Diplomats reported little progress in talks between foreign ministers in Berlin earlier this week

The new year has brought with it much talk of new diplomatic “windows” opening for talks between Europe and the Kremlin, thanks in large part to the sudden economic chaos Russia faces due to the plummeting price of oil and value of the rouble.

Such talk has come from a number of capitals, including Riga, home to the EU’s new Latvian presidency, and Brussels, in the form of foreign policy chief Federica Mogherini. But critics point out that nothing has changed on the ground. Fighting continues, including a an attack on a Ukrainian bus this week which left 12 dead, and Moscow has made no progress in implementing the so-called Minsk agreement, the blueprint all EU leaders have cited as a pre-requisite to ratcheting down its sanctions regime against Russia.

Indeed, according to EU officials recent hopes of Russian acquiescence ahead of a proposed summit in the Kazakh capital of Astana have largely been dashed during diplomatic discussions with Germany and France because of refusals by the Kremlin to budge.

Still, the issue will gradually rise up the agenda in Brussels as the sanctions agreed last year begin to expire – the first in March, but incrementally towards the big economic measures which run out in June and July. It will take a unanimous decision of all 28 EU countries to renew the sanctions.

Despite the lack of progress with Russia, Mogherini this week circulated an “issues paper on relations with Russia” ahead of Monday’s meeting of foreign ministers that proposes a series of re-engagements with Moscow. Our friends and rivals at the Wall Street Journal were the first to report about it, but we’ve posted a copy of the paper hereRead more

Cecilia Malmström answers press questions about the EU-US trade deal earlier this month

One year ago, Karel de Gucht, the EU’s trade commissioner, asked people to write in and voice their concerns about the most contentious part of a landmark trade deal with the US.

It is his successor, Cecilia Malmström, who will have to take the results of this public consultation squarely on the chin on Tuesday. It’s going to be a big (and possibly bruising) day for EU trade policy.

All the furore hinges on clauses of the US-EU accord that would allow foreign investors to sue governments in international tribunals, bypassing national courts.

This is technically known as Investor State Dispute Settlement, or ISDS, and has caused a huge international stink. It is probably the single biggest political obstacle to the EU-US deal, known as the Transatlantic Trade and Investment Partnership, which is potentially the world’s biggest trade deal. Reservations about ISDS are particularly strong in Germany and Austria.

So what will this consultation show on Tuesday? As far as we know, more than 150,000 people have written in. The vast majority are unhappy. To give a scale of the feverish interest in this topic, the trade commission has never held a public consultation that garnered more than 1,000 responses before. Read more

An airport that loses €275 per passenger. A €16.5m runway that has never been used by the aircraft for which it was built. Another airport that receives 0.4 per cent of the travellers that were forecast.
 Read more

ECB chief Mario Draghi, right, with France's François Hollande at October's EU summit

The dance had become so routine that we at the Brussels Blog were thinking of giving it a name, the Eurozone Two-Step.

Ever since the eurozone crisis first rocked international markets nearly five years ago, European Central Bank chiefs – first Jean-Claude Trichet, then Mario Draghi – sent a very clear message to the currency union’s political leaders: we can only act if you act first.

The deal was never explicit, but both sides knew what was required. The ECB’s first sovereign bond purchase programme in May 2010 came only after eurozone leaders created a new €440bn bailout fund; its €1tn in cheap loans to eurozone banks in early 2012 only came after political leaders agreed to a new “fiscal compact” of tough budget rules.

But with the markets watching Frankfurt closely for signs Draghi is about to launch another bold move – US-style quantitative easing, purchasing sovereign bonds to halt fears the bloc is headed into a deflationary spiral – there are new indications one of the partners is no longer dancing.

Back in October at a eurozone summit, Draghi was able to get a little-noticed statement out of the assembled leaders committing them to another “Four Presidents Report”, a reference to the blueprint delivered in 2012 that set a path towards further centralisation of eurozone economic policy. The report helped kick-start the EU’s just-completed “banking union.”

Progress on that 2012 blueprint has since stalled, however, and at his last summit press conference, then-European Council president Herman Van Rompuy said the new “Four Presidents Report” would be delivered at the December EU summit, which starts next Thursday. Many in Brussels saw this as the quid for Draghi’s quo – once the leaders agreed to another blueprint for eurozone integration, Draghi would have a free hand to launch QE.

But according to a leaked draft of the communiqué for next week’s summit, Draghi may have to deliver his quo without a eurozone quid. The text (which we’ve posted here) makes clear that leaders have no intention of delivering a new blueprint any time soon. Read more

Juncker presents his €315bn investment plan to the European Parliament in Strasbourg

On the eve of two of the most momentous events of his young tenure as European Commission president – Thursday’s failed vote of no confidence against him in the European Parliament and Friday’s long-awaited decision on whether to sanction France or Italy for failing to comply with EU budget rules – Jean-Claude Juncker sat down for his first interview since assuming office with a small group of European newspapers in Strasbourg.

In addition to his just-unveiled €315bn plan to revive investment in the EU’s stagnating economy, the primary topics of the 70-minute interview were the ongoing controversy surrounding revelations that foreign companies were able to avoid large tax bills thanks to Luxembourg tax rulings, and how he intends to deal with the budgets from Rome and Paris. In addition to our story on the interview, we are publishing annotated excerpts online here.

The interview started with Juncker’s new investment plan and whether he had hoped there would be more public money in the programme. Under his proposal, the EU will contribute €21bn in guarantees, and all of the €315bn of investment would be private money, either raised by the European Investment Bank through issuing bonds or by finding private financiers to co-invest in new EU infrastructure projects:

I hadn’t a figure in mind as far as public money is concerned. I said in July this will be a combination of public money and private investment. We don’t have the money we need. We can’t spend money we don’t have. We took the money that was available, not without difficulty and without huge pedagogic efforts as far as the different commissioners involved in this financing structure.

 Read more

Juncker speaks to the press at last week's Group of 20 meeting in Brisbane

Just how does Jean-Claude Juncker plan on getting to €300bn?

With the formal unveiling of his highly-anticipated plan to stimulate growth in the EU just days away – officials say the Commission will decide on it early next week – politicians both in Brussels and in national capitals are abuzz about whether the financial engineering involved will make the €300bn credible.

Emmanuel Macron, the influential French economy minister, has already expressed concern, and in a meeting with a small group of reporters ahead of today’s announcement of his own stimulus plan, Belgium’s Guy Verhofstadt, head of the European Parliament’s centrist Liberals, said he worried the programme would just move around existing funding.

As we reported earlier this week, the plan will take existing cash from the EU budget and the European Investment Bank and use it as seed money for new investment funds in order to attract private capital. The public money would act as a “first loss” tranche, taking the first hit if the investment goes bad, and giving private investors more senior status – something officials hope will “crowd in” all that private cash currently sitting on the sidelines.

The two questions that will be closely watched is just how much public money will be used – and how much new private capital the Commission will forecast coming in over the plan’s three-year period.

According to documents obtained by Brussels Blog, the answer to question one – how much public money will be used – will not only include EU budget and EIB money, but also funds committed by national governments. For instance, the €10bn in new public spending announced this month by Wolfgang Schäuble, the German finance ministry, appears to be counted in the €300bn plan.

How the limited amount of public funding can be leveraged is far more complex. And by nearly all accounts, the public funding will indeed be limited: the plan is explicitly seeking to avoid any new public debt, and officials acknowledge a significant part of it will involve more efficient use of existing public resources and maximising already-approved instruments. Read more

Britain’s €2.1bn EU budget surcharge is a subject of mystifying, mind-bending complexity. Not even the people who are supposed to understand seem to understand. After days trying to solve the budget puzzle, the Brussels Blog is going to attempt to explain the numbers. Right or wrong, it should at least help to confuse matters further.

First the claims. Last week, George Osborne boldly said he halved the UK bill and achieved a “real win for British taxpayers”. EU officials say the British payments are rescheduled but benefit from no additional discount.

The truth, as we understand it, is even more bewildering:

– Britain is down to make a gross surcharge payment well in excess of €2.1bn, but at a different time than originally demanded.

– Britain will receive most of the money back by the end of 2015, but it doesn’t know precisely when, and it will only be thanks to two automatic rebates.

– Osborne requested a bigger discount and was denied, but he may get an EU Christmas present nonetheless.

Now for the details: Read more

At a time when Mario Draghi’s style of running the European Central Bank is under question – there’s reportedly been grumbling he’s setting monetary policy in off-the-cuff public remarks rather than in consultation with the bank’s board members – it is easy to forget that Draghi’s most famous act as ECB chief was also an unscripted public utterance: “whatever it takes”.

The now-famous 2012 remark, which is widely credited with ending the hair-on-fire phase of the eurozone crisis by hinting the ECB would use its printing presses to buy up sovereign debt of besieged governments, has long been viewed as a masterstroke of market management, since the ECB has yet to spend a cent on such bond purchases.

But as the FT and other news organisations have reported, many on the ECB governing council were taken aback by the remarks because the issue wasn’t discussed more widely before Draghi declared it as ECB policy.

The Brussels Blog recently got its hands on yet more evidence that Draghi’s remarks – made at a conference in London in July 2012 – were inserted at the last minute without wider consultation: raw transcripts of discussions with Timothy Geithner, who was US treasury secretary at the time, about the eurozone crisis.

The 100 pages of transcripts we obtained are of interviews Geithner gave to assistants preparing his book, Stress Test: Reflections on Financial Crises, which was published in May. Many of the recollections also appear in the book, but Geithner provides more detail and more bluntness – including a fondness for the f-word – in the pages we obtained.

This is particularly the case for the “whatever it takes” speech. In his book, Geithner mentions the remark was impromptu. But in the transcript, Geithner reveals his source for that passage: Draghi himself, who told Geithner he had decided to insert the words into his address after meeting with London financiers who were convinced the eurozone was on the brink of implosion. Here’s the section of the transcript relating to Draghi’s speech: Read more

David Cameron, with his Finnish counterpart Alex Stubb, at a summit in Helsinki Thursday

The much-anticipated “emergency meeting” of EU finance ministers David Cameron demanded last month to discuss the €2.1bn surcharge Brussels has levied on Britain begins today – though it is less “emergency” than Cameron may have hoped, since it’s actually finance ministers’ regularly-scheduled November meeting.

As we reported in today’s dead-tree edition of the Financial Times, Italy, the holder of the EU’s rotating presidency, will table a compromise plan at the meeting which would allow Britain – and the Netherlands, which has the second-highest bill, with €643m due at the end of the month – to pay the new EU tab in instalments.

This is unlikely to be enough for the UK, which is seeking both a delay in the due date and a reduction in the bill, but there are growing signs that its allies in the fight, including the Dutch, are inclined to support the plan.

Ahead of the meeting, Brussels Blog obtained a copy of the two-paragraph Italian proposal, and we’ve posted it here. The measure asks the European Commission to come back with an amendment to existing EU rules for paying such bills that would in “exceptional circumstances” allow countries to pay their surcharge in tranches instead of all at once on the December 1 due date. Here’s the key section: Read more

Renzi arrives at the EU summit in Brussels on Thursday and quickly took issue with Barroso

If you read the EU’s budget rules, it appears to be a cut and dried affair: if the European Commission has concerns that a eurozone country’s budget is in “particularly serious non-compliance” with deficit or debt limits, it has to inform the government of its concerns within one week of the budget’s submission. Such contact is the first step towards sending the budget back entirely for revision.

As the FT was the first to report this week, the Commission decided to notify five countries – Italy, France, Austria, Slovenia and Malta – that their budgets may be problematic on Wednesday. Helpfully, the Italian government posted the “strictly confidential” letter it received from the Commission’s economic chief, Jyrki Katainen, on its website today.

But at day one of the EU summit in Brussels, the letter – and Italy’s decision to post it – suddenly became the subject of a very public tit-for-tat between José Manuel Barroso, the outgoing Commission president, and Matteo Renzi, the Italian prime minster.

Barroso fired the first shot at a pre-summit news conference, expressing surprise and annoyance that Renzi’s government had decided to make the letter public. For good measure, he took a pop at the Italian press, which in recent days has been reporting that Barroso was the one pushing for a hard line against Rome, and implying he was motivated by his desire to score political points back home in Portugal, where he has long been rumoured as a potential presidential candidate after leaving the Commission:

The first thing I will say is this: If you look at the Italian press, if you look at most of what is reported about what I’ve said or what the Commission has said, most of this news is absolutely false, surreal, having nothing to do with reality. And if they coincide with reality, I think it’s by chance.

 Read more

Juncker addresses the European Parliament before the vote approving his new Commission

It started out as an internecine turf war within the incoming regime of Jean-Claude Juncker. But it is quickly metastasising into what could be one of the first international policy fights of the Juncker Commission.

The dispute centres on a previously obscure trade arbitration system that allows companies that believe they can’t get a fair hearing in front of national courts to appeal to an international dispute resolution panel known as ISDS, for investor-state dispute settlement.

The systems have become relatively commonplace in international investment treaties, but they suddenly – and to the surprise of many advocates – have become the single biggest bone of contention among opponents of the world’s biggest trade deal, the pact currently being negotiated between the US and EU.

Opposition from social democrats in Germany, the country where ISDS was ironically invented, has put ISDS on the front-burner politically, and Juncker – urged on, officials say, by his powerful chief of staff, German lawyer Martin Selmayr – has clearly sided with the sceptics. The stance has led to an open confrontation with Cecilia Malmström, his incoming trade commissioner who supported a similar ISDS system in the just-completed EU trade deal with Canada.

But as we reported in today’s dead-tree edition of the FT, free-trading countries are fighting back. A letter signed by ministers from 14 member states – including Britain, Spain, Portugal, Sweden and the Czech Republic – pointedly reminds Juncker that ISDS was included in the negotiating mandate that all 27 member states gave to the Commission last year. We’ve posted a copy of the letter hereRead more

Having trouble following the fight over the EU’s budget rules? You’re not alone. They are fiendishly complicated, particularly since nearly every eurozone country is at risk of violating a different part of them.

Is your deficit over 3 per cent of economic output? Then you’re in the “excessive deficit procedure”. Is your deficit under 3 per cent but at risk of going over? Then you’re in the “preventative arm”. What if your deficit is under 3 per cent, but your national debt is over 60 per cent of gross domestic product? Well, you can still be in an “excessive deficit procedure” if you don’t cut the debt fast enough.

There are so many iterations that the European Commission has an entire 115-page “vade mecum” – fancy Latin for “guidebook” – for those trying to figure out how they work.

The complexity of the rules has made it particularly difficult to judge the new Italian budget, submitted – along with all other eurozone countries, save bailout countries Greece and Cyprus – to the European Commission on Wednesday. Read more

Latvia's Valdis Dombrovskis was heckled by some MEPs at his hearing on Monday.

After six hours of testimony over the last week between Pierre Moscovici and Valdis Dombrovskis, some MEPs are still fuming that they have no idea which one will be in charge of ruling on national budgets as part of the EU’s annual review process.

Moscovici, the former French finance minister, has been nominated economics commissioner and is seen by centre-right MEPs as too lax on fiscal matters; Dombrovskis, a former Latvian prime minister, will be vice-president for the euro and seen by the centre-left as a disciple of the EU’s austerity school of economics.

As we reported last week, going into their confirmation hearings it looked like the two men would basically share the role. But neither gave clear answers of how their division of labour would work at their hearings, leading French MEP Sylvie Goulard, the top Liberal on the economics committee, to heckle Dombrovskis: “So we don’t know?” she shouted after he failed to explain who would represent the eurozone at international fora like the IMF and G-20.

In an effort to gain clarity, the economic committee leadership on Monday sent a letter to Jean-Claude Juncker, the incoming commission president, asking for further clarification. We’ve obtained his response, and posted it here. It doesn’t provide a huge amount of additional clarity. Read more

Hyon Hak Bong presenting his credentials to Queen Elizabeth two years ago

Hyon Hak Bong, North Korea’s envoy to the EU, has his work cut out.

The instructions from Pyongyang are clear: re-open a dialogue on human rights with the EU that was suspended in 2003. That’s a tall order in itself, but it is made even more difficult by the fact that he must simultaneously reassure sceptical Europeans that camps for political prisoners simply do not exist in North Korea.

Speaking to the Financial Times on a mission to Brussels, it was clear that the London-based ambassador was part of a broader Pyongyang charm offensive towards the EU. Last month, Kang Sok Ju, one of the supremos in the ruling Workers’ party, visited Germany, Belgium, Switzerland and Italy.

Currently seen as a destination for only the hardiest foreign investors, the impoverished nation of 25m would benefit from some more business with Europe (and the access to hard currency that brings). Real progress on that prickly human rights dossier would certainly help “develop relations further”, as Mr Hyon puts it.

North Korea wants the EU to stop co-sponsoring UN resolutions against Pyongyang’s human rights record, but Mr Hyon may find Brussels bureaucrats ever-so-fussy about those infuriating details – like the penal system. Europeans will be focusing on the testimonies of North Korean defectors, who describe the horrific conditions in the country’s gulags, telling of rape, summary executions, starvation and back-breaking labour in penal mines.

According to Mr Hyon, this is all a fiction. He said that the EU needed to understand who the defectors were: “These are the riff-raff who have escaped through fear of the legal treatment they will receive for their crimes. So they attack North Korea and take money to do so…. We do not have political prisons. We have prisons like those in Belgium and the UK, where prisoners are being educated.” Read more

Pierre Moscovici arrives in Paris for the government's confidence vote earlier this month.

One of the most highly anticipated confirmation hearings in the European Parliament this week will be that of Pierre Moscovici, the former French finance minister tapped to be the European Commission’s new economic chief, who will appear before the economic affairs committee on Thursday morning.

Members of the parliament’s centre-right grouping, the European People’s party, have vowed to give him a grilling on whether he will vigorously enforce the EU’s tough budget rules – particularly since he comes from a French Socialist government that has advocated more flexibility in the rules.

As we reported in today’s dead-tree edition of the FT, Jean-Claude Juncker, the incoming Commission president, took the unusual step of issuing a legal decision that spells out in black and white Moscovici’s relationship with the Commission’s new vice president in charge of the euro, Valdis Dombrovskis, a former Latvian prime minister with a reputation as a deficit hawk. Here’s the relevant paragraph:

 

 

We have posted the entire 6-page document here. Most of it is unsurprising boilerplate – though there is a somewhat intriguing US-style line of succession among the vice presidents on page 2, which ranks Dutchman Frans Timmermans first and Finland’s Jyrki Katainen last. Read more

Malmstrom makes a point during her unexpectedly contentious hearing on Monday

It is rare that an obscure bit of international trade arcana turns into a major political kafuffle, but that’s just what appears to have happened on Monday over a relatively obscure arbitration system proposed for a new EU-US trade pact.

Although there is much substance behind the dispute, what really has Brussels insiders buzzing is the role played by Martin Selmayr, the increasingly powerful head of Jean-Claude Juncker’s transition team.

According to several EU officials, Selmayr – a workaholic German lawyer who is expected to become Juncker’s chief of staff when the Luxembourger assumes the European Commission presidency – changed the written testimony of Cecilia Malmström, the incoming trade commissioner, before it was submitted to the European parliament without her knowledge.

Dutch Liberal Marietje Schaake, a rising star within the European parliament, first made the accusation publicly during Malmström’s confirmation hearing on Monday afternoon (a video of her revelation can be seen here).

Schaake’s allegation is supported by a copy of the commissioner’s final testimony obtained by Brussels Blog and posted here. The document shows dozens of edits made by Selmayr that were recorded by the word processing programme’s track changes at 8:38am on Sunday. MEPs say the testimony landed in their in-box less than 20 minutes later. Read more

Lord Hill says that there will be no exceptions for member states who fail to jump into line on banker bonuses. Read more

Commission nominee Phil Hogan, left, with Irish prime minister Enda Kenny

Much of the back-room plotting ahead of next week’s European Parliament confirmation hearings for the new European Commission has focused on four controversial nominees who are likely to face a tough grilling: Britain’s Jonathan Hill, Hungary’s Tibor Navracsics, Slovenia’s Alenka Bratusek and Spain’s Miguel Arias Cañete.

But suddenly Ireland’s Phil Hogan has moved into a strange spotlight.

The incoming agriculture commissioner has threatened Irish MEP Nessa Childers with legal action over a letter she sent to fellow parliamentarians opposing his appointment as commissioner.

In the letter (which we have posted here), Childers alleges that Hogan, while a member of the Irish parliament, agreed to try to prevent a “Traveller family” from moving into public housing in his constituency. Childers argues this makes him an unsuitable nominee.

Hogan has responded by sending some letters of his own: legal threats from his lawyers at Mason Hayes & Curran, alleging that Childers’ claims were untrue and defamatory. We have those three letters, labeled “strictly private & confidential”, here, here and hereRead more

Juncker's "key political challenges" session will feature Ukraine, EU-US trade and budget rules

Fresh with their newly-minted portfolios in hand, the 28 members of the incoming Juncker commission headed off for an “informal seminar” on the outskirts of Brussels by bus Thursday morning for a bit of team-building.

As we reported in this morning’s dead-tree edition of the FT, one of the highlights of the two day gathering will be a debate this afternoon on the EU’s budget rules between the new economic affairs commissioner, France’s Pierre Moscovici, and one of the new economic vice presidents, Finland’s Jykri Katainen.

According to a copy of the agenda for the two-day event, which Brussels Blog got its hands on and has posted here, the budget rules are one of three “key political challenges” that will be debated in a two-hour session after lunch. The other two are Ukraine and the increasingly controversial EU-US trade agreement. Read more

Russian president Vladimir Putin visits a Rosneft oil refinery on the Black Sea last year

EU ambassadors head into yet another meeting Friday afternoon to hammer out the latest round of sanctions against Russia. Their bosses have promised to get things done by the end of the week, but there’s still a lot of work to do, so it’s not entirely clear whether a deal can be reached. Also, the on-again, off-again Ukrainian ceasefire could slow things down, though allies don’t appear to be giving much credibility to the Kremlin’s protestations that they are working towards a truce.

As we wrote in today’s dead-tree edition of the FT, we got a leaked copy of the draft legislation approved by the European Commission on Wednesday and sent to national capitals for today’s deliberations. The 18-page text is filled with a lot of jargon and technicalities, but because they could directly affect financial markets, the details matter.

For that reason, we are offering Brussels Blog readers more detail here. Remember: the EU ambassadors could still change much of the wording in their negotiations – though if the July sanctions are any indication, the changes are likely to be on the margins. Read more