could lead to real crises in the coming months.

As we all know, unfortunately, the health crisis is far from over or under control. Covid-19 has entered the political routine and governments are oscillating between economic, public health, and preventive policy measures. Once in the coming months the first vaccination campaign is over, the situation will evolve to a new standard – far different from the previous one – in which the political struggle will take place and people will have to live. This normalisation of the Covid-19 crisis is likely to give opposition parties more opportunities to politicise the policies implemented by governments and possibly take advantage of the crisis. Populists in power and in opposition, therefore, will face opposite challenges, the outcome of which will determine the characteristics of European populism in the post-Covid-19 age.

For more information, see the authors’ accompanying book, Populism and the Politicization of the COVID-19 Crisis in Europe (Palgrave Macmillan, 2021)

Policy Insight | The power surplus. Brussels calling, legal empathy and the trade-regulation nexus | CEPS

The EU may not be a superpower but it holds a ‘power surplus’ when it comes to the trade-regulatory nexus. The strategic challenges posed by the deployment of this power surplus are the subject of this paper, which argues that in order to be a responsible regulatory power and positively influence the multilateral agenda, the EU needs to develop a coherent overall approach to the external dimension of its regulatory policies.

In this spirit, and in most cases, the EU would be ill advised to project itself as a model or to seek to ‘weaponise’ its regulatory powers in pursuit of unrelated foreign policy goals. Instead, it should wield this power to enhance the regulatory compatibility between its own and others’ jurisdictions through cooperation rather than relying on the passive market-based influence of the so-called Brussels effect. This is simply a way to be faithful to its core defining philosophy of legal empathy.

The CEPS Policy Insight by authors Ignacio Garcia Bercero and Kalypso Nicolaïdis offers a typology of different forms of external EU regulatory impact, a discussion of the risks of either underuse or overuse of the regulatory power surplus, and considers the ‘good global governance’ model implied by a principled geopolitical role. It moves on to discuss a unifying conceptual framework to encompass this approach, under the umbrella of ‘managed mutual recognition’ as the operationalisation of legal empathy. It concludes with six specific suggestions as to how the EU can best exercise its regulatory power through a closer integration of trade and regulatory policies.

 

Download the full publication here

 

This paper can also be found at the European University Institute as a School of Transnational Governance Policy Report.