Energising Europe’s future

Juncker’s strategy could kick start some badly needed investment in Europe’s energy infrastructure

On Wednesday Commission President Juncker announced his long-awaited investment strategy, a plan which aims to give Europe’s economy a much needed shot in the arm as the bloc continues to stagnate. Formally called the European Fund for Strategic Investments (EFSI), the mechanisms of the fund are based on leveraging an initial €21bn into an eventual €315bn of investments in both long term infrastructure and short term access to capital for SMEs and mid-cap firms.

The strategy itself is based on three main principles (the “three sides of the triangle”, as Vice-president Katainen put it at the Strategy’s launch).

  1. New finance will be mobilised
  2. Finance will be steered towards EU approved projects
  3. Regulatory barriers will be removed via the entrenchment of the single market.

With enough leverage…

The basic principal behind the fund is quite simple (though no doubt the economics will be discussed ad nauseum in the coming months).The fund is intended to act as a first line of investment, shouldering risks which traditional banks might shy away from, and in doing so, it hopes to encourage private investors to fall in line behind it. “At the heart of this package there is a political choice” Vice President Katainen explained during his speech. The EU must choose between a traditional grants and loans system, limited by the capital at hand, or it can facilitate “riskier borrowing and create a larger lending capacity”.Investment Fund Chart

Diagram 1: How the strategy should work

Energising Europe’s future

The second part of this “triangle” is the identification of infrastructure projects for funding. The EU is currently reviewing around 1,000 projects for viability and utility, and those that receive the “European stamp” can expect to have the weight of this fund behind them, reducing the risk and incentivising investors

It comes as no surprise, given the current cloud hanging over Europe’s somewhat precarious energy situation, that a good chunk of this fund will be earmarked for investment in energy infrastructure. Vice-president Šefčovič may not have been presenting the plan, but he certainly will have a hand in running it, with the oft-repeated goals of “completing the internal energy market” and “diversifying supply” firmly on his mind.

The abovementioned projects will no doubt have drawn heavily on the ‘Projects of Common Interest’ (PCIs) agreed last year, boosting financing and speeding up infrastructure development.  However, Katainen shied away from making any firm commitments, saying “there will be no sector-specific or country specific quotas”. This leaves an air of uncertainty over how much of the fund will be spent on energy, though there is no doubt in its priority

Tearing down the barricades

The third side to the triangle, the completion of single markets in the energy, digital, services and transport sectors, was spoken about at length by Katainen. It comes as no surprise that energy infrastructure was a top priority, given its necessity in the completion of the energy union. “There are many people who want to invest in the energy sector” he noted “but until we have an Energy Union they cannot do so as easily as say in the food sector”.

Picking Winners

The trouble with an investment fund, it appears, is that it will have to choose what to invest in. This immediately leaves the Commission open to the often heard criticism that it is interfering in the market and inevitably “picking winners”. Immediately after the strategy was proposed numerous industry associations published position pieces that were at the same time optimistic and concerned. Aside from those that were sceptical (to put it lightly) of the level of private investment the fund would create, renewables industries were quick to claim this as a large step forward for their sector, while the more ingrained electricity providers were more cautious, encouraging investment in the “framework”, while leaving technology choices up to the market

What happens now

Juncker has bet on the fund sailing through the other institutions. Certainly, Parliament President Schulz appeared to welcome it with open arms, calling it a “turning point” following years of financial and currency woe and austerity. However, we will have to wait until the next European Council meeting (between 18-19 of December) to see how much the Member States agree. All going according to Juncker’s plan, the fund should be up and running by spring 2015.


Cillian Totterdell and Cillian O’Donoghue




Leave a Comment November 27, 2014

Size Does Matter

In between the chaotic mid-week politics, and changing of the guard in the Commission, over the eerie quiet of a weekend in a Brussels emptied of its lawmakers, regulators and lobbyists, an equally quiet revolution took place. On 1st November, in accordance with the Lisbon Treaty, new Council voting rules were introduced to keep the ever-expanding complexity of Council of the EU meetings under control. Amidst all the institutional changes that this year has seen, this one could well be the game-changer in disguise.

Under the new rules, larger member states – namely, Germany, the UK, France and Italy – gain significantly more voting power, whilst medium-sized and smaller states lose out as voting in the Council will now be determined by population size. This means the voting weight of Germany – the largest member state – will nearly double, and the UK, almost the same, whilst medium-sized and smaller members like the Czech Republic and Belgium, nearly halve and Malta and Luxembourg see their voting weight nearly vanish.

at a glance

The new rules aim to bring to a close the, at times, seemingly never ending quarrels in Council, where Member States hitherto could team up fairly easily and form a blocking minority. In its essence, these rules will mean that proposals will need 65% of the EU population’s support to pass, while 55% of Member States must be on board. So is this a conspiracy by the big member states, you ask? Ahh! No! Not really. As you will remember (or not), the political momentum way back in 2007 – before the financial crisis turned politics into dedicated “national treasuries first” strategies – was all about making Europe more democratic and transparent and this was to be reflected in the one man/woman – one vote system entering into force last weekend.

As always in European politics a few reasonable safeguards has been set,  the additional requirement to have the blessing of 55% of member states is part of the eternal great trade-off between big and small in the EU.

Equally, to ease the transition from the old to the new, the safety net of the old voting rules may still be employed by any Member state until 2017.  Although calling on the old rules is not going to be a free ride for the Member State(s) who does it. Au contraire; it is expected to be a highly political issue and countries that employ it will have to muster up a lot of political capital.

The new voting rules make blocking minorities harder to form. Our analysis (read full report here) shows that the ‘euro-out’ countries and Eastern European countries will no longer be able to achieve a blocking minority. However, the large Mediterranean countries can still form a blocking minority – something which could prove crucial in austerity themed debates.

So; are we going to see massive changes in how Council makes decisions from now on? Ehhh…again; No! We’re not going to see it. Our analysis of votes held in the Council over the last year show that 65% of the votes were agreed upon unanimously, and many more only saw a single member state abstain or object. And the Ministers in Council are likely to proceed in the same manner of seeking consensus and making efforts not to make a display of disagreements.

However, we are going to feel the change. It will occur in the negotiations in the working Groups before a proposal is put in front of the ministers and thus in the day-to-day compromises as voting rules are generally more an instrument in the hands of the negotiators to identify (and solve) key issues and to push negotiations forward.

Still; while in all likelihood the Council of the EU will remain a consensus building machine, these new voting rules significantly shifts the balance of power into the direction of the big 4. Whether this is a step in the right direction in terms of taking on the great challenge to close the democratic deficit in the EU, or whether it will more likely leave the governments, negotiators and especially populations of the smaller Member States even more disenfranchised from the European project, is still to be seen. Clearly the aim of those ratifying the Lisbon Treaty was the former… But so much has changed since then.


Martin Bresson, Marijn Swinters and Anne Murray and the FH Institutional Research Unit



Leave a Comment November 13, 2014

Five things I learned in Strasbourg last week

There was a certain irony in being asked by the British Chamber to open their New Generation visit to France’s Death Star inspired version of the European Parliament building by talking about why going down to Strasbourg is important. The irony being that most of us seek to avoid going there if we can help it and I am no exception. I even started a short lived Facebook group called “I’ve been to Strasbourg once too often” after a particular heavy Parliamentary year about a decade ago. However, it must be said that as long as remains a relatively infrequent occurrence rather than a monthly trek (poor souls you MEPs/EP staff), it’s a lot of fun. I came back tired, but rejuvenated.

So five things I learned while down there, some serious, some not, on the British Chamber’s Past It Generation trip (i.e. the full EU Committee visit), which I had the honor of chairing the following days.

It’s all a little bit too early for policy discussion

Unlike last year’s British Chamber trip – at the height of the rush to get stuff agreed before the elections – our panelists were eloquent, passionate but general. One even said they’d been so fixated on hearings the real work of the EP had yet to start. With a couple of notable exceptions it was clear that the real legislative work on many committees has yet to get into full swing.

Optimism abounds

Ok, so it may not last long but all those we spoke to in the main groups had a sense of optimism that Juncker and his team are a fresh start. All feels possible. The incoming Commission has a window of goodwill to draw upon, which if used could see the EP be more help than hindrance.

Animal welfare by day, foie gras by night

One dinner guest sheepishly admitted they were an animal welfare advocate by day, while getting stuck into a foie gras starter followed by a veal main. It’s a bit like Strasbourg as a whole. If you want to understand what’s really going on, forget the statements for the record in plenary, you’re more likely to hear what people really care about in in the bars and restaurants late into the evening. Yes, that makes the whole experience much more tiring, but also more fun.

The Flower Bar is the place to see

Talking of bars, the Flower Bar is a magnet for MEPs who are cooped up in their offices as well as those – like me – who have no office in the building. If you want to catch up with folk, see who is talking to who or try to catch someone over coffee,  grab a table and just people watch. It’s fascinating what you can learn.

The British contribution is both walked all over and scares people off

As part of the British Chamber visit we of course could not but discuss the rather tight corner the UK seems to be backing itself into. Indeed we’ve even surveyed our members on this issue (unsurprisingly they think leaving the idea is a bad idea). The Flower Bar carpet is perhaps a suitable metaphor, as I’m told it’s designed by a Brit. Walked over by Europeans all day long, at first glance it appears frightfully unreasonable. But after you get used to it, you realize it is as much a part of the furniture as the hemicycle itself. The place would simply not be the same without it.

James Stevens

Leave a Comment October 29, 2014

Five things we learned about the new Environment Committee

Brussels doesn’t do political theatre like Westminster or Congress, so it’s unsurprising that there’s a slight fixation at present on the EP’s grilling of Commissioner-designates. One journalist may have described it as the equivalent of being mauled by a bunch of poodles, but those damn animals have drawn blood in the past and they are looking likely to do so again.

However, there’s been some real work going on at the same time in some of the Committees. So if you can get past the blood on the carpet in the Spinelli building, it’s worth lingering on the vote on 24 September in ENVI on the carbon leakage list under the EU’s Emissions Trading Scheme (ETS). For those of you who missed it, the Eickhout motion that sought to challenge the Commission’s continuation with the current carbon leakage list failed by 34 votes against to 30 votes for, with 3 abstentions.

Unfortunately, the European Parliament still refuses to publish how MEPs vote in Committee, even when the vote is done electronically. From our understanding of how different people voted, here’s five takeaways from the result:

1. Don’t assume if you’re a member of the EFDD you’re not in favor of stronger environmental rules

European political groups are broad tents to say the least. UKIP and the Five Star Movement may well be group bedfellows but they are likely to vote differently in the ENVI Committee.  The Five Star Movement is more attuned to environmental issues and so it is no surprise that they sided with the Greens.  Going forward, if the Greens, Radical Left, and S&D stay together they could still deliver a pro-environment majority with the EFDD.

2. The views of the Socialist group may be evolving

If anyone won the European Parliamentary elections it was the Italian socialists under Matteo Renzi. Now the largest delegation in the S&D, their three representatives in ENVI are said to have abstained from voting in order not to go against the S&D line. Only time will tell whether they can use their new-found muscle to get the S&D to change its historic leanings on ENVI, rather than having to opt out.

3. The EPP can find a common position and stick to it

For years the EPP has struggled to prevent members of its group in ENVI going native on Committee. The EPP created a working group structure to try and get a group line in advance of important committee votes. However in the 7th legislature , EPP members still took different lines in the ENVI and ITRE on subjects like ETS back-loading and shale gas. This time it would appear the group came together, found a line and stuck to it on an issue where divisions may have appeared in the past. The EPP group’s energy policy paper, notably inspired by ITRE members, is no doubt intended to provide more cohesion among the different committees in the future.

4. Don’t expect a divided ‘industry’ to be so ‘influential’ on other ETS related files

There were suggestions that industry had been influential on the file in Committee, which sounded suspiciously like sour grapes on the losing side of an argument and an indictment of the intellectual powers of our elected members. It is however true that industry may have been united on this one. After all the only people advocating on the industry side were probably those on the list. Don’t expect such a united front when it comes to real ETS reform. There shall be industries on both sides of any debate; some who want higher carbon prices and some who want lower ones.

5. Time for all sides of this debate to start talking about solutions

The result should be a wake-up call to all sides on the ETS debate. The current political environment, with a focus on jobs, growth and competitiveness, is unlikely to be conducive to the kind of ETS reform that those who favor high carbon prices desire. At the same time, the protection afforded to energy intensives is still likely to whittle away over time. The direction on things like the carbon leakage list is clear, Member States don’t have money and a European compensation scheme doesn’t look like it’s on the horizon any time soon. The result could be all sides of this debate losing. Less and less protection for energy intensives combined with no real reform of the EU’s main instrument to tackle emissions.

It’s time for key players  on both sides to come together and start talking about policies that deliver for the most affected energy intensives, while also getting us on that pathway to a low carbon economy. Otherwise this ETS reform is going nowhere fast and that’s good for no-one.

Aaron McLoughlin and James Stevens

Leave a Comment October 7, 2014

The Global Financial Reform Agenda – The Birthday Edition

The global reform agenda is many things… Important? Yes. Ambitious? You bet. Enormously complex? That too. But more important than all those, it is celebrating its birthday today!

And it’s a big one. Five! The world’s big push to stabilize the financial system after the global financial crisis turns five today.

Half a decade ago, on September 25th 2009, world leaders gathered in Pittsburgh for a G20 Summit not one year removed from the collapse of Lehman Brothers, with most countries still deep in recession, to agree on how they would make sure that such a crisis could never happen again.


Finance Ministry officials quickly reached for anything caffeinated, as what was agreed wasn’t necessarily for the lethargic of heart. Leaders tasked the Financial Stability Board, the newly formed global watchdog of financial market health, to launch a reform agenda aimed at tackling three goals:

·     To increase the stability of banks worldwide by making them hold more capital and liquidity to prevent another crisis.

·     To put an end to Too-Big-to-Fail banks by creating plans that would allow markets to cope with another Lehman-style collapse without needing a taxpayer bailout.

·     To standardize and regulate the global market for over- the-counter derivative contracts in order to increase its transparency and stability.

So, five year birthdays are important ones to celebrate. The important question though, would be what kind of birthday party is the financial reform agenda having? Is it all streamers, sun, cheering and cake? Or have things gone a bit awry, the clown is a bit too scary, and the kids are all standing under the porch crying while it rains outside?

The truth though, lies somewhere in the middle…or rather; holds a bit of both scenarios.

There should be no doubt. The financial reform agenda is the signal achievement of the G20, the Financial Stability Board, and the whole architecture of global financial cooperation that they brought into being five years ago. Before that, regulatory cooperation on banking and financial markets issues wasn’t organized on anything near the scale that it is today. That means that international financial rules are becoming more standardized, more comparable, and more predictable across borders than they were before, and that’s a good thing for governments that desperately want to see a revival in cross-border investment as well as for the banks and financial market participants that can underwrite exactly such an outcome.

That’s not to say that significant challenges don’t remain, however. There are many of them, and serious ones at that. The international standardization of regulatory practices hasn’t been without wrinkles, and issues such as the mutual recognition of the soundness of each-others rules continues to dog EU-US financial market relations. The effective application of new regulatory practices in emerging markets is also an area where further work will probably have to be done in order to make sure that rapidly deepening financial markets there avoid mistakes their more developed counterparts have made in the past.

Another itchy problem is that the years that have passed, however, haven’t exactly been smooth sailing for the world’s largest economies – especially in Europe. EU leaders have been watching nervously this year as economic indicators, one after the other, come up flat, showing that the continent is growing slowly, if it is even growing at all.



That’s led many to consider whether the financial reform agenda has had a sufficient growth-orientation to balance out its primary mandate of seeking to ensure market stability. Are new regulations impeding banks from being able to lend to the real economy? Should we be doing more to enable securitization (the bundling of loans to reduce individual risk) to help finance a recovery? Are there specific investment areas, like infrastructure and green energy that could benefit from more tailored regulatory treatment?

These are questions that the G20, the Financial Stability Board, and others leading the global reform agenda are increasingly turning to now, and it’s an agenda driven by national leaders that are getting their feet held to the flames by angry electorates with too much debt and too few jobs.

But even at a feet-grilling barbecue it would take a pretty tough critic to not admit that the global regulatory effort has had some fairly remarkable success in making financial markets much more stable than they were five years ago. The new goal of propping up global growth will take a renewed agenda, and another big push to develop and implement. That’s going to take more time.

All in all then, the financial reform agenda’s fifth birthday is worth some applause, at least a small piece of cake and nod of recognition. Stay with this toddler though! The next five years are likely going to be just as crucial as the last.

Screen-shot-2010-07-18-at-23 38 42-590x292


Scott Martin and Martin Bresson

Leave a Comment September 25, 2014

The new College of Commissioners – A recipe for success?

COMMISSIONThe long-awaited announcement has finally arrived! We watched, not quite with popcorn, but at least with baited breath, as Commission President Juncker announced his new College of Commissioners and DG allocations for the next five years. Amid festive acclamations, some raised eyebrows, temper tantrums and maybe even a solitary tear, 5 former PMs, 11 financially-savvy candidates, 8 foreign affairs specialists and 7 incumbent ministers were chosen to join the Dream Team. In true Juncker style, he surprised and perhaps confused us all.

Selecting the perfect ingredients for a politically calibrated, yet functional College of Commissioners has been a careful balancing act, leading to more than a few controversial appointments. But Europeans, fear not! Guardians of the peace and right hand men to President Juncker are the newly appointed Vice Presidents, endowed with the duty of coordinating the works. The role of these watchdog VPs is yet to be defined, as a number of policy areas fall under multiple presidencies and seem to be affected by an ‘overcrowding phenomenon’ . Will too many cooks spoil the broth?

The ‘chef’ seems confident as he blends and stirs his employment-flavoured, growth-spiced ‘bouillon’. So it appears that only time will tell whether the internal decision making systems are robust enough to prevent a multi-directional sprawl of policy proposals. Will our chef – already called a ‘Spitzenkandidat’ by some – be able to satisfy the diverse group of political ‘gourmandes’ that is the Parliament.

And how will the restaurant owners react to this new, seemingly complex methodological approach, will the chef have more liberties in the kitchen or less? Analogies are all well and good, but the issues are real, and the question of whether the power of the Commission to will return to the golden age of the Delors years is lingering on everyone’s mind. Might the Council force its hand, should overly complex decision making procedures lead the delicate institutional machine to stall?

Some might say that the balance of power will shift according to themes and personalities; however the problems that lie ahead are all fairly controversial and newly instituted officials will be keen to prove their worth under the daunting stare of the European public. The Russian ban on food imports and the ambitious objectives of an Energy Union and Common Asylum System contrived by Juncker himself, are challenging hurdles on the horizon.

So what is the recipe for success? A masterful chef, cooperative cooks, a lenient clientèle? Possibly a homogeneous amalgamation of all the above, however the first major test of whether this start-up restaurant is of Michelin star quality will depend on the willingness of talented officials to set aside patriotic claims in order to work together to achieve the ambitiously conceived and masterfully crafted plate designed by Juncker.


Alessia Mortara, Aoife O’Halloran and the FH Institutional Research Unit



Leave a Comment September 19, 2014

The Union, the sun and Espírito Santo – A fireside read on the summer past

Unlike the hurley-burley of these first days of institutional activity, August was a fairly quiet month in Europe – far set from the troubles and tensions of previous summers and the frenzied preoccupations over economic collapse. This year, Brussels emptied itself of tired civil servants, who trudged, nostalgically back to their homelands, and European capitals were filled with an unusual sense of calm – a pause between political seasons.

However, not all states were blessed with calm and warming summer breezes. A tempest was slowly brewing in Portugal where, on 4th August, the crisis hit the second largest national bank (by total reported net assets) and the ship was sunk. Banco Espírito Santo (BES), with €80.2 billion in assets and €36.7 billion in customer deposit, disappeared almost overnight.

Leaping into action, the Central Bank of Portugal resolved[1] the bank by separating BES’s sound business activities from toxic and dangerous assets thus creating a ‘bridge bank’. The “good bank” is now supported by €4.4bn from the Portuguese state, while the “bad bank” has kept the unfortunate, but appropriate, name of Espírito Santo (i.e. the Holy Spirit, but also the name of the proprietor family) and will be wound down in due course.

It seems inconceivable that only three months after Portugal’s victorious emergence from the bail-out troika (European Commission, ECB & IMF), with all that it entailed in the form of deeper scrutiny and attention, public money is still being used salvage the remnants of a banking disaster and to protect investors from ample losses. After years of Banking Union negotiations and reassurances to markets, policymakers and regular sunbathers, will all be lost?

Let’s take a look at the bigger picture – the who’s and the what’s.

With a century and half of history at its shoulders, the group to which Banco Espírito Sancto belongs, has progressively grown to become a vast empire, held in majority by the descendants of its founder. In the process, the group has expanded across borders, covering different countries and various sectors from banking to tourism and construction, thus becoming a common name in Portuguese households, the local Rockefellers.

However, this wealth of historical heritage brought little wisdom with it. When a new executive team took over BES in July, it soon discovered that the former administration had hid from regulators and the world, a €1.5bn hole in its budget, generated in the first-half of the year (50% of what BES has lost in total) – a situation far from that expected for a bank held by Portugal’s richest family.

Advice given by BES’s external auditor, to counter over exposure to conflicts of interest within the group, was ignored and proved to be fatal. Today, it seems clear that the undetected operations were repackaged by a financial intermediary partly owned by BES, in order to keep them off the balance sheets.

Record losses meant that BES’s solvency ratios fell below the regulatory minimum required to receive ECB funds, and the Bank of Portugal was confronted with an urgent choice – whether to mount a rescue plan, protecting senior[2] debt holders, or allow BES to orderly fail by applying soon to be implemented Banking Union rules.

Overnight, the Bank of Portugal decided to undertake a sort of hybrid rescue plan, mixing both bail-in and bail-out tools.

Bail-out tactics: In order to properly capitalise on the new bridge bank, the Portuguese Resolution Fund was given €4.9bn, of which €4.4bn deriving from the Portuguese State – an amount of money that tax payers will not recover if the selling price of the bank remains lower than the amount lent.

Bail-in tactics: The bridge bank system implied that all the junior bond holders and most shareholders whose assets had been isolated in the “bad bank” would endure severe losses.

If the procedure was completely legal, it was still in grey area. Had the Governor of the Bank of Portugal followed new EU rules on bail-in processes, senior debt holders and large depositors would have been part of the haircut too. As from the 1st January 2016, preserving them will no longer be possible.

Reasons for the choice of a hybrid system are varied and could be seen as a reluctance of regulators to go against the European conception of senior bond holders being implicitly backed by the state, but we’re getting ahead of ourselves and jumping to conclusions.

Let us now look at the “so what’s”.

All signs (or at least those we’ve chosen to look at for this blog) show that the whole operation was a success. And an admirable one at that! Less than a month after the bank was wound down, Portuguese 10 year bonds have reached their lowest point for debt emission in 2014 and Portugal is experiencing growth again for the first time in four years (EC figures).Bloom

Source : http://www.bloomberg.com/quote/GSPT10YR:IND/chart

Moreover, being attached to the new, “good” bank, senior bonds barely shifted, while junior bonds have plummeted, illustrating a sense of trust in the path chosen by the Bank of Portugal.


Source: http://www.ft.com/intl/cms/s/0/691f64ba-1bbb-11e4-adc7-00144feabdc0.html#axzz3CG611CPN

Data therefore suggests that financial markets have bought into the “ring-fencing” tactic, and the risks associated to BES senior bonds will not threaten other banks or the rest of the economy.

On that happy note, but in the slightly gloomier spirit of autumn, an underlying question remains – whether this well-orchestrated resolution and the resurrection of the BES banking group, would have complied with the soon-to-be rules and principles of the Banking Union.

Quite frankly, the answer is – not entirely – or at least, not as shown above. Contentious areas are capital requirements, supervision, bail-in vs bail-out systems (let alone question of whether funding in the Single Resolution Fund  was or ever will be sufficient) and, the true moratorium – whether senior bond holders understand the need to adapt their behaviour as from 2016 when the EU-wide rules on bail-in kick-in.

But we’re not going to ask the big question – whether the Banking Union has really changed anything. We’re not! Because of course… it has! So don’t be so gloomy. Go catch the last sunlight, go chase rumours about the next Commission and let summer events be summer events and… have faith!

By Martin Bresson, Claire Bravard & Alessia Mortara

[1]When a regulator decides to close down a bank that because it failed.

[2] Bond holders that will be will be paid back before junior bond holders and shareholders if the bank goes bankrupt (and if there is enough money left)

Leave a Comment September 8, 2014

EU leaders gather to decide captains of European Council and foreign affairs

As Saturday’s ‘special’ European Council Leaders’ Summit draws closer, the speculative frenzy over which high-flying politician will end up in which post continues to grow.  European leaders have the difficult task of agreeing on the EU’s top positions of European Council President (Herman Van Rompuy’s replacement) and High Representative for Foreign Affairs and Security Policy (Catherine Ashton’s replacement).  And filling these posts will require consideration of a number of factors, including reconciling political  geographic and gender politics, all the while accounting for fundamental differences between Member States as regards foreign and economic policymaking. It’s diplomatic horse-trading at its finest – what we, here in the EU-bubble, love to chew the fat over; that game of ‘if X, then Y’ can keep us busy for hours – and has!

Making waves: Saturday & its ‘trickle down’ effect

So the leaders “just” have to agree on two names on Saturday – I know what you’re thinking, “sounds straightforward” right? Well, not so fast.  Deciding the next European Council President and EU Foreign Affairs Chief is a pretty big deal (even if we’re still not sure who answers the phone when Kissinger wants to call Europe). And it’s not expected to be all smooth sailing.

A *few* challenges exist: That whole not-having-enough women nominees for Commission posts matters. As does the ongoing fundamental disagreement over how the EU deals with conflict (see: Ukraine) and economic reform (pro or anti-austerity?).  Balancing these issues, along with appeasing political parties – particularly the Social Democrats so they feel appropriately represented – will all come into play. Whatever is decided on Saturday will also have ‘trickle down’ implications for Juncker’s subsequent allocation of portfolios. It may not be bumpy seas, but let’s say we expect Saturday’s agreement to create some political waves.

Once the high political posts are decided on the 30th, then Juncker needs to go away and assign portfolios for the rest of his College. He too, will have to ruminate on the politics of geography, gender, economic policy viewpoint, and ‘Eurozone or non’. Decisions over which nominee will become the head honcho for everything from trade to competition to multilingualism and more will be politically charged. These allocations are sure to be discussed in the margins of Saturday’s Summit, though not formally decided as that’s Juncker’s prerogative. On top of it all, Juncker must keep in mind that his College can serve only after being given the nod of approval by both the European Parliament and the Member States – and each of those bodies will have their own priorities for the compilation and structure of the next executive body of the EU.

 Who’s up for what? 

  • Battling out the course of direction for European foreign policy are the current Commissioner for International Cooperation, Humanitarian Aid and Crisis Response (Bulgaria’s Kristalina Georgieva), as well as two current Foreign Ministers (Italy’s Federica Mogherini and Poland’s  Radosław Sikorski). Mogherini is the only Social-Democrat candidate put forward and seems to be the front runner, although Central European countries have publicly opposed her candidature as she appears soft on Russia. They have thrown their support behind Sikorski who is seen as more bull-ish on Russia and quite critical of the US. Georgieva, on the other hand, is generally seen as a good compromise candidate given her experience and more moderate positioning than the other two.
  • There are various names in the mix for the position of Council President as well. Donald Tusk seems to be the front runner for the centre-right EPP and enjoys the support of Merkel and Cameron, though recent reports indicate he may prefer an economic portfolio. Danish Prime Minister, Helle Thorning-Schmidt may prove to be the best candidate given her political affiliation and gender status. That said, neither Denmark nor Poland are Eurozone Member States, which has been a concern raised by France and means they might face lingering opposition. If that’s the case, then Latvia’s Valdis Dombrovskis could emerge as a strong compromise for geographic balance and Eurozone status. Other contenders from the EPP include Ireland’s Enda Kenny and Finland’s Jyrki Katainen.

The gender issue: A red herring?

On multiple occasions President Juncker has committed to having a fair representation of women in his College and both EP president Martin Schulz, and ALDE group president, Guy Verhofstadt, have said that the European Parliament would accept nothing less. However, Member States have only nominated four women. As a potential means of hedging his bets, Juncker has recently stated that if he doesn’t receive more female candidates he would redress the situation by looking to assign ‘important portfolios’ to those female candidates who have been nominated. Questions remain however, as to whether this would appease the European Parliamentarians who appear ready to take Juncker to task over the issue.


A possible structural shake-up?

Juncker could seize his moment as President to restructure the Commission to better fit his College – which currently includes a few former prime ministers amongst other highly political operators. One of the ideas is to create two vice-president posts for Commissioners that have a coordination and filtering function similar to the role played by the Secretariat General. These posts could including Vice-president in charge of budget, economic and employment reform in Member States and a Vice-president in charge of coordinating growth and investment programmes.


Further structural reforms of the Commission, such as creating clusters was discussed and discarded in the formation stages of the Barroso II Commission. A cluster structure could be politically difficult to accept as it could mean that some Member States would have a Commissioner without a portfolio, and would be seen to be accepting a more “junior” position. Furthermore, the Lisbon treaty prescribes parity in the College of Commissioners – a principle which would be hard to combine with hierarchical clustering.

Land ahoy!

As long as the ship doesn’t veer off course, EU leaders will decide on the positions of High Representative and Council President tomorrow and the remaining ambiguous Member States will announce their nominees for the Commission posts. Once that happens, Juncker will have to get to work on formulating his College so that it can be approved by Parliament. The EU leaders are already running behind as their July Summit ended without answers as to who will fill these top political posts. If the process is delayed any further, the Juncker Commission will struggle to be in port on 1 November.


By Lindsay Hammes & The FleishmanHillard IRU (Institutional Research Unit) Team


Leave a Comment August 29, 2014

It’s the economy… stupid!

Excuse us being the latest of a long string of commentators to use this time-honored title for our blog post, but sometimes it’s a reminder that just has to be said again and again.

This weekend, case in point, European leaders are once again meeting in Brussels for their third attempt to settle on who gets the EU’s top jobs for the next five years. Cue chatter in the press, on Twitter, and all across town revolving around the thrilling question of whether a Dane or a Pole will get to fill the shoes left by Herman van Rompuy when he vacates the office of the President of the European Council. Similarly, people wonder, should Europe appoint a foreign policy chief that could strike a conciliatory tone with Russia, or one who might stir the pot just a bit more?

This is, superficially, what this weekend’s summit is supposed to decide, allowing European Commission President-designate Jean Claude Juncker, to get on with the business of forming his college of Commissioners.  The real machinations under the surface, however, are proving to be far more complex, and (surprise!) are actually all about the economy.

By the numbers, Europe has been having a tough year. Everyone started 2014 taking about the recovery finally – finally! – taking hold, and shifting their focus to post-crisis policy. In reality though, Eurozone inflation has dropped to worryingly low levels, economic growth seems to be stalling in many countries (with Italy sliding back into a technical recession this month), and the simmering conflict between Russia, Ukraine and its ambiguously-badged ‘rebels’ has sparked a two-way sanctions battle that threatens to undermine exports and, in turn, growth for a number of European economies.

Matteo-RenziEuropean politicians and officials have been quick to notice this – and while watching their approval ratings plunge and support for radical anti-establishment parties soar – they know that something has to be done, and done quickly. Italy, benefiting from a charismatic new Prime Minister in Matteo Renzi and from holding the rotating Presidency of the Council of the European Union, has pushed relentlessly for greater flexibility to be introduced into EU fiscal rules, thereby allowing governments to ease-off austerity. France has backed this push with its embattled President, Francois Hollande, calling this week for a special Eurozone Summit to be held to agree on specific measures for boosting growth and investment across the continent.

So, great then, right? Who doesn’t want to boost growth an investment? Well, let’s just steal our next cliché from Facebook as say that “it’s complicated”.

Complicated, because, while other EU Member States, chiefly Germany, are all for increased growth and investment, they harbor deep concerns that easing EU budget rules could reduce the incentive for countries to make the necessary structural changes needed to boost their own economic competitiveness, and could lead to the kind of fiscal profligacy that started the Eurocrisis in the first place. This also isn’t just a purely political or economic calculation, but an institutional one that gets to the very credibility of the EU’s system of checks and balances, and how Europe’s treasuries are viewed in international credit markets. For now, Germany is nodding politely to the calls for renewed economic initiatives, but this hides a deeper political game being played that may not come to the surface for some time yet, but that will nevertheless be a dominant theme in this weekend’s Summit negotiations.

German Chancellor Merkel, leader of the CDU and Juncker top candidate of European People's Party for European parliamentary elections, attend the CDU congress in BerlinJobs likley to be as, if not more, contentious than the Council President and High Rep posts, will be the EU’s Commissioner for Economic Affairs and the Chair of the Eurogroup. Two officials who wield significant influence in determining and policing Europe’s budget rules. Witness this morning’s revelation in the German press that Angela Merkel’s government is planning to strongly oppose the nomination of France’s Pierre Moscovici to the Commission’s economic portfolio. That’s them putting one card on the table – they’ve still got a few more in their hand.

Ultimately, however, the economic picture coupled with the fallout from the tensions with Russia present a challenge that Eurozone leaders – French, Italian, and German too – know that they have to address. The sting of squeezed trade with Russia may provide the necessary bit of extraordinary justification for a one-time easing of austerity measures. Alternatively, something even more ambitious might take shape, like substantially increasing the size and roll-out of Juncker’s 300 billion euro investment plan. The ECB could even step in with a US-Fed style quantitative easing programme to inject more cash into the economy.

In the end though, all this comes down to whether European leaders can leverage this year’s unexpected challenges to get a strong mandate from their domestic audiences, and use that to work with each other to strike a balance between fiscal responsibility and growth that is as sustainable politically as it may be economically. This is much easier said than done, but it’s the one issue that will dominate the agenda this weekend, and very likelyfor the rest of the year.

By Martin Bresson, Scott Martin, and Claire Bravard

Leave a Comment August 29, 2014

SEPA migration – A milestone for the single market. But what’s next?

  1. What has been achieved

Whilst attention over the past months has focussed on the high politics of institutional change, continuing efforts to reboot the economy and attempting to nudge some order into the EU’s eastern neighbourhood, a quiet evolution has taken place in the euro payments system. Originally planned on 1st February 2014, the extended deadline of 1 August marked the date for all Eurozone payment transactions to migrate into SEPA compliant formats, completing – in the words of the ECB – “one of the largest financial integration projects in the world[1]. In simple terms, it means all payment transactions will have to be handled in compliance with a set of standardised rules, of which the IBAN/BIC system is the most noticeable. The extension of the deadline was necessary to avoid severe disruptions in the EU payments market as not all market participants were ready to use SEPA standards by 1st February. The table below shows the strong compliance efforts accomplished over the first half of the year.[2]

Graph 1

Source: European Central Bank

It’s worth clarifying that whilst SEPA deals with payments made in Euro, SEPA also covers the broader European region. In fact not only are all EU member states part of SEPA, but also Norway, Iceland, a series of microstates (Andorra, Liechtenstein, Monaco, Andorra), and even Switzerland. By way of derogation, market participants in non-Eurozone countries have until the end of October 2016 to ensure full migration – while certain “niche” products also enjoy temporary exemptions across the EU.

While this migration is in many ways a technical achievement rather than a political one, the idea of SEPA is deeply rooted in the idea of the Single Market, making this largely unnoticed event one to remember for the spiritual descendants of the likes of Jacques Delors.

2. What is SEPA, and why is it important for the Single Market?

The “Single Euro Payment Area” project is a natural outcome of the creation of the Euro, and is an offspring of the 2000 Lisbon competitiveness strategy. The logic is compelling: creating a single currency and supporting  a series of natural “spin-offs” of the Euro will tear down the remaining barriers to cross-border trade and investments and – once these forces are unleashed – will result in higher levels of growth. The hope was to not only create a SEPA but a fully integrated financial system and economic space, where borders for financial markets would be a thing of the past.

From this perspective, it is undeniable that SEPA is one of the most successful outcomes of the Euro project. In essence, it standardises Euro denominated transactions in the SEPA, which – as mentioned before – is broader than the Eurozone. This standardisation goes beyond the standardised use of the IBAN/BIC scheme, but sets out a complete standardised rulebook governing processing, clearing & settlement.  It is a classic example of reducing friction costs which most economists and policy-makers will only applaud. Indeed, an economic analysis commissioned by the European Commission to PWC, estimates the benefits of a “fully embraced” SEPA at around €22 bn in yearly savings resulting from price convergence and process efficiency.[3]

2.1   Benefits and limitation of SEPA: A Euro d(en)ominated  project

The benefits of the SEPA are undeniable, not in the least from a very practical perspective. However, there are some remaining limitations that remain present even after successful migration.

SEPA marks practically full standardisation of pure Euro transactions, which for consumers making cross-border transactions within the Eurozone means that – in theory – they should be as easy/fast/reliable as domestic transactions. This is important because in the past, despite the introduction of the Euro it could have still proved challenging and time consuming for interbank and/or cross-border payment transfers, because of different formats of bank account numbers, standards, clearing process, etc. Under the SEPA project, from now onwards, a French bank account holder should be able to conveniently make daily payments  across the Eurozone.  She can just go online to pay monthly rents for her apartment in Paris and book a beach house on Fuerteventura for holidays – two experiences that will be  almost identical procedurally – in a couple of clicks, without additional paper forms to fill in, phone-calls to make or long-queuing during visits to the bank.

From an EU Single Market point of view, the beauty of a fully endorsed SEPA system is that it applies to all euro payments made in the SEPA area, regardless of whether the counterpart’s account is denominated in Euro. However, this is not to say that SEPA is the perfect solution. For Euro to non-Euro transactions, whilst they also enjoy the benefits of SEPA standardisation, there are some limitations due to the risk and transaction costs associated with currency conversion. This is indeed an inherent limitation of SEPA, as at this point, 14 different currencies circulate in the single payments area.

Euro-domination manifests in the governance of SEPA, as the newly established European Retail Payments Board (ERPB), an engagement platform set up to provide input into SEPA related policy issues, is firmly rooted within the ECB, which has a strong mandate for governing the SEPA area. The ECB also oversees the SEPA compliant credit and debit schemes, while it also plays an important role in payments settlement through Target2. For obvious reasons the ECB is, of all EU institutions, the most euro-centric.

2.2   Ongoing project to build a single payments market: looking beyond SEPA migration

Some other EU legislative proposals touch on the fundamental idea of SEPA, i.e. promoting a single EU payments market. EU has recently adopted rules with the objective to make it easier for citizens to switch/open payments accounts in different Member States. This initiative, which originated from the concept of social inclusion, can also find roots in single market logic, although it is not without industry concerns around some practical implications on, for example, fighting financial crimes. Further, the review of the Payment Services Directive currently negotiated is crucial in improving consistency between national rules as well as enhancing competitiveness and security. One of its main aims is to bring new payment services providers within scope of the EU supervisory framework to ensure level playing field regarding security and consumer protection. The more politically controversial proposal to regulate interchange fees between banks is also embedded with the concept of pushing for a more competitive and integrated payments market. Ongoing debates between policy-makers and market participants shows that, in the path towards a more integrated and competitive payments market, it isn’t necessarily easy to draw a clear line between unjustified high transaction costs and a proper profit generating system to ensure the provision of quality services and encourage innovation.

While SEPA experiences some limitations within Europe, it probably isn’t entirely foolish to suggest that (parts of) the SEPA rules could be expanded across the globe. Although SEPA is an EU project, one of its components, the IBAN, stands for “International Bank Account Number”. While first developed by the European Committee for Banking Standards, it was later picked up by the ISO, the International Organisation for Standardisation . Today, aside from SEPA, only a few other jurisdictions have implemented the IBAN/BIC model, amongst which are Turkey and Brazil. Though global standardisation has not always been successful – think of the last time you’ve tried to charge your laptop abroad – in several cases, the EU has been a decisive pioneer in pushing for global standards.


Martin Bresson, Mandy Shi Lai and Marijn Swinters


[1] http://www.ecb.europa.eu/press/pr/date/2014/html/pr140801.en.html

[2] This table only shows the migration rates for credit transfers. Numbers on the other two relevant categories, direct debit transfers and card payments, showcase a similar trend. More info on: http://www.ecb.europa.eu/paym/sepa/about/indicators/html/index.en.html

[3] http://ec.europa.eu/internal_market/payments/docs/sepa/140116_study_en.pdf

Leave a Comment August 6, 2014

Previous page

About this blog

A blog on politics, policy, public affairs and communications in Brussels and the European Union. The blog is written by the team at Fleishman-Hillard in Brussels. Views expressed are personal and do not reflect those of the company or its clients.

You will find the contact details of our team at fleishman-hillard.eu

Subscribe to this blog

fleishmanEU tweets

EuroReputation tweets