Demonstrators in Berlin protest against alleged US spying activities in July.
In today’s dead-tree edition of the FT, we report on a draft of a stinging report the European Commission will issue Wednesday which could send shock waves through the US tech industry: unless the Obama administration changes the way it handles online data of European citizens, American companies like Google and Facebook will have to find another way to do business in the EU.
Given the importance of the Commission’s review of the 13-year-old “safe harbour” agreement with the US – which allows American firms to operate in Europe under US privacy rules because of an assumption that Washington treats the data similarly to European governments – and the fact we got our hands on it before its official release, we thought Brussels Blog readers might be interested in a bit more detail about the Commission’s findings. Read more
Rehn, left, with President José Manuel Barroso at Wednesday's press conference
It may have appeared that Olli Rehn, the EU’s economic chief, today was siding with Washington in the going transatlantic tussle over Germany’s current account surplus by launching an inquiry into whether the surplus was harming growth in the rest of Europe.
But Rehn went out of his way to make clear that he was no fan of the US Treasury department report that pushed the dispute into overdrive last month.
Speaking at a press conference announcing the European Commission’s decision to launch the “in-depth review” of Germany’s surplus, Rehn said the US Treasury’s report was “to my taste somewhat simplified and too straight forward”. Read more
Rehn, right, consults with Germany's Wolfgang Schäuble at last month's IMF meetings.
Over the last few weeks, the normally über-dismal science of German economic policymaking has unexpectedly become stuff of international diplomatic brinkmanship, after the US Treasury department accused Berlin of hindering eurozone and global growth by suppressing domestic demand at a time its economy is growing on the backs of foreigners buying German products overseas.
The accusation not only produced the expected counterattack in Berlin, but has become the major debating point among the economic commentariat. Our own Martin Wolf, among others, has taken the side of Washington and our friend and rival Simon Nixon over at the Wall Street Journal today has backed the Germans.
Now comes the one voice that actually can do something about it: Olli Rehn, the European Commission’s economic tsar who just made his views known in a blog post on his website. Why should Rehn’s views take precedence? Thanks to new powers given to Brussels in the wake of the eurozone crisis, he can force countries to revise their economic policies – including an oversized current account surplus – through something soporifically known as the Macroeconomic Imbalance Procedure.
On Wednesday, Rehn will announce his decision on whether Germany will be put in the dock for exactly what the US has been accusing it of: building up a current account surplus at the expense of its trading partners. And if Rehn’s blog post is any indication, he’s heading in exactly that direction. Read more
So this is it. Google’s revised offer to settle the European Commission probe into its search business has been described extensively in the press. But the actual text and screenshots of how new Google searches will look under the proposal were not published, much to the annoyance of the complainants asked for confidential feedback. One of the parties has decided to revolt and set the documents free. We’re publishing them here in full.
Before the legal text, a screenshot: this is what Google proposes its EU sites will look like for a restaurant search. Note the three “Almunia links” — what negotiators are calling the forced search results that display competitors’ offerings — that appear under the paid-for “sponsored” Google search results. Under the revised offer, they are spruced up with bigger fonts, icons and two lines of text.
And here is what a search for an iPod would look like. It’s important to note that the Almunia links (to rival price comparison sites Supaprice, Kelkoo and Shopzilla) are still paid for through an auction, but the minimum offer price has been reduced. More on the objections to that at the bottom of the post.
The three-year Brussels probe into Google’s search business seems to be meandering towards a thundering anticlimax. With every legal twist, revised settlement offer and procedural shuffle, the case is losing the zip that made it a cause célèbre in the antitrust world. The opposing camps, meanwhile, appear ever more entrenched and polarised. Nobody is satisfied.
For now Joaquín Almunia, the EU competition chief, is still ploughing towards a settlement, rather than issuing formal charges. But it has been a bumpy ride. The protracted process will have many more months or years to run, especially with legal appeals. There could still be surprises, even perhaps a charge-sheet, the so-called “statement of objections”. The anti-Google camp are far from surrendering. The details still matter.
The latest inch-forward came on Monday with Almunia seeking feedback on Google’s second settlement bid. The terms of the latest package will not be published, for various reasons that are hard fathom. Even so, all the complainants and most journalists covering the case now have a copy of the offer or have been talked through it. Below is a medley of insights on what is on the table and what to expect next: Read more
Herman Van Rompuy during a public appearance at the European Council building on Wednesday
EU leaders are gearing up for their first summit in four months tomorrow – the longest hiatus since the outbreak of the eurozone crisis three years ago.
It is a measure of how calm the financial markets have been that no major decisions are to be taken at the two-day get-together, which is supposed to focus on telecommunications and digital policy issues. “It’s not a summit for decisions,” said one top EU diplomat. “The objective is decisions at the December summit.”
Still, for the cognoscenti there is much to comb over, including the simmering spat between France and Britain over José Manuel Barroso’s effort to streamline EU regulations.
On Wednesday afternoon, the office of Herman Van Rompuy, president of the European Council and chair of all summits, circulated a final draft of the summit communiqué, which Brussels Blog got its hands on and posted here. A few things worth noting: Read more
Did tight-fisted budget policies in Germany help make the eurozone crisis deeper and more difficult for struggling bailout countries like Greece and Portugal?
That appears to be the conclusions of a study by a top European Commission economist that was published online Monday – but then quickly taken down by EU officials.
Our eagle-eyed friend and rival Nikos Chrysoloras, Brussels correspondent for the Greek daily Kathimerini, was able to download the report and note its findings before the link went dark (Nikos kindly provided Brussels Blog a copy, which we’ve posted here).
Shortly after being contacted by Brussels Blog, officials said they would republish the 28-page study, titled “Fiscal consolidation and spillovers in the Euro area periphery and core”, once a few charts were fixed. And as Brussels Blog was writing this post, it was indeed republished here.
Still, the paper’s day-long disappearance looks suspicious given the hard-hitting nature of its findings. For some, they may not be surprising. Many economists have argued that it was the simultaneous austerity undertaken by nearly all eurozone countries over the course of the crisis that pushed the bloc into a deeper recession than predicted, hitting Greece and other weak economies particularly hard.
But coming from the European Commission’s economic and financial affairs directorate – which was responsible for helping administer Greek and Portuguese bailouts as well as provide semi-mandatory policy advice to other eurozone economies – the criticism of Berlin is unexpected, to say the least. Read more
Viviane Reding, the EU’s justice commissioner, triumphantly claimed that “data protection is made in Europe” after a committee of European lawmakers reached a compromise agreement yesterday to overhaul the bloc’s pre-internet privacy rules.
But for those who have not been following the EU’s data protection process closely, particularly in the wake of the ongoing NSA spying scandal, Ms Reding’s declaration of victory may have seemed a little premature. Read more
Backstops? A safety net for banks in difficulty? Why the fuss? We have one already! That is the rough conclusion from finance ministers meeting in Luxembourg on Monday and Tuesday.
To provide some context, the apple of discord is whether Europe should pool more public funds to stand behind its banking system. Looming on the horizon is a stress test of banks next year that is supposed to restore faith in the financial system. It may uncover horrors that can’t be covered by contributions from private investors. If a bailout is needed, the open question is whether the bank’s sovereign will be able to fund it by borrowing from the market or from eurozone bailout funds without rekindling the sovereign debt crisis.
So what is the plan? Well there is no sign of new money. For the more optimistic finance ministers the ultimate, ultimate backstop — only to be used in exceptional circumstances — is apparently a “direct recapitalisation” from the European Stability Mechanism, the eurozone’s E500bn bailout fund.
The trouble is that there are a legion of hurdles to clear before using this instrument in practice — especially if it is to be used to cover any shortfall exposed next year. The rough rules on the use of the instrument were published in June. Many senior officials think it is so encumbered with conditions as to be almost pointless. If direct recap is the backstop, some finance ministers will be worriedly looking over their shoulder.
TEN OBSTACLES TO A DIRECT RECAPITALISATION
1. German veto: Any ESM decision to take a direct stake in a bank is subject to a German veto. Berlin is determined to ensure that even if this tool is theoretically “available”, it remains unused. Wolfgang Schäuble, Germany’s finance minister, even said on Tuesday that German law would need to be changed to use the direct recap instrument.
2. German veto: the Bundestag would have to vote through any direct recap. Germany’s centre-left Social Democratic Party, the most likely coalition partner for Chancellor Angela Merkel, is dead-set against direct recapitalisation of banks. It thinks the financial sector, not taxpayers, should foot the bill for bank failure. Read more
What has become an increasingly touchy EU-Russia trade relationship took another tit-for-tat turn on Thursday when Brussels escalated a WTO case against Moscow over vehicle recycling fees.
The EU believes a recycling fee Russia charges on imported cars is less about good environmental policy and more a way to squelch foreign competition. The fee does not apply to cars built in Russia or its closest trading partners,Kazakhstan and Belarus.
Brussels complained to the WTO about the levy in July, marking the first case against Russia since it joined the global trade body with much fanfare in 2012 – 19 years after its initial application. On Thursday, the EU asked for a panel to rule on the matter after – to little surprise – settlement talks with Moscow proved fruitless. A result could take months.
“We’ve used all the possible avenues to find with Russia a mutually acceptable solution,” said Karel De Gucht, the EU trade commissioner. “As the fee continues to severely hamper exports of a sector that is key for Europe’s economy, we are left with no choice but to ask for a WTO ruling.” Read more
My big fat Greek presidency it will not be. When Athens takes the reins of the EU’s rotating presidency in January, the government will manage the event like a family throwing a frugal wedding.
That is only to be expected since Greece’s crisis-hit economy is now enduring its sixth year of recession, the public coffers are bare and unemployment is nearing 30 per cent. Dishing out huge amounts of cash to impress visiting diplomats would likely provoke outrage from a citizenry that is increasingly unhappy with the EU, as it is.
So how frugal is Greece planning to be? The government has set a €50m budget for the six-month affair, down from the €60m to €80m spent by predecessors like Ireland,Cyprus,Denmark and Lithuania. Officials say they are hoping that the final bill comes to even less.
The Greeks have found a few simple ways to cut costs. They will limit the number of ministerial meetings that will be held in their country to just 13 – keeping as much of the work in the EU’s Brussels headquarters as possible. All of the Greek meetings will be hosted in Athens. Read more
Brussels and Beijing appear to be nearing a settlement in a trade fight over solar panels that is the EU’s biggest ever anti-dumping case – based on the more than €20bn in Chinese-made solar products shipped to the bloc in 2011. Sometime on Friday afternoon, EU officials are expecting to learn whether or not their counterparts in Beijing have taken their latest offer.
In theory, the two sides have until August 6th to haggle over a deal. After that date, provisional duties imposed by the EU will jump from about 11 per cent to an average of 47 per cent. The reality is that they have probably already missed that deadline, according to diplomats, given the amount of legwork that Brussels must do to translate an agreement and circulate it among national governments. Hence, the next few days are crucial. Read more
Is some lobbying in Brussels too heavy and contrived for its own good?
Two examples spring to mind from some of the most over-lobbied issues handled by the European Commission: card fees and the antitrust case against Google. Read more
Günther Oettinger, EU energy commissioner, proposed tweaking the biofuels policy last year
Among the EU’s less successful policies, the one governing biofuels looms as a particular case study in unintended consequences.
Five years ago, member states agreed to binding targets requiring each country to derive 10 per cent of all transport fuel from renewables by 2020. Those targets were meant to speed the adoption of environmentally-friendly biofuels and were part of a broader campaign by Brusselsto claim the lead in the fight against global warming.
These days, that policy is a mess. The increased demand for crop-based biofuels – made from corn, rape and soya, for example – has been blamed for a surge in world food prices. It also appears to contribute to deforestation as farmers in far corners of the world chop down rainforests to plant biofuel crops.
The EU is now seeking to correct that. The European Commission, the EU’s executive arm, made a new proposal last year that aims to phase out crop-based biofuels in favour of cleaner ones derived from waste products and algae, among other substances. The European parliament’s environment committee last week voted through its own version of the draft legislation.
But it seems even the revised biofuels policy may have its own unintended consequences, including a brewing fight between Europe’s oleochemicals industry – the folks who use processed animal fats to produce everything from lubricants to lipstick – and their suppliers. Read more
A few weeks ago, the EU agreed an historic overhaul of its troubled common fisheries policy, setting binding deadlines to end decades of over-fishing that have depleted stocks from the Mediterranean to the North Sea.
But just when it seemed safe to go back in the water, the European parliament’s fisheries committee threatened to take a bite out of the reform on Wednesday. By a 12 to 11 margin, the committee approved an amendment allowing the use of up to €1.6bn in EU funds to help build new fishing boats.
The subsidies fly in the face of the conventional wisdom that the EU’s 83,000-vessel fleet is already far too large, and in need of a drastic cut – some say by half – in order to allow stocks to recover.
“For anyone with a brain this is completely outrageous and very difficult to understand,” said Markus Knigge, a fisheries advisor to the Pew Charitable Trust, citing estimates that the money could result in 19,000 new boats. Read more
Bank investors beware. Dazzling political fireworks will be launched in Brussels today that may distract you from the reform that really matters, at least over the next few years.
All the attention will naturally be on a bold move to create a powerful authority to wind up eurozone banks — a great leap forward for banking union that puts Germany’s red-lines to the test. Read more
Pity the Lithuanians. When assuming the EU rotating presidency next month they will inherit the mother of all regulatory backlogs, especially when it comes to the financial sector. It is an impossible and thankless task, a numbingly complex pile of half-negotiated, often paralysed and always contentious directives and regulations, which the European Commission is still adding to with some gusto.
There are going to be around 25 financial services files for the Lithuanians to shepherd through, either in negotiations between member states, or directly with the European parliament. The poor Lithuanian officials strong-armed to work the files will have to become instant experts. Most of the proposals will require countless long meetings with member state or parliamentary negotiators; some will need ministerial input and some sacrificial political blood.
The demands could dwarf the resources and time available. After March 2014, the parliament essentially shuts shop for European-wide elections, so the Lithuanian presidency, which runs through the end of this year, is pivotal. Some countries only have one or two financial services attachés covering the bulk of files. Getting MEPs together for talks is like herding cats. Getting them to agree is even harder, especially in this pre-election environment. A lot of the initiatives will not make it through; their fate is then in the hands of the next leaders of the EU’s parliament, commission and council. Read more
Actor Brad Pitt is interviewed at last week's Paris premiere of his new film "World War Z"
When EU and US officials launched new talks on a transatlantic trade deal earlier this year – an issue of such import that President Barack Obama announced it in his February State of the Union address – many thought the most contentious issues would be agricultural, like US exports of beef with synthetic hormones.
But even before the talks have formally begun, an altogether different issue has threatened to derail the deal: France’s insistence that the so-called “cultural exception” – the ability of European governments to establish quotas and subsidise their home-grown film and music industries – be completely off the table.
The US has insisted on no “carve outs” before the talks even begin, and EU officials worry that if cultural issues are put aside pre-emptively, it will give the Obama administration fodder to respond in kind with an issue that may be sensitive for a wider number of countries – like agriculture.
In an effort to bridge the gap, the Irish presidency last week circulated a new draft of the mandate that will be given to the European Commission in the trade talks which contains new language assuring France that, while audiovisual issues will not be excluded, there will be clear red lines in the EU’s negotiating position. Brussels Blog got its hands on the 12-page document, which is marked “trade-sensitive” across every page and “EU restricted” at top, and posted it here. Read more
After months of deliberation and some not-so-private sparring with Berlin, the European Commission has pretty much anointed who it wants to be the all-powerful bank bailout and clean-up authority for Europe’s banking union: the European Commission.
This (somewhat predictable) conclusion to its internal policymaking journey is outlined in a paper, seen by the Financial Times, which was distributed to commissioners ahead of their weekly college debate on Wednesday.
There is no sign of Brussels bowing to pressure from Berlin. At the heart of the Commission’s proposed system is a powerful central authority, which has access to a single bailout fund and the clout to shut down a bank even against the wishes of its home state’s government. Brussels wants it operating by 2015.
What about those German concerns that this would breach the EU treaties? Michel Barnier, the EU commissioner responsible for financial issues, concedes in the paper that “only an EU institution” has the legal authority to take important decisions with European effect. Given there is no legal basis to give the European Central Bank this role, the Commission concludes that the only option is to anoint itself as the top resolution authority. Read more
Slovenian finance minister Cufer agreed to the outside banking audit just last week.
Last night, after everyone in Brussels had spent most of the day digesting the European Commission’s reports on all 27 EU countries’ budget plans, officials quietly posted far more interesting documents online: the “staff working papers” that underpin the policy recommendations issued earlier in the day.
According to Commission officials, this was done intentionally. They wanted reporters and national officials to focus on the recommendations and not the analysis behind them.
But starting this morning, Brussels Blog began combing through the working documents – which are much longer and more detailed than the Commission recommendations – starting with the country many consider the next eurozone bailout candidate: Slovenia. It makes for eye-opening reading. Read more