Europe & EU December 2019 –

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Official website of the European Union
Politico EU
The European elections 2019
Europe & EU 2018- November 2019

Taxing times
The Economist Intelligence Unit: In Davos this week Ursula von der Leyen raised the prospect of the EU introducing a carbon border adjustment tax on greenhouse-gas-emissions-intensive imports from countries that do not regulate domestic emissions with the same robustness as the EU (even if the EU is not regulating emissions as much as it sometimes claims). This is an old idea, which has been discussed for well over a decade. In the past, it was not given serious consideration, as it was uncertain whether it would fall foul of WTO rules. It looked likely that many countries, including the US, would soon have some kind of carbon pricing. Now with the WTO weakened and serious climate-change action limited to a handful of countries, both of these arguments against a carbon border adjustment have weakened. My personal position has changed as well, and I would now support the EU going ahead with such a tax.
Another area where received wisdom in taxation is changing is revenue taxes. Tax theory suggests that taxation of profits is preferable to that of revenue because taxing revenue can make some profitable activities unprofitable, whereas taxation of profits (most company taxes) means that anything profitable before tax is also profitable after tax, and so the tax has less impact on decisions. It was always a bit difficult to account for the cost of capital, but it was typically done through assumptions on financing costs and depreciation of fixed assets, such as buildings and equipment. Now that intellectual property is such a big driver of production, however, it is a lot harder to account for. As a result, it has become easier for digital economy firms to avoid tax. That brings us to the digital tax proposed by France, which would hit revenues. As with greenhouse-gas emissions, without a fairly uniform international policy regime, for me the balance has shifted. The practical reasons to pursue revenue taxation now outweigh the efficiency arguments for profit taxation. — Simon Baptist, Global Chief Economist and Managing Director, Asia

3 January
Europe’s big problems in 2020
POLITICO’s predictions for the year ahead.
(Politico Eu) 2019 was the year that multiple European governments collapsed, Boris Johnson crushed his opponents with a promise to “Get Brexit done” and a 16-year-old from Sweden rallied environmental protests across the Continent.
After free-trading Britain leaves the EU, France and Germany will quickly shunt Brussels toward an industrial policy based on state support, central planning and European champions. That will include vetoes on big Chinese buyouts in Europe and European governments excluding Asian companies from public contracts, as the EU picks its next generation of home-grown corporate winners in sectors such as electric vehicles, hydrogen and health care. Expect attempted mega mergers in telecoms and other stone-age industries. …— and the results will be underwhelming.
A new financial crisis
The tectonic plates of the world’s financial system are building up tension and are overdue for a slip. More than a decade — a typical interval between panics — since the last crisis, protections are more or less in place against a recurrence of those events. But the next crisis is always different, as financiers like to say.
Finance officials and economists look with wary eyes to China’s shadow banking system. Alternative sources of credit, away from conventional banks, have boomed along with the economy. Officials have not taken the measure of the phenomenon with any degree of confidence. As China’s economy wobbles, that credit looks shaky. Even a small uptick in losses can wipe out lenders with thin financial cushions. … warning lights are flashing red on the control panels of market watchdogs and analysts. Several classes of stocks and bonds are trading at high prices. Those two forces together are ready to shake the financial world in 2020.
Brexit gets (even) dirtier
Anyone expecting Johnson to ditch his hard Brexiteers and go for a trade deal with close alignment with the single market and EU customs union should think again.
The climate agenda boils over
Atmospheric levels of carbon dioxide will hit yet another record in 2020. There will be no sign that the global increase in temperatures is being brought under control. … The effort to clean up is exposing deep fissures between the greener West of the Continent and the coal-dependent East.
Technology takes control
2020 will be the year that Europe ditches its precautionary approach to new technologies. Experts say a host of artificial intelligence systems are already in use across health care, education, employment and criminal justice without appropriate safeguards or accountability structures. Even European governments are already embracing facial recognition technology — disregarding major privacy and civil liberty concerns.
Brussels will be forced to wake up to Iran’s bloodshed
Brussels will have to stop its love-in with Tehran and should worry about what might come next. Like the fall of Communism in eastern Europe, we will see big cracks in the Iranian elite. Sensing the threat to Supreme Leader Ayatollah Ali Khamenei, many oligarchs within Iran’s highly corrupt upper echelons will fear the collapse of the whole edifice that keeps them rich, and will be studying the mechanics of an internal coup and a deal with the West.
Warsaw-Brussels relations at breaking point
Poland’s ruling Law and Justice (PiS) party will push ahead with its deep reforms to the country’s judicial system — Brussels is warning that such steps could violate EU treaties by undermining judicial independence. But Warsaw isn’t listening.

3 January
Crisis in Iran will drive wedge between Europe and Washington
(Politico Eu) Europe’s worst predictions are becoming reality. …they warned the Trump administration that withdrawing from the Iran nuclear deal would trigger a chain of escalation with Iran. … The nuclear deal remains at the heart of Europe’s policy toward Iran. Before Soleimani’s death, France, the United Kingdom and Germany had already signaled they were close to triggering the dispute resolution mechanism under the nuclear agreement in response to Iranian non-compliance. If Tehran takes drastic steps on the nuclear file, it could mark the total collapse of the agreement.


30 December
Europe’s New Green Identity
Jean Pisani-Ferry
The European Union has already invested so much of its political capital into the green transition that a failure to fulfill its promise to achieve climate neutrality by 2050 would severely damage its legitimacy. The Green Deal is not just one of many EU projects. It is the Union’s new defining mission.
(Project Syndicate) At a meeting in mid-December, the leaders of all EU countries except one (Poland, not the United Kingdom) officially endorsed the goal of achieving climate neutrality – zero net emissions of greenhouse gases – by 2050.
European Commission President Ursula von der Leyen wants to go further. Next March, she plans to introduce a “climate law” to ensure that all European policies are geared toward the climate neutrality objective. She wants member states to agree next summer to cut emissions by about 50-55% between 2017 and 2030. She also proposes to allocate half of the European Investment Bank’s funding and a quarter of the EU budget to climate-related objectives, and to devote €100 billion ($111 billion) to supporting regions and sectors most affected by decarbonization. If non-EU countries drag their feet, she intends to propose a carbon tariff.

20 December
These Are the Big Brexit Battles Ahead
As Brexit enters its final phase, the European Union is preparing to navigate the most complex negotiation in its history: its future relationship with Britain.
U.K. and EU-27 will have just 11 months to seal a trade deal
Here’s a guide to the likely flashpoints in the negotiations
(Bloomberg) It promises to be an even bigger and more complicated fight than the political skirmishes over the U.K.’s decision to leave, with everything from trade to security cooperation up for discussion. A deal will require the approval of the remaining 27 members of the bloc — and all have their own different national interests at stake.
U.K. Prime Minister Boris Johnson has made the path to an agreement even more difficult by pledging to use Brexit as an opportunity to break from what he claims are stifling EU rules. His decision to leave himself only 11 months to reach an accord is being taken in European capitals as a sign he intends to seek only a limited agreement with the EU.

9 December
Sanna Marin of Finland to Become World’s Youngest Prime Minister
At 34, Ms. Marin will head a coalition made up of five parties, in a government led by women.
(NYT) The country’s coalition government consists of five parties, four of which are led by women, with Ms. Marin now at the helm. Four of the women are under the age of 35, which Finnish political experts say is more significant, symbolic of the rise of a new generation of politicians in the Nordic nation, which has had strong female representation for decades.

6 December
EU distances itself from Johnson’s timetable for post-Brexit trade deal
Leaked communique signals caution over PM’s 11-month timeframe for negotiations
The document, which may change again, is to be adopted by EU leaders at the summit in Brussels on 13 December.

5 December
Brexit is one of most spectacular mistakes in EU history, says Tusk
Donald Tusk says it would still be better for both sides if UK stayed in EU
(The Guardian) In his first interview since standing down as European council president last week, Tusk said Brexit was “the most painful and saddest experience” of his five years in office, a tumultuous period marked by the Greek eurozone crisis, bitter rows over migration and the election of Donald Trump.
He also criticised the French president, Emmanuel Macron, for branding Nato “brain-dead” and refusing to open EU membership talks with North Macedonia and Albania.
Tusk was speaking to the Guardian and six other European newspapers on the second day of his job as president of the European People’s party (EPP), the centre-right bloc that includes the political forces of the German chancellor and Jean-Claude Juncker.
One of his most urgent tasks will be to decide whether Viktor Orbán’s Fidesz party remains in the EPP. After years of foot dragging, EPP leaders set up an inquiry into the rule of law in Hungary, amid growing concern about pressure on independent media, restrictions on NGOs and Orbán’s use of the EU as “a cash register” to channel lucrative contracts to his friends and family.

4 December
Joschka Fischer: The Day After NATO
French President Emmanuel Macron has drawn criticism for describing NATO as brain dead and pursuing a rapprochement with Russian President Vladimir Putin. But now that a wayward America could abandon the continent at any moment, Macron’s argument for European defense autonomy is difficult to refute.
(Project Syndicate) Europe must fend for itself for the first time since the end of World War II. Yet after so many years of strategic dependence [on] the US, Europe is unprepared – not just materially but psychologically – for today’s harsh geopolitical realities. Nowhere is this truer than in Germany. NATO’s future is more uncertain now than at any time in its history. Immediately after 1989, few doubted that the alliance would still be around 20 years later. But today, questions about its future emanate from not just Washington, DC, but Paris as well. NATO’s survival can no longer be taken for granted, and Europeans cannot wait 20 years to figure out what should come after it.
Between America’s nationalist turn, China’s growing assertiveness, and the ongoing digital revolution, Europe has no choice but to become a power in its own right. In this respect, Macron has hit the nail on the head. But Europeans should not harbor any illusions about what defense autonomy will require. For the European Union, which has only ever seen itself as an economic rather than a military power, it implies a deep rupture with the status quo.

3 December
Will Europe Ever Trust America Again?
By Ivan Krastev
(NYT) Ever since President Trump’s election in 2016, we Europeans … are preoccupied with not allowing ourselves to look like a victim, in the hope that this will prevent us from being mugged in a world abandoned by its once-trusted sheriff.
As Mr. Trump has insulted international institutions and abandoned allies from Syria to the Korean Peninsula, policymakers on this side of the Atlantic have found themselves trying to walk a fine line: On the one hand, they want to hedge against Washington turning its back on Europe; on the other, they want to ensure that their hedging doesn’t push the Trump administration even farther away.
Consequently, European policies toward the United States have been oscillating between grandstanding about our ability to do everything on our own and panicked pretending that everything is as it used to be.
For the past 70 years, Europeans have known that no matter who occupies the White House, America’s foreign policy and strategic priorities will be consistent. Today, all bets are off. Although most European leaders were appalled by Mr. Macron’s derisive comments about NATO and the United States, many still agree with him that Europe needs more foreign policy independence. They want Europe to develop its own technological capabilities and to develop the capacity for military operations outside of NATO.

1 December
Cracks in the alliance: NATO leaders meet Tuesday amid growing tensions over Syria, spending
A 70-year-old military alliance already strained by three years of Trump foreign policy is now being tested by Turkey’s unpredictable behaviour and opposing views about Europe’s relationship to Russia
(Globe & Mail) What was supposed to be a demonstration of solidarity – a gathering of NATO leaders to mark the organization’s 70th anniversary Tuesday in London – is instead more likely to showcase the growing splits within the military alliance that won the Cold War.
NATO’s unity, already cracked by three years of U.S. President Donald Trump’s disdain for the alliance, has been further challenged in recent months by an increasingly rogue Turkey, as well as by French President Emmanuel Macron’s assertion that the 29-member group is “experiencing brain death” and is unable to meet the challenges it now faces.

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