What to expect from the Commission's new economics team

Will France's Moscovici (left) be effectively shackled by
Finland's Katainen (centre) and Latvia's Dombrovskis (right)?

The new European Commission (EC) also sees the overhaul of its approach to the Eurozone. While Pierre Moscovici holds the Economic and Financial Affairs post (essentially Olli Rehn’s successor), he will be overseen by the Vice Presidents (VPs) for Jobs, Growth, Investment and Competitiveness and the Euro and Social Dialogue – Jyrki Katainen and Valdis Dombrovskis respectively.

An edge has been added to all this with quick German criticism of the decision to give former French Finance Minister Moscovici such a prominent economic post.

We have already pointed out in our full response to the new Commission that, contrary to popular belief (at least in some quarters in Germany), this does not necessarily change much – a lot of Eurozone rules are already set in stone. However, it is important to delve a bit more into who has what powers or controls which areas?

Katainen’s key responsibilities:

• Helping bring together an investment package to mobilise €300bn in additional public and private investment via the European Investment Bank within the next three months – expected to be discussed at tomorrow’s eurogroup meeting and unveiled soon.
• Coordinating the mid-term review of Europe 2020 strategy and long-term EU budget.
• Pushing economic policy coordination in line with view of “social market economy” while also pursuing a strong structural reform agenda.

Dombrovskis:

• Steering the ongoing reform of the Economic and Monetary Union and, importantly, in charge of pursuing the work of the four Presidents' report on creating a 'deep and genuine' EMU. This suggests he will play a significant role in the bid to create a sounder eurozone and finding a way to marry the existing currency union with greater political union. It's important to note that this will bring him into regular contact with Lord Hill who is responsible for banking union in the new Commission - exactly how the financial stability aspect and the eurozone prosperity aspect will fit together here will be interesting to watch.
• Formal oversight of the European semester – the mechanism through which budget rules are enforced in the eurozone. Also tasked with reviewing the mechanisms for achieving structural reform.

Moscovici:

• As might be expected there is significant overlap with those above. He has also been tasked with handling the European semester. It is expected he will handle the day to day evaluation and, in cooperation with others, will sign off on national budgets and reform plans.
• The language around the Stability and Growth Pact is also in line with previous thinking, tasking Moscovici with making “best possible use of the flexibility that is built into” the rules.
• The focus of this role seems to be on the macroeconomics and fiscal coordination of the eurozone. With that in mind, its expected Moscovici will attend eurogroup meetings on behalf of the Commission.

Overall then, while France may have got what it wished for, Moscovici looks firmly shackled to two fiscal conservatives. None of his tasks relating to the Eurozone are separated from these two VPs. More broadly, as the FT has pointed out, Moscovici (a French socialist) is also severely ideologically outnumbered not only within the broader Commission but specifically in the economic and financial posts.

Furthermore, the language used in the text of the letters remains quite Germanic and in line with the thinking of the current Commission:

“Combining growth-friendly fiscal consolidation, structural reforms and targeted support to investment will be key to a sustainable and strong recovery.”

“Sustainable growth cannot be built on ever-growing mountains of debt. We also know well that it is mainly companies that create jobs, not governments or EU institutions.”

There are also numerous mentions of “sound public finances” and the “social market economy” both core elements of the prevailing German economic thinking.

What to expect from the new Commission in terms of eurozone economic policy?

Finally, there are a couple of hints of what key proposals may be coming in the future. We have already mentioned the reference to a new investment package and the desire to push ahead with reviewing the current surveillance system. A further development seems to be for all those involved to try to engage a “broader range of actors at national level”, make the measures taken to improve the Eurozone more “socially legitimate” and find a more democratic alternative to the EU/IMF/ECB Troika. This suggests fostering national support for the likely continuation of significant structural reform and fiscal consolidation will be a key task for these Commissioners.

With that in mind, there is one final interesting line which is found in both Moscovici’s and Dombrovskis’ letter, they are tasked with forming:

“Proposals to encourage further structural reforms, possibly supported by financial incentives and a targeted fiscal capacity at Euro zone level”

This sounds eerily like a revival of the reform contracts, which Germany has been pushing for some time. The idea has been gaining ground once again after ECB President Mario Draghi suggested that structural reform should have similar oversight to that currently seen for national budgets. The latter part is also interesting, albeit very cryptic and vague. It could refer to the creation of a eurozone budget, possibly focused on tackling unemployment and related costs. Equally, it could refer to something along the lines of a wider assessment of the eurozone’s fiscal capacity and using it where there is scope to do so – meaning some kind of fiscal expansion in Germany (and other strong states) to offset fiscal contraction elsewhere.

Expect movement on these issues in coming months.

It's raining men in Brussels: Juncker Commission at risk of humiliating veto by MEPs over lack of gender balance

We are now at the halfway point in terms of nominating the next Commission with 14 out of 28 member states having publicly announced their candidates. The line-up suggests we will have the most senior Commission to date with no less than four former Prime Ministers: Andrus Ansip (Estonia), Jyrki Katainen (Finland), Valdis Dombrovskis (Latvia) and Juncker (Luxembourg) himself. However, as the nifty graphic from EuropeDecides shows, there is a bit of a gender balance issue - only one of the nominees is female.

Notwithstanding the benefits of having a more balanced and representative Commission per se, the gender balance issue is important because the European Parliament - never slow to jump on a bandwagon or to give national governments a bloody nose - could veto the whole Commission if it contains too few women (even if the European Parliament's group leaders are themselves mostly male). European Parliament President Martin Schulz warned a couple of weeks ago that:

"Looking at the information currently available on the number of female candidates, the commission would not receive the backing of majority in the European Parliament."

The magic number is ten - one more than in the current Commission. This would require nine of the second group of 14 Commissioners to be female, which looks unlikely. Below we asses what the prospects are for the remaining member states to put forward female candidates.

Belgium: The good news for Juncker is that Marianne Thyssen, who has been an MEP since 1991, is among the front-runners for the post although Berlgium's current Commissioner Karel De Gucht has indicated he would like to stay on.

Bulgaria: It was reported that the outgoing socialist government would put forward Kristalina Georgieva, the current Bulgarian Commissioner international cooperation, humanitarian aid and crisis response, if she were to be given the position of High Representative even though she is from the centre-right GERB party. As such, it looks like Bulgaria will instead nominate current Foreign Minister Kristian Vigenin.

Cyprus: Androulla Vassiliou is rumoured to be retiring (she will be 71 in November) and in any case is from a different political party to the new government. No word yet on who Nicosia will send in her place.

Denmark: No news out of Copenhagen but the centre-left coalition government will likely want to replace Connie Hedegaard who is a conservative politician.

France: No formal announcement from Paris so far, but former Finance Minister Pierre Moscovici is the clear frontrunner. Former Europe Minister Élisabeth Guigou is still in the race, but she is broadly regarded as an outsider.

Hungary: Although it hasn't been formally announced, rumour has it that Orban will send Hungary's current Foreign Minister Tibor Navracsics to Brussels.

Italy: Prime Minister Matteo Renzi is still pushing for Foreign Minister Federica Mogherini as the new EU foreign policy chief. However, the Italian government would very likely put forward a different name if it became clear that Mogherini will not secure Baroness Ashton's job, and the new nominee may well be a man.

Netherlands: The most likely candidate is current Finance Minister Jeroen Dijsselbloem, although it is unclear if he would still go to Brussels if he were not to get the coveted Economic and Monetary Affairs portfolio - something Juncker is reportedly not too keen on.

Poland: Poland's two leading candidates are Foreign Minister Radoslaw Sikorski and former Finance Minister Jan Vincent-Rostowski, although there is a lot of speculation that in order to balance the Commission Poland could instead put forward Danuta Hübner, an economist and MEP who already served as the Regional Policy Commissioner between 2004 and 2009.

Portugal: According to the Portuguese media, Prime Minister Pedro Passos Coelho is considering picking Carlos Moedas, the Secretary of State to the Prime Minister, as Portugal's nominee. However, Juncker is reportedly putting pressure for the choice to fall on Finance Minister Maria Luís Albuquerque instead. Therefore, Lisbon could potentially nominate a woman.

Romania: It appears Bucharest has re-nominated current Agriculture Commissioner Dacian Ciolos.

Spain: Former Agriculture Minister Miguel Arias Cañete is the only name doing the rounds in the Spanish media. No real alternatives have been floated.

Slovenia: No news out of Ljubljana, where the centre-left won early elections held a couple of weeks ago. A poll out today has found that a majority would like Janez Potočnik, the the incumbent Environment Commissioner, to stay on.

Sweden: When it comes to gender equality, you can usually rely on the Swedes. Although nothing has been confirmed, EurActiv reported recently that Cecilia Malmström, the current liberal Commissioner for Home Affairs, might be able to continue even if Sweden elects a centre-left government in September's general elections as looks likely.

Our quick headcount reveals that in addition to Vera Jourova from the Czech Republic, we anticipate Juncker can potentially count on another five women (from Italy, Belgium, Portugal, Poland and Sweden) which would only put him on six - still well short of the target. Possibly MEPs could accept a lower number if a woman were also appointed as President of the European Council but not this low. 

If the European Parliament were to follow through on its threat to veto the entire Commission it would set up an unprecedented row with member states, some of whom would have to back down over their preferred choice of Commissioner (although the UK would probably be safe given the appointment of Baroness Ashton to the current Commission).

Normally when the EP generates these kinds of threats and ultimatums (like over the MFF last year) some kind of backroom deal is usually stitched up allowing everyone to save face but it is increasingly hard to see where Juncker will get enough woman from to placate the European Parliament.

Is Juncker saddling up to take on the EU's red tape dragon?

In an interview with Bild am Sonntag, European Commission President-designate Jean-Claude Juncker argued that:

“It is right that there are concerns [among EU citizens] that the EU is interfering in things that are not its concern… for this reason, I’ll create a European Commissioner for cutting bureaucracy.”

This is a welcome suggestion - we floated a similar idea back in our "EU localism" report back in 2011, and the Dutch subsidiarity review also recommended a 'subsidiarity commissioner'. Of course Juncker is not be the first person to say they wish to EU cut red tape and he will most likely not be the last. However, this is an encouraging sign, and suggests that he is not totally deaf to the concerns of business and citizens.

To make the idea more than symbolic, Juncker will need to do more than create a new post. The new Commissioner will need to be able to reach across the EU Commission's many departments and force other Commissioners to move forward with scrapping redundant laws. Specific tools could include the imposition of sunset clauses into new legislation and the right to demand updated impact assessments for existing regulations (UK government impact assessments often projected benefits which failed to materialise). For all this to take place, there will need to be a cultural shift in the Commission.

If this is a genuine attempt to de-regulate, Juncker will be able to count on support from UK, Scandinavian, Central and Eastern and Dutch governments. However, Juncker himself has also talked up the need for the EU to be more involved in social policy so it remains to be seen how strong his commitment to de-regulation will actually be.

So this is a welcome idea but one that needs full support and back-up across the EU in order to fly.

Will the real Jean-Claude Juncker please stand up?

This week, Jean-Claude Juncker conducted his tour of political groups in the European Parliament in a bid to get their support for him to succeed Barroso. On this occasion, German social democrat MEP Udo Bullmann stressed:

"Mr. Juncker will have to present concrete ideas over how he will address the massive investment gap, the creeping de-industrialisation of Europe and the social distortions. We will not be won over with empty phrases or with recycled ideas. There is too much at stake for people to do that."

We're not sure how confident Mr. Bullman can be, given that Juncker gave a masterful display of how to be all things to all men and women, finding the right things to say to placate everyone from conservatives to communists. Here is an overview of some of the highlights.

Juncker is not a federalist after all...

Juncker: Why do you call me a federalist? I am not a federalist. I do not believe in the United Staes of Europe.
— ECR Group (@ecrgroup) July 8, 2014

European people don't exist as nations do, EU doesn't tap into an identity, @JunckerEU critiques spitzenkandidaten idea further
— Bruno Waterfield (@BrunoBrussels) July 9, 2014

... but favours at the same time shifting more powers to Brussels:

"I am partisan of own resources to end eternal battle between Member States at every negotiation of financial framework." #ALDEasksJuncker
— ALDE Group (@ALDEgroup) July 8, 2014

#ALDEasksJuncker Juncker will push CCCTB (common tax base).
— Sophie in 't Veld (@SophieintVeld) July 8, 2014

#JunckerTest @JunckerEU the Commission must be open to using Article 7 if a member state breaches EU fundamental rights
— Greens in the EP (@GreensEP) July 9, 2014

He is is in favour of "budgetary rigour"... 

Juncker: I am not saying I am a proponent or opponent of austerity, but I do like budgetary rigour. You can't spend what you don't have.
— ECR Group (@ecrgroup) July 8, 2014

...but not "excessive austerity"       

.@JunckerEU : "for budgetary rigour, against excessive austerity" when does "excessive" start?
— Ska Keller (@SkaKeller) July 9, 2014

He promises the Socialists the Economic and Monetary affairs portfolio...

Juncker: stability pact will not become a flexibility pact, but it will be used with flexibility. A socialist commissioner will be in charge
— Valentina Pop (@valentinapop) July 8, 2014

...but then says it is still up for negotiation (according to ALDE)

"On the composition of the Commission, we note his statement during our hearing that no portfolio has as yet been attributed to any particular Commissioner or political family, not least the portfolio of economic and monetary affairs – in contrast to what has been reported as having been said to the S&D Group."

His manifesto argued for reducing energy dependency and ensuring affordability...

"We need to diversify our energy sources, and reduce the energy dependency of several of our Member States... we need to strengthen the share of renewable energies on our continent... It is, at the same time, an industrial policy imperative if we still want to have affordable energy at our disposal in the medium term."

...while opposing a "rush" towards "new technologies": 

#Juncker tells Greens he's wary of fracking because "I tend to be cautious even if that's old-fashioned. I don't rush into new technologies"
— David Charter (@DavidCharter) July 9, 2014

Juncker comes out against shale gas at Greens hearing. 'From a personal point of view I'm not in favour of promoting fracking'
— Dave Keating (@DaveKeating) July 9, 2014

He also endorsed EU enlargement to the Western Balkans while coming out against "any specific enlargements" within the next few years.

While his desire to build bridges is commendable, on many key issues he ended up either sitting on the fence or espousing outright contradictory positions. Will the real Jean-Claude Juncker please stand up?

Which Commission post should the UK push for (clue: not energy)?

When it comes to EU top jobs, if you snooze you lose, as
Gordon Brown discovered to his cost in 2009

In a new briefing published this morning we argue that after the row over Jean-Claude Juncker’s appointment, David Cameron can regain the initiative by sending a heavy-hitter - and not simply someone who happens to be available - to Brussels with the view to securing a top job in the new European Commission. But here is the crucial question - what job should the UK push for?

Here are the key points from our briefing:

• Even though conventional political wisdom says that it’s impossible for the UK to bag the internal market portfolio, this is precisely what David Cameron should ask for, not least given that Germany, in particular, may want to give the UK a quick win in order to reduce the risk of Britain leaving the EU.

• To boost the chances of this happening, financial services could be split off from the internal market portfolio. However, in this scenario, the key is for this portfolio to go to a country that actually has a meaningful financial services industry, or the strategy could backfire.

• The second best outcome for the UK would be to secure the competition portfolio. competition is by far the most powerful DG, with the power to impose multi-million euro fines, prevent mergers and restructure banks. The portfolio would allow the UK to ensure a business-friendly environment and ensure fair competition within the single market by preventing discrimination against non-euro member states. It also establishes a political link to eurozone - it’s impossible for eurozone leaders not to engage with the Competition commissioner.

• The Trade portfolio is often mooted as a good one for the UK, and on substance it certainly is. Being able to conclude the EU-US free trade deal (TTIP) would be a great scalp. However, it is important to remember that Commissioners’ ability to impact EU policy is not limited to their own briefs; many policy proposals are debated within the College of Commissioners offering every Commissioner the opportunity of raising any concerns at an early stage. Just as the EU’s High Representative for Foreign Affairs – currently held by Baroness Ashton - the Trade Commissioner is often absent from Brussels, thereby limiting the UK’s overall influence.

• The energy portfolio would be a relative disappointment for the UK. Yes, energy is a hugely important issue for Europe – and liberalised single market could help tremendously in both boosting energy security and keeping cost down. The Energy Commissioner could also play a key role in keeping the EU out of shale gas regulation – a key UK objective. However, the big push needed to change the political culture in Europe for this to happen won’t come from the European Commission and will take a long time to achieve anyway. This battle will first need to be won in national capitals. Taken together though, the Competition Commissioner probably has more sway over the EU energy market by being able to strike down attempts at creating national champions and new forms of intervention – as illustrated by the current stand-off between Germany and the Commission over Berlin’s rebate for energy intensive industries from its domestic renewable surcharges.

• Arguably, the social affairs brief would be better than the energy portfolio given how hugely important the rules on access to benefits for EU migrants are for the wider debate in the UK.

Just as important as the UK’s portfolio is the distribution of other key portfolios among reform-minded countries like the Netherlands and Sweden. Cameron needs to be far cleverer than Gordon Brown was in 2009, when France got internal market and Romania agriculture. This won’t be easy though. Having lost out on one of the three ‘top jobs’, France could push for either the competition or internal market brief. However, if France keeps the internal market, financial services should be split off as well.

Finally, the appointment of the new President of the European Council will also be crucial – in some ways just as significant as that of the Commission President – given that this will be the person in charge of brokering Cameron’s negotiations with other heads of state and government.

It's certainty all to play for.

Handelsblatt: Britain a key driver of EU Reform

Britain: The critical voice of reason?

We've been monitoring how the British Europe debate is being received across the continent throughout the Juncker episode (here and here), and already noted how large parts of the German commentariat have come out fighting for the UK to remain in the EU, especially because it is in Germany's long-term strategic interest.

Today's Handelsblatt features a joint op-ed looking at the pros and cons of British membership of the EU, with the paper's political editor Jan Mallien writing:

"The British question [EU] bureaucracy, fight against agricultural subsidies, and ensure that any transfer of power to Brussels is discussed critically. Thus, they provide important impulses -- and make themselves unpopular. In a shared house, they would be in charge of the cleaning-rota. Of course, one can kick-out the person who is charged with the cleaning rota from a shared household. But it would be an illusion to think that the others would never have to clean again."

He continues:

"With their critical attitude, the British are a key driver of reform. Some German newspapers insinuate that Cameron is on an anti-European course. Those who say something like that are simplifying matters: The Brits are in favor of another [vision of the] EU. In many ways, they are fighting the correct battles."

Mallien concludes:

 "Sure, there are some issues where agreement would be easier without [the Brits.] The Financial Transaction Tax, for example. However, these are mainly symbolic issues. The EU is not much better-off with a Financial Transaction Tax. But without the British an important drive for reform will be missing. A Brexit would therefore make the EU poorer -- and not just economically."

On the other side of the fence, Handelsblatt columnist Désirée Linde says:

"Why all the whining about the nightmare scenario of a British EU-exit? If the British want to get out of the EU, continental Europe should let them go. Because, contrary to suggestions of doomsayers and EU-haters, it would not spell the beginning of the end for the EU. Yes, it would be a shock, but one that provides an opportunity for the EU. The cost of a Brexit for the EU is undisputed. Great Britain is one of the EU's biggest net contributors paying over €7bn per year."

She continues that while a Brexit would be “uncomfortable for the EU,” it would be “fatal” for the UK, and concludes:

"From the outset, the British lacked commitment to integration... Brexit would not build a way back to the European Community for the British. So it is up for all of Europe's friends in the UK to perceive this as a cleansing thunderstorm and develop a whole new enthusiasm for Europe. The fact that Europe is not just a customs union, but also a political project is something that the British have not yet understood...It is time that the UK learns. And if it must be, the hard way."

Linde buys into the whole German "pro-integration" rhetoric. However, as we have noted repeatedly, one of the greatest ironies of the German-Europe debate is how to square the need for more integration, especially in the eurozone, with Germany's national interests. This is lost on Linde. 

As a post-script, it's not only the Germans who are coming out in favour of Britain. The French  commentariat has been speaking out too, fearful of the imbalance a Bexit would cause in the European club. In today's Le Figaro, French columnist Renaud Girard describes the appointment of Jean-Claude Juncker as new European Commission President as “an unnecessary affront” to the UK, and argues:

 “It is irresponsible to push London on the slippery slope of EU exit… As far as France is concerned, it has no interest in finding itself head-to-head with Germany.” 

The Juncker-episode has shown that the moment of truth on the UK's future in Europe is drawing closer - and it also appears to be focusing minds across the Channel that an EU without Britain may not be in anyone's interest.