EU policies await German election outcome

Good morning and welcome back to Europe Express! We hope you managed to unplug over the summer break and that your rentrée (back to school experience) is going smoothly.

Meetings are starting to pick up pace in Brussels and other EU cities this week, and so is the all-dominating German election campaign ahead of the September 26 Bundestagswahl.

We’ll have a look at various EU policy files that have been stuck ahead of the German election and look at the chances of progress before French election campaigning gets in full swing in spring next year.

Switching gears, a few days before getting this Europe Express ready for departure, I took a ride on an actual pan-European train coincidentally named Connecting Europe Express. The train is still making its way through 26 European countries until next month, as the European Commission and national railway companies want to flag the need for investment in what they say is the greenest of all existing transport modes.

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Franco-German limbo

European Commission president Ursula von der Leyen is likely to strike a bullish tone in her State of the Union speech in Strasbourg on September 15, highlighting the contrast between where Europe stands today compared with a year ago, writes Sam Fleming in Brussels.

The commission is predicting 4.8 per cent growth this year following last year’s 6 per cent slump, the unprecedented €800bn Next Generation EU collective borrowing programme is kicking off, the union is comfortably ahead of the US when it comes to full vaccination rates — and a number of member states have overtaken the UK after the slow start earlier this year. 

But looming over the speech will be the German election just over a week later — a source of uncertainty not only personally for von der Leyen as protégée of outgoing chancellor Angela Merkel, but also for EU policymaking as a whole.

For much of 2021, the question mark about who will succeed Merkel has hung heavily over EU decision-making. Some have pointed to the spell between the formation of a new German government and the French presidential elections next year as a precious window in which progress could be forged on a range of knotty European files. 

The reality, fear some officials and diplomats, may prove to be different. Take the economic and financial arena, which will feature prominently later this week with the convening of informal meetings of finance ministers in Slovenia on Friday.

The commission is set in October to reopen its consultation over how to reform the EU’s labyrinthine and widely unpopular fiscal rules, after it suspended the process early in the Covid-19 crisis. Paolo Gentiloni, the EU’s economics commissioner, has issued calls for “renewed and reviewed” EU budget rules that incentivise public investment and foster more durable economic growth.

But diplomats warn his bold ambition to rewrite parts of the Stability and Growth Pact is by no means shared everywhere in the commission’s Berlaymont headquarters. And there is no reason to expect a change of government in Berlin to unlock a revolution in EU fiscal policy — especially given SPD chancellor candidate Olaf Scholz’s decision to position himself as a continuity contender to succeed Merkel.

Meanwhile, the fiscal hawks of northern Europe are beginning to sharpen their talons. While some are willing to examine ways of permitting debt-reduction paths to be more country-specific, for example, the trade-off could be tougher enforcement of the overall framework by the commission.

Similarly, officials and analysts are pessimistic over the prospects for a great leap forward on key financial regulation files once the new German government is installed.

The Banking Union project once again foundered in the first half of the year, and the likelihood of it gaining any real momentum moving into 2022 seems slight. The EU is also struggling to advance the long-running Capital Markets Union, which focuses on financial markets.

“It is not clear what catalyst could unlock [the Banking Union], short of a new crisis,” said Nicolas Véron of the Bruegel think-tank. “As for the Capital Markets Union, even a comparably small step, such as making the governance and funding of [markets regulator] Esma fit for purpose, is viewed as too much change by many.”

The saving grace, Véron added, however, is the commission’s July proposal on anti-money laundering supervision, which he said has a good chance of being adopted.

In her speech, von der Leyen will also have to take on the foreign policy debacle of Afghanistan, as capitals digest the US-led departure from Kabul.

The debate in Brussels in recent days has focused, to the dismay of some member states, on the narrow question of whether the EU should create a new military unit capable of staging early interventions. Von der Leyen, a former German defence minister, will probably frame matters in a broader context, pointing not only to the need for more hard power but also for the EU to better use its soft power as it steps up on foreign policy. 

But calls for the EU to punch its weight on foreign policy are hardly novel. And in key areas where the EU wants to present a united face to the rest of the world it remains hopelessly divided.

The EU’s continued stand-offs with Hungary and Poland over rule of law — to the point that the two countries’ recovery plans remain stuck for now — are denting the bloc’s ability to project democracy standards abroad.

And on migration, officials speak of several missed opportunities to advance on a package of legislative proposals (called the Pact on migration and asylum) which would tighten border security, increase the standards for how asylum seekers are treated in Europe and provide border countries with some form of solidarity from the rest of the bloc in the case of a migration crisis.

Neither the Turkey-Greece migration flare-up last year, nor the Spain-Morocco and the Belarus-Lithuania frictions this year have unblocked matters, said Margaritis Schinas, the commission’s vice-president in charge of migration.

He described himself as “more optimistic that with a new German government, the [migration] pact will be activated”. Some diplomats aren’t so sure.

Chart du jour: Inflation lookout

The trajectory of inflation will be crucial for the European Central Bank’s upcoming decision: how much stimulus to pump into the economy by buying bonds when the €1.85tn pandemic emergency purchase programme finishes next year. (Read more here)

What’s in a (train’s) name

Fully vaccinated and with a hearty supply of face masks, last week I ventured to Lisbon to board the maiden (and only) voyage of the “Connecting Europe Express”.

Onboard the Connecting Europe Express at the departure station in Lisbon
Onboard the Connecting Europe Express on September 2 at the departure station in Lisbon © Valentina Pop

Designed to replace yet another online Zoom conference with one that takes place on wheels, this train is no Snowpiercer, to borrow from the Netflix series. In fact, some railway officials involved in the project baulked at the name “express” because the train travels at low speeds for extended stretches — especially in central and eastern Europe.

The name is derived from the “Connecting Europe facility” — a part of the EU budget devoted to cross-border transport and energy links.

It is not one train, however, but three — because of the different gauges on the Iberian peninsula and in the Baltic states compared to the rest of the continent. Nor is it exactly a ‘hop on’ experience, despite the message printed on its doors, as no tickets are sold. Passengers include guests, journalists and, in some countries, tombola winners.

The fact that it takes 36 days to cross 26 countries speaks volumes as to how disconnected the continent still is — even if railway is the only fully electrified mode of public transport and will need to sit at the heart of the continent’s green transition.

Case in point: It took two days to get from Lisbon to Madrid — despite Spain being renowned for its high-speed network. But that network was designed to service Madrid’s links to other major Spanish cities, not so much to connect it with other capitals.

Close to the border with Portugal, the line isn’t even electrified and our train had to stop in the last Portuguese town before the border and get a diesel engine for the crossing.

“It should be as easy to drive a train across Europe as it is to drive a truck, but that’s not the case,” said Andreas Matthä, CEO of Austrian railway operator ÖBB.

The need for investment will be partly covered by the billions each country receives from the NextGenerationEU programme. But, as railway experts point out, it takes at least 20 years of planning to get a modern railway network in shape and to start seeing returns on investment.

That’s a time span that worked well in China with its high-speed network, but that is much less compatible with Europe’s volatile political environment and its high turnover of governments and transport ministers.

The vision of one high-speed train to connect all EU capitals nevertheless lives on. The transport commissioner, Adina Valean, speaks of 2030 as target date to achieve that. Given the obstacles in the way, the risk is that this will prove to be yet another missed EU goal.

What to watch today

  1. EU economy and finance ministers hold an informal videoconference to sign off on more national recovery plans

  2. European Parliament holds a hearing with EU competition and digital policy commissioner Margrethe Vestager on the quasi-monopoly of Big Tech and how artificial intelligence can be used to counter disinformation

. . . and later this week

  1. Foreign ministers of Germany and US will co-host a virtual conference on Afghanistan with their counterparts from China, Russia and a dozen other countries

  2. France’s biggest terrorism trial begins on Wednesday, over the Islamic State attacks that shook Paris in November 2015, killing 130 people

  3. European Central Bank’s governing council meets in Frankfurt on Thursday

  4. Economy and finance ministers meet in Slovenia on Friday and Saturday

Notable, Quotable

  • Oh, Vienna: This FT special report explores how the Austrian capital has changed over the past 30 years, why banking success gave new life to the city’s aspirations to become a finance hub, and how the green transition and the Belarus crisis may scupper those ambitions.

  • Belgian rebound: If last year, Belgium had one of the worst Covid-19 mortality rates in the world, the country has now just returned to pre-pandemic figures in terms of excess deaths, Brussels Times reports.

  • Bankers and mercenaries: Back in 1527, mercenaries pillaged Rome but spared the city’s German bankers. The book The Verge: Reformation, Renaissance, and Forty Years that Shook the World explores the origins of Europe’s finance industry, which for a while helped the continent grow faster than the rest of the world. (Read more here)

  • Opposition, united: Hungary’s opposition candidate Gergely Karacsony won the mayoral elections in Budapest two years ago and he is now seeking to unseat prime minister Viktor Orban in April’s general election.

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Today’s Europe Express team: [email protected], [email protected]. Follow us on Twitter: @Sam1Fleming, @valentinapop.

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