Tusk and Mogherini: Europe's new 'dream team'? Our initial thoughts

Europe's new 'dream team'?

As we noted in our previous post, Cypriot President Nicos Anastasiades had sort of spoiled the surprise. Anyway, now it's official: Polish Prime Minister Donald Tusk has been appointed new European Council President, and Italian Foreign Minister Federica Mogherini will succeed Baroness Ashton as the EU's foreign policy chief (aka High Representative for Foreign Affairs).

A couple of initial thoughts:
  
Donald Tusk 

Tusk has economically liberal and pro-free trade instincts. Most importantly from the UK's point of view, he comes from outside the euro area - and will therefore be sensitive to the concerns of non-euro countries when it comes to safeguarding the integrity of the single market, a point he made during his press conference:

#Tusk We've need to prevent Europe from dividing into euro/non-euro camps, I wouldn't have taken job if it involved new institutional split
— Pawel Swidlicki (@pswidlicki) August 30, 2014

Tusk also explicitly committed himself to ensuring the UK stays in the EU and endorsing (some) EU reforms:

#Tusk: We'll need solutions to the concerns of Great Britain, no one sensible can envisage the "black scenario" of an EU without Britain
— Pawel Swidlicki (@pswidlicki) August 30, 2014

That said, Tusk is also likely to oppose fundamental changes to EU rules on free movement; although he did say that so-called 'welfare abuse' can be addressed, as we've noted, for many the debate has moved on from the issue of 'fairness' to that of 'volume', something Cameron will be under huge pressure to place at the centre of his potential renegotiation. In the more immediate future, Cameron's early support for Tusk as new European Council President could increase the UK's chances of securing a big portfolio in the new European Commission.

Significantly, it has been confirmed that Tusk will also chair the summits of eurozone leaders - despite coming from a non-euro country. This looks like a big concession made, in particular, by French President François Hollande - who was reportedly sceptical of such an arrangement. Perhaps Hollande hopes that giving ground on this point can help him secure the key post of European Commissioner for Economic and Monetary Affairs for his former Finance Minister Pierre Moscovici.

Federica Mogherini

The resistance to Mogherini, put up by Eastern EU member states over the past few weeks, has clearly been appeased by Tusk's appointment as new European Council President. It was noteworthy that Herman Van Rompuy stressed that Tusk and Mogherini would "work closely together to secure Europe's interests and values".  

Italian Prime Minister Matteo Renzi, who has invested a great deal of political capital on Mogherini, seems to have achieved what he was looking for: a diplomatic victory in Brussels to sell to the electorate once back in Italy - where the big reforms are not going forward as fast as announcements, and the economic situation shows no signs of improvement. With the country in recession and deflation, it remains to be seen how much Italian voters will be impressed.

#Mogherini lands High Rep job, #Renzi scores EU victory to sell back at home. Not sure how much Italians will be impressed. #EUCO #EUtopjobs
— Vincenzo Scarpetta (@LondonerVince) August 30, 2014

As we noted in our recent flash analysis, the role of High Representative is less crucial from the UK's point of view - as foreign policy remains primarily a national competence, with every EU member state having a veto. However, in light of the various geopolitical challenges facing the EU (and its neighbourhood), it is possible that Mogherini will play a greater - or at least more visible - role than her predecessor.

"I understand that Tusk it's OK": Has the Cypriot President just spoiled it all?

As we wrote in our round-up of EU leaders' doorsteps, Polish Prime Minister Donald Tusk is the favourite for the European Council President post but it was not yet a done deal. However, have we just inadvertently had confirmation that Tusk has landed the job?

Watch this video from around 16:30 in:



Cypriot President Nicos Anastasiades tells outgoing European Council President Herman Van Rompuy:

"We have news, I understand that Donald [Tusk] it's okay."

And Van Rompuy replies:

"Yes, but keep it."

That sounds like a bit of a spoiler, but we will keep following the summit and provide you with real-time updates on Twitter just in case there are any last minute surprises.

EU top jobs summit has kicked off: here is a round-up of doorstep declarations

EU leaders have all arrived in Brussels for today's summit. There are two big issues on the table: the appointments of the next European Council President and High Representative for Foreign Affairs; and the worsening situation in Ukraine (although the situation in the Middle East is also bound to come up).

Here's a round-up of what EU leaders said upon arrival. Let's start with the assignment of the remaining EU top jobs. Italian Foreign Minister Federica Mogherini and Polish Prime Minister Donald Tusk are the frontrunners for the posts of High Representative and European Council President respectively. However, Mogherini's appointment looks more like a done deal than Tusk's - at least from EU leaders' doorstep declarations:

#Hollande: Support of centre-left leaders to #Mogherini is guaranteed [acquis]. I think she will be the next EU High Rep. #EUCO
— Open Europe (@OpenEurope) August 30, 2014

#Hollande thinks #Mogherini will be new High Rep, says "consensus solution" needed for new #EUCO President. He didn't name Polish PM #Tusk.
— Vincenzo Scarpetta (@LondonerVince) August 30, 2014

Brief doorstep statement from #Merkel: We should be able to decide on #EUtopjobs and we will discuss Ukraine, it should be an exciting #EUCO
— Pawel Swidlicki (@pswidlicki) August 30, 2014

Belgian PM Di Rupo says there are "several quality candidates" for #EUCO President.
— Vincenzo Scarpetta (@LondonerVince) August 30, 2014

Finnish PM #Stubb: I don't usually bet, but I would put my money on #Mogherini and #Tusk. #EUCO
— Open Europe (@OpenEurope) August 30, 2014

Enda Kenny: Increasingly evident that the Italian candidate [#Mogherini] will be appointed as High Representative #EUCO #EUtopjobs
— Pawel Swidlicki (@pswidlicki) August 30, 2014

Swedish PM Reinfeldt: If Socialists want #Mogherini, deal will have to be balanced to reflect other interests, other parts of Europe #EUCO
— Pawel Swidlicki (@pswidlicki) August 30, 2014

Mogherini has travelled to Brussels herself, and has met European Commission President-elect Jean-Claude Juncker - possibly a further sign her appointment is drawing closer. Tusk walked into the European Council building without saying a word, although reportedly with a smile on his face.

Meanwhile, it seems no decision will be made on the name of the next President of the Eurogroup of eurozone finance ministers:

#Spain's PM #Rajoy says new €-group President won't be appointed today. He's hoping for Finance Minister Luis de Guindos to bag job. #EUCO
— Vincenzo Scarpetta (@LondonerVince) August 30, 2014

As regards Ukraine, a few EU leaders stressed the need for a reaction if Russia does nothing to de-escalate the situation. However, the emphasis has significantly differed from one leader to another: 

Lithuanian President #Grybauskaitė says #Russia "is practically at war with Europe", and calls for "full arms embargo" against Moscow. #EUCO
— Vincenzo Scarpetta (@LondonerVince) August 30, 2014

David #Cameron: Situation in #Ukraine "completely unacceptable", and "consequences must follow if that situation continues". #EUCO
— Open Europe (@OpenEurope) August 30, 2014

#Hollande: There will certainly be a request to the European Commission to prepare new sanctions on #Russia. #EUCO #France
— Open Europe (@OpenEurope) August 30, 2014

Finnish PM #Stubb: Further sanctions on #Russia will be needed absent de-escalation, but we also need to keep dialogue open. #EUCO
— Open Europe (@OpenEurope) August 30, 2014

And that's all for the moment. The summit is under way, and we will continue monitoring it. Follow us on Twitter @OpenEurope, @pswidlicki and @LondonerVince for real-time updates and analysis.

EU leaders fail to agree on the remaining top jobs. Anything to remember from yesterday's summit?

Yesterday's European Council summit ended without an agreement on the remaining EU top jobs. However, something interesting still came out of the meeting.

A socialist (and a woman?) for next EU foreign policy chief

EU leaders appear to have established that the next High Representative for EU foreign policy will be a centre-left politician. German Chancellor Angela Merkel, French President François Hollande and Italian Prime Minister Matteo Renzi all said it in the respective post-summit statements.

Renzi, who is pushing for Italian Foreign Minister Federica Mogherini to get the job, also stressed that, "Everyone agrees that there's no other candidacy than Italy's." Hollande added that the High Representative "will necessarily be a woman, taking into account the image of Europe we have to offer". The French President also made clear that he backs Mogherini's candidacy.

The next European Council President will be appointed by unanimity, and could be one of the 28 sitting EU leaders

As Hollande put it during his press conference, the next European Council President "will be a personality that will have to gather consensus". Similarly, Merkel said, "We need a personality...who can hold us 28 together."

Interestingly, Renzi told Italian journalists:

"Hollande said that, according to him, the next European Council President has to be one of the 28 [sitting EU leaders]. It doesn't matter whether [he/she is] from the eurozone or not. He got broad support [for this idea]."

Speaking after the summit, Polish Prime Minister Donald Tusk confirmed that his name has been informally floated for the post of European Council President (an option we discussed here and here), but that he had not been approached officially.

Tusk reiterated that he would prefer to remain in Poland, but then added:

"We have to play out a complicated game and sometimes in this game the argument goes that all options remain on the table. Therefore, if you ask me if this is impossible, I will say that in the negotiations I prefer to keep every eventuality in reserve in order to achieve the maximum that Poland could possibly achieve."

And that was it. EU leaders will meet again on 30 August to try and wrap up a deal. We will be monitoring the meeting very closely, despite it being on a Saturday.

Are things heading towards a showdown on the new EU foreign policy chief?

UPDATE (18:20) - The FT's Peter Spiegel and Alex Barker are reporting that Belgium's Karel De Gucht, currently serving as EU Trade Commissioner, could be a late entry into the race for High Representative.

Like former Estonian Prime Minister Andrus Ansip (see below), De Gucht is a member of the liberal ALDE family - that has joined the 'grand coalition' supporting Juncker in the European Parliament and now looks to be asking for something in return.

ORIGINAL BLOG POST (17:07)

EU leaders will meet in Brussels tomorrow to get on with the assignment of the remaining top jobs. Priority will probably be given to the appointment of the EU's new foreign policy chief (aka High Representative for Foreign Affairs and Security Policy).

Italian Foreign Minister Federica Mogherini is still regarded as the frontrunner for the job. However, things may not go as smoothly as initially thought. Sources close to European Commission President-elect Jean-Claude Juncker have told Italian news agency ANSA that "ten-eleven [EU] countries" are currently against Mogherini's appointment.

The sources didn't name any names, but it is understood that Eastern EU member states are particularly reluctant, since they believe Italy did not take a hard enough stance against Russia during the Ukraine crisis.

The Lisbon Treaty establishes that, similarly to the European Commission President, the High Representative is appointed by EU leaders under qualified majority. And Italian Europe Minister Sandro Gozi has made clear Italy is prepared to go to a vote. He said:

"[The appointment of] Juncker is part of an agreement whereby the High Representative goes to the socialists." 

"Juncker has been designated by [qualified] majority. No-one ever raised objections [against Mogherini] with us. If there were any, that would mean the High Representative will also be designated by majority."

Therefore, things may be heading towards another showdown. This time, though, the outcome of the vote could be a lot more uncertain. A group of ten or eleven countries (very likely to include Poland, a qualified majority heavyweight) would have good chances of success in forming a 'blocking minority' to reject Mogherini's appointment. That would be a blow for Italian Prime Minister Matteo Renzi, who seems to be investing a good deal of political capital trying to secure a post that he considers as of great prestige. But it could also shift the balance in the distribution of the other top jobs - notably the Presidency of the European Council.

Mogherini is from a centre-left party. This means her appointment would make it less likely for Danish Prime Minister Helle Thorning-Schmidt, another centre-left politician, to succeed to Herman Van Rompuy as European Council President. However, this argument could no longer be valid if the new High Representative were to come from a centre-right party.

This would be the case with Bulgaria's Kristalina Georgieva, who looks to be gaining momentum as an alternative to Mogherini, although, as our dove-hawk axis showed, Bulgaria has so far also been quite soft on Russia.

Another option could be to offer the post of European Council President to someone from an Eastern European country in order to assuage opposition to Mogherini. Polish Prime Minister Donald Tusk could be an option, although with Polish domestic politics in a precarious state he may prefer to stay put. In that case, former Estonian Prime Minister Andrus Ansip - who has already been nominated as Estonia's next EU Commissioner - could be one to watch. Ansip's Estonian Reform Party belongs to the liberal ALDE group, that has joined the 'grand coalition' supporting Juncker in the European Parliament and would presumably be keen to get something substantial in return.  

In other words, a few surprises may come out of tomorrow's European Council. Stay tuned.

Italy claims "great victory" over "looser" eurozone fiscal rules

UPDATE (11:30am) - In a separate interview with Quotidiano Nazionale on Saturday, Mr Del Rio explicitly speaks of a "great victory" for Italy at the EU summit.

Here's the full quote:

"The green light to flexibility is the great victory [...] One needs to acknowledge that, thanks to Italy, the work of the summit was not focused on names, but on what to do to move from the time of austerity [rigore] to the true implementation of the [EU's] Stability and Growth Pact. We really won a substantial battle."

ORIGINAL BLOG POST (9:50am)

It was bound to happen.

The battle to make EU fiscal rules more 'flexible' was one of the key issues on the table at last week's European Council summit. Italian Prime Minister Matteo Renzi and French President François Hollande were seeking to make their support for Jean-Claude Juncker conditional on a de facto loosening of the rules. So what was the outcome? Well, depends on who you ask. If you ask Renzi's people, this weekend saw a watering down of the rules.

Graziano Del Rio, Renzi's top aide (see picture), claims thus in an interview with today's Corriere della Sera:

Q: Italy comes back from Brussels with the rule of the 'best use' of the flexibility already provided for [by the EU Treaties]. Isn't that too little to speak of a Europe that abandons austerity and of a victory of the Renzi government?

A: No, it's not too little because it is precisely the lack of use of flexibility that has caused our most serious problems.

Q: So, during its semester of [rotating] EU Presidency, Italy won’t ask to raise the [EU's] deficit limit, the famous 3% of GDP? 

A: I don’t think that’s a rule set in stone forever, but we don’t want to be the ones who move it onto sand. No, we won’t ask to raise the 3% [deficit/GDP threshold]. That’s also to avoid suspicions and titters in Europe, keeping in mind that there are other countries that glaringly breach that limit – and even Germany has done it during a certain period of time.

Q: Excuse me, but what does this greater flexibility mean then?

A: It means that, when deficit is calculated, part of the spending is not taken into account, or, better, it is considered as flexible. The [EU’s] Stability Pact effectively becomes looser. It can be done for co-financing, that is the money Italy is obliged to spend to use EU funds. We’re talking about a figure around €7 billion a year. But there’s also the investment clause, that would allow [us] to leave out of the calculation spending with a high social impact […] We’re talking about a figure around €3 billion. In total, flexibility could be worth €10 billion a year, although it can’t be taken for granted that these two items can be added together.

Of course, everyone is talking about 'interpretation', and no-one will say the rules have been formally re-written. Still, this looks as if the Italian government is claiming they have managed to loosen EU fiscal rules, via a new interpretation. Spin or otherwise, Berlin and Frankfurt won't be entirely pleased.

Post-Juncker press conference round-up

We have been following the post-summit press conferences of EU leaders. Here is a round-up of the highlights, starting with German Chancellor Angela Merkel:

MOST IMPORTANT POINTS FROM #MERKEL #EUCO PRESSER: (1/3) "Ever closer union" does not mean one-speed Europe.
— Open Europe (@OpenEurope) June 27, 2014

MOST IMPORTANT POINTS FROM #MERKEL #EUCO PRESSER: (2/3) #spitzenkandidaten process will have to be discussed in #Council.
— Open Europe (@OpenEurope) June 27, 2014

MOST IMPORTANT POINTS FROM #MERKEL #EUCO PRESSER: (3/3) "flexibility" on fiscal pact does not mean member states get to re-write the rules.
— Open Europe (@OpenEurope) June 27, 2014

In his press conference, David Cameron took his defeat on the chin but noted that it would make his reform strategy harder:

“Today’s outcome is not the one I wanted. And it makes it harder, and the stakes higher…This is going to be a long, tough fight and sometimes you have to be ready to lose a battle to win a war. It has only stiffened my resolve to fight for reform in the EU, because it is crying out for it.”

Cameron was asked whether much more of this kind of thing would prompt him to recommend an ‘Out’ vote in a referendum. He declined the offer but did make the point that:

“And at the end of 2017, it will not be me, it will not be the House of Commons, it won’t be Brussels who decide about Britain’s future in the European Union. It will be the British people. It will be their choice, and their choice alone.”

He also pointed to the paragraph in the Council conclusions dedicated to the UK:

1. The UK raised some concerns related to the future development of the EU. These concerns will need to be addressed.  

In this context, the European Council noted that the concept of ever closer union allows for different paths of integration for different countries, allowing those that want to deepen integration to move ahead, while respecting the wish of those who do not want to deepen any further.  

Once the new European Commission is effectively in place, the European Council will consider the process for the appointment of the President of the European Commission for the future, respecting the European Treaties.

Italian Prime Minister Matteo Renzi was particularly keen to claim victory on a more 'flexible' application of EU fiscal rules. Van Rompuy’s agenda for the next European Commission is “very very very good on substance. For the first time, the focus is on growth. Insisting on growth is a turning point for Europe,” he said.

“Those countries who implement structural reforms have the right to greater flexibility, which is the most important political point for us.”

Renzi also touched on other EU top jobs, and made clear that:

“The name of [former Italian Prime Minister] Enrico Letta for European Council Presidency has never been made”

As for French President François Hollande, he tried to wrap his battle for looser EU fiscal rules into a European flag:

“I did not intervene only to defend France. When I evoke the flexibility in the margins of the Stability Pact [EU fiscal rules], I defend a conception of Europe.” 

And as regards the next European Commission, he said France wants “an organisation around big Vice-Presidencies. I will demand a Vice-Presidency for France.”

Read our take on what Cameron's defeat means for the reform agenda here.

The stakes are raised: Will Renzi and Hollande back Juncker even absent more lenient eurozone fiscal rules?

As we anticipated on our blog last week, the discussion over Jean-Claude Juncker's appointment as next European Commission President has in part turned into a debate over whether the EU's fiscal rules - enshrined in the Stability and Growth Pact - should be applied in a more 'flexible' way.

France and Italy are making their support for Juncker conditional on the new European Commission granting them more budget leeway while they push ahead with structural reforms, and Germany is reluctant to make concessions.

This also matters for David Cameron's battle against Juncker, as an increasing number of Germans now see what can happen when Britain gets isolated and Berlin is left facing a Mediterranean bloc, armed with Qualified Majority Voting. It may be too late in the day for Merkel to U-turn, but it will definitely serve to focus minds in Berlin following this episode. But could Cameron hold out hope for Italy and France?

Renegotiating the Stability and Growth Pact seems off the table, and neither French President François Hollande nor Italian Prime Minister Matteo Renzi are actively calling for changes to the rules. The key is what each country means by 'flexibility'. Renzi wants to exclude a number of 'strategic' investments from EU deficit calculations. Hollande wants more time to cut France's deficit. And Merkel wants things to stay just as they are, because she thinks that the existing rules are flexible enough.

As a result, things may just be squaring up for a stand-off at this week's European Council. German Finance Minister Wolfgang Schäuble told ARD yesterday that he opposes any "re-interpretation" of EU fiscal rules, and added:

"More debt only leads to a deepening of the problems instead of solving them."

In an interview with La Repubblica, Italian Europe Minister Sandro Gozi hit back:

"It is for [EU] leaders to discuss a new course for Europe. Therefore, we are not concerned about declarations by this or that minister, even if from an important country."

Meanwhile, Hollande yesterday circulated a paper outlining France's priorities for the new European Commission. The document, seen by Le Monde, calls for "an application of [EU] budgetary rules that favours investment and growth", while taking into account "the reforms undertaken by countries and their economic situation".

However, Merkel doesn't sound prepared to back down. She told the Bundestag this morning:

"[EU fiscal rules offer] clear guard rails and limits on the one hand, and a lot of instruments allowing flexibility on the other. We must use both just as they have been used in the past."

If a vote on Juncker eventually takes place at this week's European Council, Hollande and Renzi will have to abandon their convenient 'priorities first, names later' line and make a clear choice. Then the key question will be: do they think they have been given sufficient guarantees that their requests will be taken on board by the next European Commission? If the answer is 'No', Juncker's candidacy could still be struck down.

It is going to be interesting but it'll take a major turn of events for Juncker to be dropped now.  

Names are a consequence of things: Renzi outlines his own road map for the next European Commission

Nomina sunt consequentia rerum. Names are a consequence of things. Italian Prime Minister Matteo Renzi quotes Emperor Giustiniano and Dante Alighieri to open the paper he wrote together with Europe Minister Sandro Gozi, outlining Italy's priorities for the next European Commission.

The document has been published by Europa, an Italian daily close to Renzi's Democratic Party. And it's in English, so you can read it in full here.  

Here are some interesting bits:

The election to the European Parliament, the constitution of the new Commission, the designation of the new President of the European Council mark the beginning of a new political cycle. We can turn it into a fresh start for Europe. Nothing could be worse than [to] roll out with an inter-institutional wrangle over the top European jobs. This would be utterly incomprehensible to European public and irresponsible in the light of the huge challenges ahead. 

Therefore, as we already wrote on this blog, Italy is not keen to start its rotating EU Presidency with a big fight on top jobs.

On eurozone fiscal rules and structural reform, Italy's position should be clear by now: more flexibility on deficit and debt reduction to facilitate the reform process. The document says:

Fiscal consolidation is still challenging in spite of the unprecedented efforts, because of subdued growth and very low inflation...Benefits from reforms in terms of growth and jobs take time to materialise...The European economic framework should back reforms agendas in member states and strengthen incentives for reforms.

On growth and competitiveness, Renzi sounds very sympathetic to the UK's position:

The full potential of the internal market also needs to be exploited, including in the field of services and energy. We should move towards a real single market for electronic communications and on-line services. Improve the quality of EU legislation, reducing EU regulatory burden...More generally, the implications for growth should be factored-in in all legislative proposals and discussions.

The Italian Prime Minister also has a few ideas on how to reconcile voters with the EU:

We need to give a better sense that the EU institutional setup is at the service of European citizens' needs...EU institutions can already adopt some practical arrangements to improve their capacity to deliver. In this respect, the possibility of creating clusters of Commissioners, one for each European priority, should be seriously taken into consideration. 

And then on EU migration policy, another big priority for Italy:

We need to promote a more proactive role of the EU and more integrated policies in the fields where they have a clear added value. Immigration and asylum is clearly one of those fields, In one word, we need to promote an authentic Common European Migration Policy.

Therefore, the bottom line of Renzi's road map is:

The job description for the EU top jobs stems from this outline. Italy will support leaders that share our views on the future of Europe and are determined to foster the above priorities. 

As we previously noted, Italy can play a key role in the appointment of the next European Commission President - especially if EU leaders hold a vote at this week's European Council. Renzi is not against the principle of Spitzenkandidaten being chosen by the main pan-European political families, and has never given signs of having a 'personality problem' with Jean-Claude Juncker. Therefore, the key will be whether the Italian Prime Minister considers Herman Van Rompuy's vague list of priorities and Angela Merkel's very timid 'opening' on eurozone fiscal rules as a sufficient guarantee that Italy's concerns and requests will be taken into account by the next European Commission.

Renzi has now set out a pragmatic negotiating stance ahead of complex discussions. He has also produced a clear metric by which to judge his success or failure. Even if you do not agree with everything he is calling for, such clarity is welcome. 

European Council draft conclusions: have Merkel's 'reform contracts' made a comeback?

As we noted in our previous blog post - and as we predicted in our briefing trailing the German elections - Angela Merkel could now well be pushing for so-called 'reform contracts' or 'competitiveness pacts' (which is what they're called in the CDU/CSU manifesto). The idea involves trading exceptionally strong reform commitments in the eurozone periphery in return for German cash.

We've managed to get our hands on an updated version of the draft European Council conclusions (which is doing the rounds in Brussels) ahead of the meeting of EU leaders later this week.

And what do you know, the following paragraphs have made it in (our emphasis):

"The Commission will provide a first overview of the implementation of country-specific recommendations that will be a basis for the monitoring of their implementation. This will also assess growth and jobs enhancing policies and measures, including the performance of labour and product markets, the efficiency of public service, as well as education and innovation in the Euro area.

On this basis, work will be carried forward to strengthen economic policy coordination, including on the main features of contractual arrangements and of associated solidarity mechanisms."

It's a vague formulation - and hard to know exactly what it means - but we think it's at least fair to assume that the idea is back on the agenda (our view is it never quite went away). As we've argued repeatedly, the kind of beefed-up supervision and enforcement that the Germans have in mind would most likely require EU treaty change. The nature, scope and timing of such a Treaty change is anyone's guess at the moment, however.