European Affairs: Strategic priorities and legislative action for an increasingly geopolitical EU

A large part of the regulatory reforms and the investment projects that both the government of Spain and the regional governments kickstart are part of the commitments taken on with the EU. Some are related to ​the Recovery, Transformation and Resilience Plan (RTRP), and others are transpositions of Directives or applications of Regulations. In fact, 51 % of the bills passed in Spain in 2021 come from a EU political initiative (European Parliament Liaison Office in Spain, 2021). Out of the 55 bills passed in Congress, 28 regulated issues originating from the EU.

Of these 28 laws, 11 were transpositions of Directives approved by the European Parliament and the Council in areas such as waste and contaminated land, food chain or anti-money laundering, among others. The rest came from different institutions’ recommendations, orientations, programmes, or initiatives. There are also some Regulations that do not need to be approved by the Member States’ legislative chambers.

There are also other kinds of political agreements reached between the Heads of State and the Member States’ Governments, which have a high impact on the citizens’ and businesses’ day-to-day life. Clear examples of this are the position concerning crises like the one in Ukraine or the negotiation on energy taxonomy, where technical arguments mix with the political ones. In fact, a big part of legislative and technical issues come from these political agreements.

This Policy Brief, the first of a regular series of notes by LLYC European Affairs, focuses on the current and future legislative priorities of the European legislator by placing them in the current political context. It is a roadmap that will directly and significantly affect citizens in the Member States and businesses’ economic and productive activities. We start with an assessment of the context, which includes some of the most significant political debates, analysing subsequently the regulatory novelties foreseen for the upcoming years.

THE POLITICAL CONVERSATION

The EU has moved from being an eminently technocratic body to experiencing a growing politicisation in the last few years. This evolution has been marked by a string of crises, which have forced the EU to give quick and agile responses that only Governments and their Heads of State can take, impacting the national-level debate in many different ways. These  has caused governmental institutions such as the Council of the European Union and the European Council to increase their impact.

Although the function of the European Council is not legislative, the institution has become key in setting priorities and marking the EU’s roadmap. In other words: legislative actions and specific initiatives follow the general guidelines that the Member States agree upon in the first place.

Currently, the invasion of Ukraine is at the centre of the political debate. How the EU responds to this crisis will, to a great extent, set the direction that the most relevant discussions will take and, thus, also the future of the European project. Below, we summarise the main key topics that will set the political agenda and be, at least partly, reflected in the regulatory one.

“How the EU responds to the crisis in Ukraine will set the direction the future of the European project will take”

STRATEGIC AUTONOMY AND TRANSATLANTIC TIES

Since the EU Global Strategy presentation in 2016, strategic autonomy has become a incrreasingly prominent concept. This document concluded that soft power was not enough anylonger and that the EU should strengthen its security and defence capabilities. Specifically, the notion of strategic autonomy calls for the need for the EU to become a global actor with the ability to make decisions independently.

Many events took place last year in the framework of this debate, such as the retreat from Afghanistan or the AUKUS pact, which stressed yet again the European dependence on the US in security and defence issues, as well asthe change of the Northern-American priorities on the Indo-Pacific region. These events caused President Von der Leyen to call for advancing toward the European Defence Union in her speech on the State of the Union, and the President of the European Council stated that 2022 would be “the year of European defence”. The presentation of the Strategic Compass, which intends to be the EU’s roadmap on defence and security or the celebration of a European Defence Summit during the French presidency of the Council of the EU, are foreseen activities for this year.

The EU has taken a few steps to move forward with the Common Security and Defence Policy. Last year, the EU established the European Defence Fund and the European Peace Facility Fund, which have been used to finance the supply of materials for the Ukrainian armed forces.

One of the main obstacles to advancing strategic autonomy has been the divergent understanding of the EU relationship with NATO and the US. Whereas France has been one of the main defendants of European strategic autonomy, the Eastern and the Baltic Member States have been more reluctant to give up on ensuring their security under the NATO umbrella.

The conflict in Ukraine has had an impact on all of these areas. It remains to be seen how the content of the Strategic Compass or the EU’s relationship with NATO and the US will be affected by this. Opposite to the previous rift, there are glimpses of the realignment between NATO and the US and the re-emergence of the Atlantic Alliance. The future EU-NATO Declaration will reflect all of these. Actually, Spain will host the NATO Summit in Madrid next June.

Additionally, strategic autonomy has a clear economic component related to on the supply of basic materials, as witnessed during the pandemic. This dependence affects the raw materials supply, which is crucial for the green and digital transitions in strategic sectors. In this sense, the future European Chips Act aims at strengthening the European microchips value chain, fundamental for the manufacture of electric cars.

The crisis in Ukraine has highlighted other dimensions for strategic autonomy as well, such as the EU’s energy dependence. On March 8th, the Commission presented a package of measures to reduce the dependence on Russian gas by 2030 and tackle the energy prices crisis. Among other proposals, the Commission plans to boost renewable energies or establish minimum gas storage levels.During the last few months, Spain has been one of the Member States that has actively defended the need to modify the marginalist system of the European electricity market and disconnect the price of gas from the final cost of electricity. After a hard-fough battle, the European Council on March 24th and 25th seems to have acknowledged this request: the level of electrical interconnectivity with the single electricity market will be taken into account when deciding on measures to tackle the rise of energy prices, a clear invitation by Spain and Portugal to put in place price limits in thier national energy markets. A final enforsement by the Commission is now needed, which is also expected to present by May a plan to reduce the dependence on Russian fossil fuel.

Spain has decided to explicitly position itself in the debate on strategic autonomy, as proved by the joint non-paper with the Netherlands. Both countries stand for advancing towards strategic autonomy, but in a complementary way to NATO. Likewise, both countries defend that reinforcing strategic autonomy should not come at the interior market or an open economy’s expense.

“The crisis in Ukraine has highlighted other dimensions of strategic autonomy, such as the EU’s energy dependence”

GREEN DEAL AND TAXONOMY

The EU’s taxonomy is a tool that aims to inform about projects and economic activities considered sustainable. Its goal is providing companies and investors with accurate definitions so that they can redirect their investments and efforts towards the green transition.

Even if this looks more like a technical matter, this has clear political implications since it often clashes with Member States’ primary interests. Since the Commission presented its taxonomy proposal at the beginning of 2022, an intense debate between often conflicting positions started.

Specifically, the Commission proposes considering nuclear energy and gas as transition energies needed to move towards climate neutrality. This classification would be positive for both the French (due to the inclusion of nuclear energy) and the German interests (thanks to considering gas explicitly). However, this taxonomy has been heavily criticised by other Member States. For instance, Austria, Denmark, Sweden and the Netherlands addressed a letter to the Commission asking for the exclusion of fossil gases. In this regard, Spain has publicly shown its rejection of this classification.

This controversy worsened when the Commission decided to adopt this decision through a delegated act, which led Luxembourg to threaten to take legal action. In a nutshell: political stakes are high.    

From the presentation of this delegated act on February 2nd, the European Parliament and the Council have four months to examine the document, with the possibility of requesting an additional two months’ extension. Suppose both co-legislators do not manage to reach the required majority to oppose the paper (something which looks complicated, as it has the support of two big Member States, France and Germany). In that case, the delegated act would come into effect on January 1st, 2023.

Nevertheless, this scenario might be substantially modified by the invasion of Ukraine. It is to be expected that the strong European dependence on Russian gas, something that currently shows more than ever, and the fear of the stream being closed might nuance the rejection of alternatives such as gas or nuclear energy exhibited by the most reluctant Member States.

NEXT GENERATION AND THE RULE OF LAW

Since its launch in 2020, the European Recovery Instrument has been closely linked to discussions on the rule of law. The adoption of this instrument was initially blocked by Poland and Hungary, who opposed the disbursement of European funds being conditioned by strict adherence to the rule of law    

As a consequence, both Poland and Hungary announced that they would bring an action for the annulment of the Conditionality Regulation before the Court of Justice of the European Union, thus delaying the launch of the mechanism itself. On February 16th, the Court of Justice of the EU delivered a sentence favouring the mechanism and therefore rejecting the appeals.

These events have increased the pressure on the European Commission to finally activate the mechanism. The European Parliament has heavily criticised the Commission for not having activated it already, considering that it should quickly react to violations by the Member States. The European Parliament has finally announced that it would file against the Commission before the Court of Justice for not activating this Regulation.

In the Hungarian case, the Commission justifies not having activated the mechanism under the pretext of not interfering with the General Election held on April 3rd. Regarding Poland, and despite the efforts made by the its President to reach an agreement with Brussels on judicial independence, an issue that has already caused Poland to receive many fines, the Commission does not see any positive changes in the situation nor any silver linings on the Commission activating the conditionality mechanism.

Nevertheless, the rest of the Member States have not opposed it, meaning that the conditionality mechanism might never be activated.

The Russian invasion of Ukraine is expected to impact this scenario. As one of the main European countries receiving refugees, Poland is one of the Member States that more frontally opposes Russia. As Ukraine’s neighbour, Hungary is also being heavily affected, although Orbán has recently reinforced the country’s energy dependence and ties with Russia. It remains to be seen if the conflict between these two countries and Brussels continues to be the main issue or, given the impact they will be exposed to, tensions will calm down and both of their national recovery plans shall be approved.

FISCAL GOVERNANCE

In March 2020, during the pandemic’s acute phase, the Commission activated the general escape clause, which allows suspending control over public expenditure as foreseen in the Stability and Growth Pact. Due to the large increase in  national debts and deficit (respectively 92,1 % and 6,6 %, according to the European Commission), it was considered convenient to suspend the procedure aimed at ensuring that the Member States’ deficit and debt never go, respectively, beyond 3 % and 60 % of the GDP. Although the Commission stands for keeping the clause active until 2023, the plan is to reach a broader stability agreement about the new fiscal regulations for the post-pandemic context. Ever since the debate around the reform of fiscal regulations started, two main positions have become visible: on the one hand, countries like Spain, Italy and France stand for a more flexible framework; on the other, the Member States known as the Frugal Four (Austria, the Netherlands, Sweden and Denmark), who prefer fiscal discipline. To contribute to this debate, Spain proposed removing green and digital investments from the public deficit accounting system. However, government changes in both Germany and the Netherlands at the end of 2021, countries that have traditionally stood for a stricter fiscal stance, have created a scenario that might be eventually positive for the flexibilisation of fiscal regulations. In the German case, the governmental agreement is keen on posing an open and constructive position in negotiations, a noteworthy development given the traditionally orthodox position of Christian Lindner, German Minister of Finance. Likewise, the Dutch government agreement signed in December 2021 includes many public expenditure compromises, which will make it difficult for the country to abide by the maximum thresholds originally set in the Stability Pact. As it happens with the rest of the political debates, the crisis in Ukraine has impacted the fiscal issue as well. In this sense, the Commission acknowledges that current uncertainty might call for a more open and flexible position. In addition, there might be the possibility of extending the general escape clause during 2023, the year in which it should be deactivated. We will have to wait until the spring economic forecast to see if a decision is made in this regard. Is this broader fiscal discussion which frames the more specific discussion on  the permanent nature of the European Recovery Instrument. Spain is among the Member States that have defended this possibility. The new German government’s agreement underlines the fact that this is a tool limited in time, though they are open to the creation of other instruments in the future. Although the invasion of Ukraine has raised expectation about new joint debt issuance, many countries insist that the European Recovery Instrument resources should be first used. Still, it remains to be seen to which extent the consequences of the Russian invasion will affect the development of the Instrument. In this regard, the redesign of the national recovery plans is fostering the Member States to ask for the credit component (something that only Italy had done already) and calculate the allocation that each Member State will receive in 2023.

“Government changes in both Germany and the Netherlands have created a more positive scenario for the flexibilisation of fiscal regulations”

THE REGULATION AGENDA

At the end of 2021, the Commission presented its Work Plan for 2022, which indicates the main legislative initiatives it aims at promoting during the year. These initiatives are based on the political orientations President Von der Leyen made public at the beginning of her mandate and set the objectives she  aims at achieving during the current political cycle (2019-2024). Even though the EU’s legislative function rests with the Council and the European Parliament, it is the European Commission that needs to present the initiatives, so legislative acts might only be adopted once they have been proposed by the Commission.

According to the latest data by the Commission, by the end of August 2021, 52 % of the initiatives around the six main political priorities had been presented, and 48% of them had been adopted as legislative acts by both the European Parliament and the Council.

The Commission’s Work Plan for the year is especially important as it marks the halfway point of the mandate, which will end in 2024. The work plan includes 42 new legislative initiatives that will add to the current open legislative work that is still in progress for each one of the six areas of focus.

Below, we analyse the current state of the main legislative work in the six political priorities, considering the ones that have been initiated and are still being processed, as well as the new initiatives planned for 2022.

EUROPEAN GREEN DEAL  

This label brings together the most significant initiatives foreseen in the Commission’s political orientations. However, out of the 90 total proposals, the Commission has only presented a third (28), of which only 15 have been adopted by the co-legislators (the Council and the European Parliament).

More specifically, what stands out the most is the package of legislative measures presented by the Commission in June 2021      known as Fit For 55. The goal of these measures is to reduce 55 % of greenhouse emissions by 2030. These proposals follow the European Climate Law and consider a wide range of measures affecting, among others, energy, climate, and transportation.

Among thems, draft Regulation to create the Carbon Border Adjustment Mechanism (CBAM) should be highlighted. In the longer term, this system shall replace the Directive 2003/87/CE for establishing a greenhouse gas emission allowance trading scheme. Its goal is to fix the carbon price, avoiding the risks of industry relocations to other regions not sharing the Union’s climate standards. Although the adoption of this Regulation is at a very early stage it actually is one of the priorities of the French presidency, and the Council has already adopted its position on the Commission’s proposal. Nevertheless, before the negotiations with the Council and the European Parliament start, the Parliament should gree on its position     .

In addition to that, the Commission’s programme for 2022 includes the proposal of a regulatory framework for the certification of carbon absorption to intensify the implantation of sustainable carbon absorptions and create a business model that rewards land administrators that promote these practices.

Other proposals on reducing emissions, which are part of Fit for 55 and will be continued this year, are the recast of the Energy Efficiency Directive and the review of the Renewable Energy Directive.

Additionally, in the “zero pollution” action plan framework, the Commission will advance an integrated water management to deal with superficial and underground water contaminants. Likewise, the EU regulations on air quality will be reviewed to adapt them to the World Health Organization recommendations.

Regarding sustainable mobility, the Commission has presented some measures including the Draft Regulation on the use of renewable and low-carbon fuels in maritime transport, the Draft Regulation on ensuring a level playing field for sustainable air transport, and the reform of the Single European Sky initiative. To add to that, in 2022 the Commission will advance the review of the rules on CO2 emissions for heavy vehicles. Likewise, it will set a legislative framework for the harmonised measurement of emissions caused by transportation and logistics to support the transition towards emission-less mobility.

“The goal of these measures is to reduce 55% of greenhouse emissions by 2030”

In microplastics, an initiative to reduce their environmental impact is under consultation. This measure focuses on the labelling, normalisation, certification and regulation of the non-intentional release of microplastics; the development and harmonisation of the methods for measuring the non-intentional release of microplastics, the reduction of the scientific knowledge breach on the risk and presence of microplastics in the environment, drinking water and food. The Commission is expected to adopt a proposal during the last quarter of 2022. By the end of 2022, the Commission will have adopted a strategic framework for bioplastics and biodegradable and compostable plastics.

Regarding the circular economy, in the third quarter of 2022 an initiative on consumers’ right to fair price reparations will be presented. Likewise, the review of the Packaging and Packaging Waste Directive that the Commission is working on aims at harmonising the free flow of packaging and packed goods rights. The main goal is to reduce the creation of packaging waste, limit certain packaging materials and reduce the complexity of packing materials. The Commission aims at compensating manufacturers, who will undergo an increase in their production costs by reducing the extended producer responsibility taxes.

The Draft Regulation on waste shipments aims at preventing the EU from exporting its obligations regarding waste to third countries. Exporting companies from the EU will be subject to independent audits, and the Commission will have the right to suspend the shipment of waste to certain countries. Waste shipment for recycling purposes will be made more accessible through the digitalisation of shipments, the creation of classification criteria harmonised within the EU and more strict conditions for the shipment of waste for cremation. The draft is still in the early stages of the legislative process, so its approval is not expected until at least the beginning of 2023.

Regarding food and agriculture, during the second quarter of 2022 a legislative initiative to revise the classification, labelling and packaging regulation is expected to protect human health and the environment better. For this year, it is also planned to review the rules for the sustainable use of pesticides and a Draft Resolution on deforestation-free products. The latter will ensure that only deforestation-free products enter the EU market, forcing economic agents exporting products to the EU to inform about the geographical location of the land in which the goods were produced.

In the area of agriculture, it remains to be seen if the crisis in Ukraine has consequences on the European plans to advance towards more sustainable agriculture and, more specifically, on the Farm to Fork Strategy. Both the affected industries and countries like France keep insisting on that these goals were set before the Russian invasion and that the current context might jeopardise food security.

A EUROPE FIT FOR THE DIGITAL ACE 

In this area, the Commission initially proposed a total of 73 initiatives, although only 38 have been presented so far and, out of them, only 13 have been adopted by the co-legislators.

Among the proposals that have already been presented and are pending adoption stands out the Draft Regulation on the Digital Services Act (DSA), which  aims at protecting the rights of users online. The Council and Parliament have recently reached a provisional political agreement on the Digital Markets Act (DMA), which want to ensure that no large online platform that acts as a “gatekeeper” for a large number of users abuses its position to the detriment of companies that want access to those users. The regulation must be implemented within six months of its entry into force. The French presidency of the Council of the EU had declared both proposals a priority.

Other pending initiatives is the Draft Regulation on Artificial Intelligence. However, work in this regard has been delayed, for the co-legislators have not yet agreed on their positions. The Draft Regulation to implement digital identity in the European Union is expected to move forward in 2022 too.

Some non-legislative actions proposing strategic frameworks to guide the EU’s digitalisation project, such as the Digital Education Action Plan (2021-2027) and the Path to Digital Decade to achieve digital transformation by 2030, should be mentioned too.

In addition to what is already in progress, the Commission will present new initiatives during 2022 in areas such as digital services for multimodal mobility. In this respect, the most awaited proposals from the Commission and underlined by President Von der Leyen in her last speech on the State of the Union are the European Chips Act, which will promote a European ecosystem for chips; and the European Cyber Resilience Act. The first act is expected to be presented during the second quarter of 2022, while the second is most likely to come in the third quarter.

The energy sector will also be key since the Commission is planning on proposing an action plan for the digital transformation of the industry, aligned with the green transition.

AN ECONOMY THAT WORKS FOR PEOPLE 

This political priority stands out from the rest because, out of the total number of initiatives presented by the Commission, 67 % has already been adopted. Thus, this is where the most progress has been made. According to the Commission, this is explained by the need to recover from the pandemic’s impact quickly.

One of the most important initiatives, which is also one of the priorities of the current French presidency of the Council, is related to taxation. In October 2021, the OECD Member States reached an agreement on taxation system reform. The agreement comprises two pillars: Pillar I) reallocating tax rights over the jurisdictions in which multinational companies operate, and Pillar II) introducing a minimum tax rate of at least 15 % for company profits.

Regarding the second pillar, at the end of 2021, the Commission presented a Directive to transpose the agreement to the European level, with its deployment being foreseen for 2023. Currently, the Council and the European Parliament are studying this proposal. Many Member States are still reluctant to what is being debated. However, this file is a priority for the French presidency, hoping for an agreement to be reached at the Council in April. With respect to the first pillar, the Commission is expected to present a proposal during the year.

These initiatives are framed in a deeper and broader reform of the EU’s taxation system. For instance, this includes the Communication presented by the Commission in May 2021 titled Business Europe Framework Income Taxation (BEFIT). This initiative aims to establish common rules for calculating the base for corporation tax, fostering     a fairer distribution of taxation rights among the Member States. Likewise, in 2023 the Directive that forces big multinational companies to make public the taxes they pay in each Member State will come into force and effect.

The Commission will also work to introduce a new digital tax that, together with the Carbon Border Adjustment Mechanism (CBAM), aims to gather new resources to fund the European Recovery Instrument.

Regarding labour law, in December 2021 the Commission proposed a Directive to improve the working conditions of people working through digital labour platforms. This act is in a very early stage of the legislative process, which shall continue during 2022. One of the remaining pending initiatives is the proposal for a Directive on adequate minimum wages, which has recently started its negotiation phase between the co-legislators.

Lastly, on the new initiatives for 2022, the Commission will present a proposal on immediate payments to foster its acceptance in the EU, adopt measures on harmonisation of insolvency procedures, and look at facilitating SMEs’ access to capital.

A STRONG EUROPE IN THE WORLD

67 % out of the total amount of proposals (39) presented by the Commission have already been adopted. In this regard, in the last speech at the State of the Union, President Von del Leyen emphasised the need to reinforce the EU’s role in the world.

Following this framework, the Commission presented the Global Gateway initiative, which aims to mobilise up to 300 billion euros for investments in strategic industries worldwide. The goal is to compete with the Chinese One Road One Belt initiative and counteract China’s influence in regions like Africa.

Likewise, Von der Leyen stressed the importance of further developing the European Defence Union. In this respect, in 2021, the Commission launched the European Defence Fund, whose objective is to support research and development projects in the defence industry. In 2022, the Commission will continue the works in this area with a roadmap on security and defence technologies.

Additionally, the work plan foresees the development of a strategy for world energy cooperation to advance toward a green transition.

“The Commission has recently presented the Global Gateway initiative which aims at counteracting China’s influence in regions like Africa”

PROMOTING OUR EUROPEAN WAY OF LIFE

In her last speech on the State of the Union, President Von der Leyen defended the need to advance toward a European Health Union.

In this regard, the Work Plan for 2022 includes the proposal for a new pharmaceutical industry framework, which aims to ensure access to accessible medication for all Europeans, fostering innovation and providing a simplified and digital regulatory environment. Likewise, a review of the current regulations on pediatric medicines and rare diseases will be proposed. This will be linked to creating a European space for data related to health, with a governance method that shall guarantee its safety and protection.

Lastly, this area also features initiatives regarding education: on the one hand, a European university strategy and, on the other hand, ways of reinforcing transnational cooperation in higher education. These initiatives have already been made public. The French presidency of the Council shares the following main guidelines: the French programme proposes the creation of a European exchange service to promote European mobility among the young population, as well as the implementation of a European academy or a European network of universities (to this regard, France will organise a European universities summit in June 2022).

A NEW PUSH FOR EUROPEAN DEMOCRACY

In the context of the Conference on the Future of Europe, which will end during the French presidency of the Council, the Commission’s work plan foresees the presentation of new initiatives. The one that stands out the most among them is the proposal for a European Law on the freedom of the media, which shall be presented during the third quarter of 2022.

CONCLUSIONS

2022 marks the halfway point of the European institutional cycle that started in 2019. In other words: it is a crucial moment to learn about the degree of progress on the strategic priorities presented by President Von der Leyen at the beginning of her mandate.

This milestone occurs in an increasingly uncertain international context that threatens to derail the Commission’s original intentions. The Russian invasion of Ukraine barely a month ago or the EU-China summit, which will try to reduce the growing tensions between the two, at the beginning of April are sufficiently illustrative of the new global order to which the Union must get used to. It is within this new scenario that the Commision von der Leyen aims  at playing more geopolitically.

The original  2022 European Commissions’ Work Plan, which includes the new initiatives that it plans on initiating together with the pending issues, is extensive and falls under a wide array of subject areas. Becoming a champion against climate change and strengthening the digital economy, with the related regulatory packages, remain two of the most important goals  Political priorities will turn into specific legislative actions, affecting the citizens in the Member States and businesses’ economic and productive activities.

Nevertheless, the 2022 Work Plan will be significantly impacted by the Russian invasion of Ukraine. It is precisely in the intergovernmental bodies (Council of the EU and European Council) where this crisis reflects explicitly, given its immediate impact  on competencies of the Member States and its clearer political nature. In this sense, priorities at the core of the European Council have been modified, with an intensified focus being now placed on energy issues and strategic autonomy.

The quest for greater autonomy and global influence was already on the agenda when Ursula von der Leyen delivered her opening statement in front of the European Parliament on July, 16, 2019. “The world is calling for more Europe. The world needs more Europe”, she stated. Halfway in office, the definitive unveiling of the new global order will definitely test to what extent the Commission sticks to its original ambitions. Whatever its case, its strategic priorities and regulatory agenda will reflect it – and we will know.

“The definitive unveiling of the new global order will definitely test to what extent the Commission sticks to its original geopolitical ambitions”

EUROPEAN AFFAIRS

European Affairs provides leading capacity on the institutional and regulatory context of the European Union and its link with global public policies. Through political intelligence, regulatory monitoring and corporate actions in relation to European institutions, LLYC facilitates a better understanding of the European context in an increasingly complex global scenario.