Good morning and welcome to Europe Express. We’re off to quite an eventful week.
EU leaders, commission officials and members of the European parliament over the coming days will be dealing with the continuously aggravating issue of Poland — now complete with a constitutional law conundrum. The country’s PM will be front and centre to those discussions in Strasbourg tomorrow and then in Brussels, at an EU summit on Thursday.
We’ll give you a rundown of the latest thinking among European officials and explain why Polexit is a spectre every EU policymaker dreads.
As Poland and the rumbling energy crisis dominate the headlines, the European Commission hopes to quietly launch a public consultation over an equally explosive topic — tinkering with the bloc’s debt and deficit rules.
We need to talk about Poland
Brussels is bracing for a painful escalation in the coming days of its bitter debate over the rule of law in Poland, as Prime Minister Mateusz Morawiecki prepares to defend his country — and its place in the EU — in the European parliament tomorrow, write Sam Fleming and Henry Foy in Brussels.
European Commission president Ursula von der Leyen is also due to speak to MEPs gathering in Strasbourg over the way forward after Warsaw’s constitutional tribunal ruling found that parts of the EU treaty were incompatible with Poland’s constitution, in a case brought by Morawiecki himself.
The ruling brought to a head years of tensions between Warsaw and Brussels caused by the ruling Law and Justice party (PiS) pushing reforms that gave politicians sweeping powers over judges. It also prompted mass protests in Poland against a potential exit from the EU, an outcome many have started to fear.
The Strasbourg debate comes ahead of an EU summit in Brussels on Thursday where the situation in Poland (as well as Hungary) will be aired by leaders who are increasingly anxious about the depth of the divisions being exposed between member states.
Dutch prime minister Mark Rutte, last week told his parliament that his caretaker government opposes the approval of Poland’s €36bn tranche due from the bloc’s €800bn Next Generation EU plan, which is still being analysed by the commission.
However, Polish officials believe Brussels has been unfairly harsh in making an example of Warsaw and failed to respond to potential compromise opportunities. “It’s not only our job to de-escalate,” said one, ahead of a council summit that many in both camps fear could be overly confrontational.
Von der Leyen has come under criticism both within Brussels and in some member states for her cautious approach to the dispute, opening the door for outspoken member states to instead fill the radio silence. Before the tribunal’s ruling, she was more inclined to approve the Polish recovery plan, but some diplomats now see it as politically impossible for her to give the green light any time soon.
The commission can also launch infringement proceedings over the constitutional tribunal’s ruling — a step that some see as a bare minimum. In addition, the commission needs to decide how to enforce so-called enabling conditions on fundamental rights when it comes to agreeing payouts of cohesion funding.
And MEPs are pushing Brussels to deploy its new rule of law conditionality mechanism, with the parliament’s legal affairs committee last week recommending that the commission be taken to court for failing to act despite several alleged rule of law violations.
EU officials are deliberating when to send the first preliminary letters under the mechanism. Any action against Poland is unlikely to be founded on the constitutional tribunal’s ruling, as it would have to be based on a specific threat to EU taxpayer money because of fraud or misuse.
Von der Leyen is likely to continue to tread carefully, for fear of further emboldening the rightwing anti-EU wing of the Polish coalition and cornering the country’s prime minister. But if a compromise is to be reached, Morawiecki will have to offer concrete steps to address the commission’s deep concerns about the decaying state of the rule of law in his country.
The problem, as one diplomat puts it, is that the Polish government has a habit of shutting the doors that might offer a way out.
Chart du jour: Covid restrictions, compared
Scientists are urging the British government to follow European countries that are more cautious in their opening up despite having high vaccination rates. In Spain and Italy, for instance, obligatory wearing of masks has remained in schools and both countries have been more cautious in reopening nightclubs than England. (More here)
Soft launch for hard fiscal debate
Brussels aims to quietly relaunch a consultation on reforming its budget rules tomorrow, but the ensuing debate is likely to be anything but tranquil, writes Sam Fleming in Brussels.
As a reminder, the commission in early 2020 suspended the bloc’s debt-and-deficit-rules under the Stability and Growth Pact given the economic nosedive provoked by the Covid-19 crisis. The rules are likely to be reimposed from 2023 onwards, and in advance of that capitals have agreed to debate possible reforms.
As its starting point, the public consultation will highlight the dramatic transformation in member states’ budget positions since the crisis struck. Public debt-to-GDP ratios in the euro area are up by more than 15 percentage points compared with 2019. The question is how to rebuild stronger public finances while recognising the massive public investment required to rebuild economies and invest in the green transition, the document will say.
Accordingly, it will open the door to a rethink of the SGP, inviting respondents to offer views on what needs to change.
The consultation will not, however, offer firm indications as to where the commission wants this process to land next year, given the decision to seek consensus among member states in the coming months.
Nor will it impose hard deadlines: the debate is unlikely to be settled by next spring, when the commission puts forward its regular fiscal policy recommendations for 2023. But there are already some early signs as to where the discussion will focus:
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Debt reduction: Brussels does not want to immediately reimpose its debt-reduction rule, which requires a 1/20th per annum reduction in debt ratios from member states with debt above the EU’s 60 per cent of GDP ceiling. The Covid-triggered borrowing boom has left debt levels too high for that to be applied strictly from 2023. One answer would be to move towards more country-specific debt-reduction paths. But achieving a consensus on legislative changes to this effect would be formidably difficult. It might be easier to use existing (well-explored) flexibilities available to the commission to achieve a similar result.
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Public investments: There is a broad appetite among multiple member states to discuss ways of better incentivising public investment in key priorities. This could entail, for example, stripping out some green investment from deficit rules. Other ideas are also floating around the commission, including ways of encouraging higher defence investment for example. Again, it might be possible to deliver at least some of this without seeking to win the member states over to legislative change.
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Simpler rules: EU policymakers have also long dreamt of simplifying the rules, which are stuffed with hard-to-measure variables including structural balances and the elusive output gap. This would likely require the EU to undergo a legislative rewrite, however, a daunting prospect.
As the consultation will make clear, there are now far more questions than answers when it comes to the future of the EU’s fiscal policy framework. The debate will not be an easy one.
What to watch today
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EU foreign affairs ministers meet in Luxembourg
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European parliament holds its plenary session in Strasbourg
. . . and later this week
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Polish PM speaks to MEPs in Strasbourg tomorrow
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EU leaders meet for a two-day summit in Brussels on Thursday
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Nato defence ministers meet in Brussels on Thursday
Notable, Quotable
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China on Nato’s mind: Countering the security threat from the rise of China will be an important part of Nato’s future rationale, the alliance’s chief Jens Stoltenberg told the FT in an interview. His comments come as the FT exclusively reports about Beijing having tested a nuclear-capable hypersonic missile.
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ECB buying spree: The European Central Bank is exploring raising its limit on purchases of EU-issued bonds, in a move that would enhance its flexibility in asset-buying schemes, according to four ECB governing council members.
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Belgian conundrum: Belgium, sandwiched between pro-nuclear France and pro-gas Germany, epitomises one of the problems the EU faces in its energy supply as it moves towards a carbon-neutral future. The transition is increasing Europe’s reliance on gas as it moves away from coal and nuclear energy.
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Hungarian surprise: Conservative politician Peter Marki-Zay has emerged as the surprise challenger to Hungary’s prime minister Viktor Orban in elections set for April, after he won the country’s first national primary contest.
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Georgian backsliding: The jailing and hunger strike of Georgia’s former president Mikheil Saakashvili is yet another indication of how the Black Sea country, once held up as an example of how the EU could export its values to its neighbours, has fallen sharply from grace.