The EU political priorities for 2023 – part I

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The Commission President’s annual State of the Union-22 (SOTEU) address has unveiled present main five-six political priorities for the next working year. Due to the SOTEU’s complexities, our Institute’s analysis is divided into two parts: one on the Commission attention to present multiply-dimensional crises, reforms in the states, global issues and that of democracy, etc.; and second, on business, industrial development, SMEs skills, etc.  

The SOTEU-22 revealed common optimism for adopting resolute proposals for a stronger European Union, intra-EU solidarity and for overcoming numerous often overlapping crises. Definite and new ideas on creating common front in such issues as, e.g. present challenges, optimizing business, increasing peoples’ wellbeing and reforming EU-wide governance were touched upon in the President’s address to the European Parliament.
The months ahead, the President warned, will not be easy for households, businesses and national governance: e.g. gas prices have risen by more than 10 times compared to pre-pandemic; and “making ends meet is becoming a source of anxiety for millions of businesses and households”. Besides, the war in Ukraine is still going on; hence several proposals were unveiled to align Ukraine with the EU single market, including by extending the European free-of-charge roaming area, and support its reconstruction, with €100 million to rebuild damaged schools. Plus, the EU sanctions on Russia will stay for indefinite time, which was a rebuke to critics suggesting that the EU’s hard line against Russia will eventually collapse under the weight of the energy crisis.

Main issues
First, the EU measures to confront the energy crisis: Commission presented three key proposals to curb electricity bills: an EU-wide plan to introduce mandatory electricity savings, a uniform price cap on the excess revenues made by inframarginal power plants (those who don’t use gas, such as renewables, nuclear, hydropower and lignite), and a windfall tax to partially capture the huge profits reaped by fossil fuel companies.
Further comments from Liboreiro J. State of the Union: Six takeaways from Ursula von der Leyen’s keynote speech. In: Updated 14/09/2022.

Second, dealing with the EU’s heavy dependency on fossil fuels: the EU member states have to speed up the transition from all imported fuels and develop homegrown and self-reliant systems of green technology (example of Denmark which approved wind power strategy already in the aftermath of the 1970s oil crisis).
Among the necessary transformations: are wind energy and hydrogen. Several EU member states agreed to heavily invest into off-shore wind generation and hydrogen; among most vivid examples are: a) Sicily, where Europe’s largest solar factory will soon manufacture the newest generation of panels, and b) Northern Germany, where local trains now run on green hydrogen. As to the latter, the EU will also invest in the development of the hydrogen economy: e.g. according to the REPowerEU plan, the states will double the 2030 target and produce ten million tons of renewable hydrogen each year. To achieve this, the states must create a market for hydrogen, in order to bridge the investment gap and connect future supply and demand. Therefore a new European Hydrogen Bank will be established to guarantee the purchase of hydrogen, notably by using resources from the Innovation Fund, with initial investment of € 3 billion to help building the future market for hydrogen.

Third, the fiscal discipline in the states: e.g. the President mentioned in the SOTEU the EU’s fiscal rules, a highly sensitive issue that for years sparked tensions between Northern and Southern states. The fiscal-discipline-rules, known as the Stability and Growth Pact (SGP), require member states to implement financial policies that keep their budget deficit under 3% and public debt under 60% of GDP.
However, these limits many “southern” governments currently exceed by a considerable margin; besides, the SGP remains suspended to cope with the current crises and announced reforms in “transitional measures”.

Fourth, markers in gas and electricity; presently, the EU gas market has changed dramatically: from pipeline mainly to increasing amounts of LNG. But the old benchmark used in the gas market has not adapted and the Commission is going to establishing a more representative benchmark. At the same time the energy companies are facing severe problems with liquidity in electricity futures markets, risking the functioning of the whole energy system. Commission suggests the market regulators to ease these problems by amending the rules on collateral – and by taking measures to limit intra-day price volatility.

The current electricity market design – based on merit order – is not doing justice to consumers anymore; the market should reap the benefits of low-cost renewables instead. The Commission intention is to show deep and comprehensive reform of the electricity market to decouple the dominant influence of gas on the price of electricity.

Note. Historic example: half a century ago, in the 1970s, the world faced another fossil fuel crisis with e.g. car-free weekends to save energy. However, the EU did not learn the lesson: the continent is still heavily dependent on oil and gas; and what is worse, fossil fuels have been massively subsidised. This was a short-sighted policy damaging for the global climate, public finances and regional energy security. And the states still follow the wrong path: only a few states realised that the real problem was fossil fuels themselves, not just their price. The most visual example is that of Danish governance, which long ago decided to invest heavily into harnessing the wind power.

It is presently seen the importance of the European “green deal”: the summer of 2022 will be remembered as a turning point. The member states must work relentlessly to adapt to climate measures, “making nature our first ally”, noted the President. This is why the EU will push for an ambitious global deal for nature at the UN Biodiversity conference in Montreal later this year and support the COP27 summit in Egypt. But in the short term, there is a need for a EU-wide cooperation and solidarity to be better handle changing climate: destructive power of extreme weather is too big for any country to fight on its own.

Fifth, rethinking EU’s foreign policy agenda at the critical moment in global politics acquire vital importance, first of all by investing in “the power of democracies”. This re-assessment will be done by a core group of the EU’s like-minded partners and friends in every single democratic nation in the world. The EU will mobilize collective power to shape global agenda and strive to expand the core aspects in democracies. The most immediate way is to deepen ties and strengthen democracies in the European continent and the countries that are already on the path to join the Union. Threats facing democracies in the 21st century include the “foreign autocrats” funding entities inside the EU to spread “disinformation” and “toxic lies,” such as a Chinese centre in Amsterdam that dismissed the mass internment of Uyghur people as “rumors.” The EU shall combat global lies toxic for European democracy: “screening” foreign involvement in the European values to better shield them from malign interference. The main instrument in this regard is a newly formulated Defence of Democracy package, which will bring covert foreign influence and shady funding to light. “We will not allow any autocracy’s Trojan horses to attack our democracies from within”, noted the President. For more than 70 years, EU states were moving towards democracy, but many people have taken democracy for granted for too long (especially those, who have never experienced to live under authoritarian regimes). The EU institutions will constantly fight for democracy by protecting it both from the external threats and from the vices that corrode them from within.
It is also the Commission’s duty and most noble role to protect the rule of law, judicial independence and protecting the EU budget through the conditionality mechanism; a vital part of these efforts focuses on corruption, with all its faces. Thus various foreign agents are trying to influence the EU’s political system: shady companies or foundations abuse public money. As soon as the EU asks candidate countries to strengthen their democracies, the EU-27 must also eradicate corruption at home. That is why in the coming year the Commission will present measures to update legislative framework for combating corruption in all its forms: raising standards on offences such as illicit enrichment, trafficking in influence and abuse of power, as well as more classic offences such as bribery; corruption erodes trust in the EU institutions. The Commission also proposes to include corruption in the human rights sanction regime, i.e. the new EU tool to protect European values abroad.

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