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

There is only one topic in the brasseries of Brussels, at least among the EU crowd: Which portfolios will President-elect Jean-Claude Juncker give to his 27 incoming commissioners? Which is why we here at Brussels Blog were rather pleased when the organisation chart above purporting to show where the negotiations stood last Saturday landed in our in-box.

We had no obvious reason to doubt its authenticity when we got it. Such leaks are commonplace in Brussels, and are occasionally a lubricant for political negotiations. Without going into too much detail, it was realistic to conclude the document was being worked on by Juncker’s inner circle.

But once we took a closer look at the line-up, we began to scratch our heads. The negotiations are fluid and the document is three days old, so there would naturally be changes. But it went beyond that. After a call to several trusted sources involved in the talks, it quickly became clear that something strange was afoot. The chart includes glaring inconsistencies, unbelievable political gambles and factual inaccuracies – all set amidst a few things that ring absolutely true.

At the FT, we’ve had a long discussion about how to handle this leak. We’ve decided to publish the chart with a serious health warning, as well as a guide to what is wrong and what may be correct (whether by accident or design). We leave the rest to the Poirots of Brussels, who seem to like nothing more than chewing over what Juncker may decide. Can Brussels survive another week of this speculation-fest? Read more

Russia's Vladimir Putin, right, talks to EU foreign policy chief Catherine Ashton last month in Minsk

As we reported in today’s dead-tree edition of the FT, we got our hands on the three-page Russia sanctions options paper circulated by the European Commission and the EU’s diplomatic corps to national delegations yesterday that, for the first time, raised the spectre of boycotting the 2018 World Cup, to be hosted by Moscow.

But the meat of the document is the actual sanctions that are likely to be agreed this week; the World Cup suspension is clearly mentioned as something that only would be considered in the future. So as is our tradition here at the Brussels Blog, we thought we’d provide readers a bit more detail, including excerpts from the document itself.

First, though, here’s the language on the World Cup, which also includes a mention of UEFA, the Union of European Football Associations which organises and runs all international competitions for European soccer clubs – including Russia’s. Read more

Italy's Mogherini, the likely next EU foreign policy chief, arrives at a meeting with her counterparts

If EU leaders are going move forward with additional sanctions against Russia for its increasingly aggressive stance in Ukraine, they have a bit of work to do. The current draft of Saturday’s summit conclusions (we’ve posted a copy we got our hands on here) has very little to say on the topic.

Right now, the operative paragraph on sanctions reads like this:

The European Council remains engaged in the monitoring and assessment of the restrictive measures adopted by the European Union and stands ready to consider further steps, in light of the evolution of the situation on the ground.

Not particularly stirring stuff.

One other point to note in the draft: not only will the summit choose a new EU foreign policy chief (in all likelihood Italian foreign minister Federica Mogherini) and a new president of the European Council (either Polish prime minister Donald Tusk or Danish premier Helle Thorning-Schmidt), but they also must choose someone to head eurozone summits. Read more

Moghadam, left, with his deputy director Poul Thomsen during a meeting in Brussels

As the eurozone crisis slowly fades into history, many of its most prominent players are moving on as well. On Wednesday, Reza Moghadam, head of the European department at the International Monetary Fund and arguably the fund’s most influential official during the crisis, announced his departure to take a top job at Morgan Stanley in London.

According to officials close to Moghadam, part of his reason for leaving is because he held several of the IMF’s most senior posts over his 22 year career and now could only move laterally to other director positions. In addition, those who have spoken to him said most of his family – including his mother and adult children – now live in the UK and he was eager to return to Britain after more than two decades in Washington.

“Leaving the fund has not been an easy decision and I go with a heavy heart,” Moghadam said in a statement released by the IMF. “But I look forward to a new chapter in my life and a new career, and to being back home in the UK with my family.”

At Morgan Stanley, Moghadam will be vice chairman of the global capital markets group, where he will continue to deal with public finance issues, including working with governments seeking advice on debt or fiscal issues. Because he’s moving into a private-sector job that overlaps with his current duties, he will give up his IMF responsibilities immediately and won’t begin his job in London until October or November. Read more

A Vienna branch of Sberbank, Russia's largest state-owned bank, which would be covered

Although a large chunk of Brussels officialdom has already cleared out for the summer break, the 28 ambassadors to the EU will be busy this week finalising highly-anticipated sanctions against Russia.

On Monday, they will for the first time be adding “cronies” of Russian president Vladimir Putin to the EU’s sanctions blacklist, and then on Tuesday is the main event: deciding whether to move forward with “phase three” sanctions – measures against entire sectors of the Russian economy rather than just targeting individuals or “entities”.

Over the weekend, national governments reviewed legislation prepared by the European Commission that will be debated during Tuesday’s session. As we reported in today’s dead-tree edition of the FT, we’ve been able to secure a copy of the draft sent to national capitals and have posted relevant excerpts below. Read more

Russian president Vladimir Putin, left, with Van Rompuy at a January summit in Brussels

After weeks of equivocation that made it appear the EU might never move to “phase three” sanctions against Russia – which would target entire sectors of the Russian economy rather than just individuals and “entities” – on Friday things began to move very quickly.

First, EU ambassadors (known as Coreper in euro-speak) tasked the European Commission with drawing up the legislation needed to approve the new sanctions, which would go after the Russian financial, energy and defence sectors. Details of what the sanctions are expected to look like are here.

Then, late on Friday, Herman Van Rompuy, the European Council president, sent a letter to all EU prime ministers urging them to quickly endorse the sanctions package, and to give their EU ambassadors the authority to sign off on them Tuesday. Some countries have been calling for an emergency summit of leaders to approve them, but Van Rompuy clearly wants to move faster. The text of the Van Rompuy letter, obtained by the Brussels Blog, is here:

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Vladimir Putin, the Russian president, chairs a security council meeting at the Kremlin this week

Although the sanctions options paper prepared by the European Commission for today’s meeting of EU ambassadors offers up five different sectors of the Russian economy for possible restrictions, a full two pages of the ten-page document obtained by Brussels Blog focuses on the financial industry.

As we reported here this morning, the main financial proposal would bar all “EU persons” from investing in debt or equity sales made by state-owned Russian banks, which constitute most of the largest financial institutions in the country.

As is our practice, we thought we’d provide a bit more detail on the proposal here on the Blog. The health warning that needs to be attached to this plan, however, is that the likelihood of it being actually adopted remains slim. Thus far, only a small hard-core group of EU countries have supported moving to “phase three” sanctions, which hit entire Russian economic sectors rather than just targeted individuals. Sanctions need unanimity from all 28 EU countries to be enacted.

The meat of the capital markets proposal is pretty straight forward: if a Russian bank that is more than 50 percent owned by the government issues stock or bonds, no European can participate. As part of its impact assessment, the document estimates that between 2004 and 2012, $16.4bn was raised by Russian state-owned financial institutions through IPOs in EU markets. And in 2013 alone, about 47 per cent of all bonds issued by those banks — €7.5bn out of €15.8bn – were issued in the EU.

Here’s an excerpt of the proposal:

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Sweden's Carl Bildt, centre, and Lithuania's Linas Linkevicius, left, urged an arms embargo

Trying to keep track of what the EU has agreed – or, in some cases, has agreed to consider – on sanctions against Russia is nearly impossible for those not following the machinations up close because the terminology and targets keep changing.

Tuesday’s meeting of EU foreign ministers was just the latest case in point. Some measures were “accelerated”, others were expanded, and still others were put off until a Thursday meeting of EU ambassadors. No new sanctions were agreed, but the nuances could prove important down the road.

According to EU diplomats, some of this lack of clarity is intentional obfuscation. The initial outline of how the EU would gradually ratchet up sanctions has proven politically unworkable, so those negotiating have consciously attempted to blur lines and shift focus to make it easier to get unanimous agreement on the next steps. Read more

A pro-Russian militant stands guard at a checkpoint outside Donetsk earlier this week.

UPDATE: We’ve now posted the draft communiqué on Ukraine. You can read it here.

Today’s special EU summit was originally called to hash out nominees for the remaining jobs atop the big Brussels institutions – the European Council president, the EU foreign policy chief and the chair of the eurogroup of eurozone finance ministers. But recent events in Ukraine have pushed Russia policy back onto the agenda.

According to a draft of the summit communiqué obtained by Brussels Blog – which was pulled together at a marathon session of EU ambassadors on Tuesday – EU leaders could go beyond so-called “phase two” sanctions, which involve targeting individuals for travel bans and asset freezes. But it won’t be all the way to “phase three”, which constitutes sanctions on entire sectors of the Russian economy.

The new intermediate phase, which diplomats say is an intentional blurring of phase two and three, would focus on four elements. First, the EU would cut all new project funding for Russia from the European Investment Bank and caucus together to prevent similar investments from other international organisations where EU countries are members – particularly the European Bank of Reconstruction and Development. Other international financial institutions are not mentioned by name, but diplomats said the World Bank was raised during deliberations. The draft language now looks like this:

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The Belchatow power station in central Poland, one of the largest coal-burning plants in the world

While Brussels winds down for the summer and preoccupies itself with finding new commissioners, there will be some very busy people left working on a climate policy conundrum that needs to be solved by autumn. We’ll be hearing quite a bit about it, so here at the Brussels Blog we’ve decided to give it a name: The Polish Puzzle.

By October, the EU needs to agree a target for reducing greenhouse gases by 2030. This is one of the most critical numbers for the determining the course of European industry over the next 15 years, so it is not a decision to be taken lightly. The commission has proposed a cut of 40 per cent from 1990 levels.

Poland, which derives about 85 per cent of its energy from coal, does not like this target one bit. The alternative – switching to cleaner gas – could make it more vulnerable to imports from Russia, which would be anathema in the current geopolitical environment. Unless one side gives, a climate deal by October could prove elusive. Read more

When looking for scapegoats for the EU’s energy crisis and our dependence on Russian gas, it is all too easy to attack “district heating”.

District heating is the main way that cities are heated in eastern Europe and the Soviet-era infrastructure can often be wastefully inefficient, as we write about in a story today.

But don’t write it off too quickly. The truth is that western Europe is probably going to see a lot more of this technology in the next decade as it rethinks its urban energy consumption. Read more

Thorning-Schmidt, left, and Merkel at last week's EU summit. Is the Danish PM's star falling?

With Jean-Claude Juncker’s confirmation as European Commission president by the European Parliament in two week’s time something of a foregone conclusion, attention in Brussels corridors has turned to the other two top jobs that are due to be decided at a special summit July 16: European Council president and High Representative for foreign affairs.

According to officials and diplomats, there was much discussion of candidates’ names on the sidelines of last week’s EU summit, and while two weeks is a long time in politics, a few trends are emerging:

1. Momentum to get a centre-left candidate into the European Council presidency is stalling. Going into last week’s summit, it was widely assumed that because the centre-right European People’s party (EPP) got one of their own atop the Commission, the Council job would go to the centre-left Party of European Socialists (PES). But that conventional wisdom has changed. Read more

Van Rompuy meeting with Britain's David Cameron at Downing Street on Monday

The less-watched parallel process to selecting the new head of the European Commission has been Herman Van Rompuy’s effort, backed by several member states, to come up with a work programme for the new commission president that will lock him in for the next five years when it comes to policy programmes and priorities.

Even though advocates of such an idea appear to be pushing the same policies that are mentioned in nearly every EU summit communiqué, several countries – including strange bedfellows like the Netherlands and Italy – have argued such an agenda is in some ways more important than the leader who takes over the commission in November. They insist it will enable Europe’s prime ministers to put their stamp on the next commission and its priorities after the European Parliament was seen to have dragged the current one around.

As a first step towards agreeing such a programme, Van Rompuy, the outgoing European Council president, on Monday circulated a four-page “strategic agenda” for the new commission, which he hopes to get agreed at this week’s high-stakes EU summit. We wrote about it here, but as usual for readers of Brussels Blog, we’re providing a bit more detail for those more interested, including a copy of the document, which we’ve posted hereRead more

A bullet hole in an armoured police car used during this week's cannabis raid in Lazarat.

Eight hundred police and SWAT officers besieging a village? Armed drug dealers fighting back with grenades and mortars? This is hardly familiar territory for the wonkish world of the Brussels Blog but a dramatic battle in the Balkans is of critical importance to the course of the EU’s enlargement.

It is all happening in Lazarat in Albania, from where the Associated Press has a hair-raising dispatch. The police moved in to take out what has become the cannabis capital of Europe. Incredibly, AP cites an estimate that the area was earning about $6bn a year through cannabis cultivation, which would be just under half of Albania’s GDP.

It is the timing of this operation that is so vital. On Tuesday, Albania will learn whether it has been accepted for “candidate status” for becoming a member of the EU.

The showdown in Lazarat is a sign of Albania’s intent in the area where it needs to show most progress: judicial accountability and the fight against corruption. It is hardly as if Albania’s security services have only just woken up to what goes on in Lazarat – the key issue is that a plantation of this epic scale must have been protected from on high. Albania wants to show that it is willing to take on vested interests. Read more

Beppe Grillo’s Five Star troops are on side with a vengeance. The Lithuanian stunt pilot is pledging loyalty. The Calvinist isn’t taking calls from British Tories bearing gifts. Even given the faltering efforts to woo the Irish cannabis campaigner, things are looking up for Nigel Farage in the wacky world of the European parliament group building. Read more