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EU’s rule of law mechanism threatens to fall short



The EU’s planned “rule of law” conditions on its next long-term budget have sparked a crisis that risks delaying the adoption of the bloc’s €1.8tn pandemic recovery package by the end of the year.

For the fiercest critics of the “rule of law” mechanism, such as Hungary’s prime minister Viktor Orban, the measure is a politically motivated and illegal effort designed to punish his government by withholding funds. For supporters, including many MEPs, the tool is a muscular way to — finally — sanction violations of EU values by illiberal governments. 

The reality is that neither is quite true. 

The draft text of the mechanism agreed by MEPs and EU diplomats this month is worth reading in full. It shows that despite the big claims, the EU has arguably missed its opportunity to create a sanctions mechanism with teeth and instead opted for one that may never be used in practice. 

The most significant issue is when will it be possible for the European Commission to propose that a member state should have its budget funds reduced or suspended under the terms of the mechanism. The draft text is clear: this can only happen if Brussels finds that violations of the rule of law in a member state “affect or seriously risk affecting the sound financial management of the EU budget or the protection of the financial interests of the union in a sufficiently direct way”. 

This threshold is likely to be a high bar for the commission to clear. It resembles the criterion drawn up under the German presidency of the EU in October — in a draft that was rejected not only by Hungary and Poland, but also a coalition of seven countries including the Nordic and Baltic states, Austria and the Netherlands, who protested that upholding the rule of law should be about far more than just protecting the EU’s finances.

These countries, along with a majority of MEPs, wanted the tool to be used to sanction governments for undermining principles such as the free press, freedom of expression and LGBTIQ and other minority rights. This text does not do that. Instead, it talks specifically of financial risks such as fraud, tax fraud and corruption as tangible and sanction-worthy risks.

“This is not a rule of law mechanism but a procedurally flawed anti-corruption tool — a sort of inefficient and politically treacherous version of Olaf (the EU’s anti-fraud agency),” said a European parliament official.

It’s a point that hasn’t been lost on diplomats involved in the budget negotiations. They have also been frustrated at the overblown claims being made about what the mechanism can actually achieve. 

This all raises the fundamental question of whether the rule of law mechanism will ever be used. EU officials point out that the commission is unlikely to risk triggering possible sanctions against any country, unless it has cast-iron guarantees that the action will not be struck down by the courts.

Mr Orban would likely mount a challenge at the European Court of Justice, the EU’s top court, to any commission move against his government. This would open up the prospect of an interminable legal battle with the Hungarian premier. Such a legal battle would be reminiscent of the stalled “Article 7” bloc rule of law disciplinary case launched against Hungary in 2018 and Poland the previous year. It would also give Hungary scope to use its veto against any EU policy that requires unanimity in protest. 

“The rule of law mechanism is like the stability of the growth pact for the east. It will never be enforced and will only create political resentment on all sides,” noted one official.

As for the stalled budget talks, rule of law supporters are urging the EU and the German presidency to stand firm and avoid reopening the deal to appease Mr Orban and his allies. But even if it remains as it is, the flawed mechanism is unlikely to live up to its hype. 

Chart du jour: double dip

Line chart of purchasing managers' index, below 50= a majority of businesses reporting a contraction showing Eurozone services activity plummeting

The eurozone had a bitter taste in its mouth on Monday after the release of the purchasing managers’ index for November. The composite index, which averages purchases in manufacturing and services, fell below 50, signalling a contraction — though it didn’t fall to the historic lows seen during the depths of the pandemic in the spring. Buried in the bad news were some encouraging signs, including manufacturing in Germany which was “continuing to show especially encouraging resilience”. This kept the manufacturing index slightly above 50, mainly due to industry adapting to the pandemic.

Europe news round-up

European Council president Charles Michel speaks to US president-elect Joe Biden
  • US president-elect Joe Biden held his first phone calls with EU leaders on Monday and has been invited to Brussels for a “special meeting” (see tweet above). He spoke to both European Commission president Ursula von der Leyen and her European Council counterpart Charles Michel.

    The EU is also going to be seeing more of John Kerry, who has been appointed as Mr Biden’s special envoy for climate. The position gives Mr Kerry, a former secretary of state and presidential nominee, the leading diplomatic role in reviving the US commitment to the Paris Agreement, which he helped pioneer under the Obama administration. Here’s Mr Kerry’s Lunch with the FT from 2018 where he told Edward Luce why it was better not to talk about climate change “but talk about the weather”.

  • Thierry Baudet, founder of the Netherlands’ populist anti-EU Forum for Democracy party, has stepped down five months before national elections. Mr Baudet’s surprise move came after his party was riven by fresh turmoil when its youth organisation was accused of posting anti-Semitic and pro-Nazi messages on internal message groups (Volksrant). Sarah de Lange breaks down how the scandal has tarred the man once hailed as the heir to Geert Wilders.

  • Despite the World Health Organization warning against the use of remdesivir, the EU still has a possible order for €1bn of the drug — although no money has yet changed hands. When questioned, commission president Ursula von der Leyen said “I will not get into a scientific analysis of remdesivir”, but stressed the treatment would “have to be effective and safe”. The commission has already paid €70m for 33,380 treatment courses of remdesivir, which has divided experts over whether it really works. (EU Observer, FT)

  • Turkish-EU relations took another hit on Sunday night when soldiers from a German frigate attempted to search a Turkish ship in the Mediterranean bound for Libya. The search, part of the EU’s mission to stop arms from reaching Libya, was called off after Turkey complained that the search violated international law. (Reuters)

  • A war of words is brewing in Spain over the use of the Spanish language in education. The fight follows the Socialist government’s attempt to remove it as the “language of instruction” in Spanish schools. While the language is spoken by roughly 90 per cent of the population, Catalan dominates school teaching in Catalonia. Campaigners worry that removing Spanish as the official language of instruction will make it difficult to force Catalonia’s schools to teach in Spanish.

Coming up on Tuesday

MEPs will find out on Tuesday morning the result of their vote the previous night on the proposed appointment of Dutchman Frank Elderson to the European Central Bank’s executive board — despite protests about the lack of gender balance in the institution’s top jobs.

Around noon (CET), the commission will put out its recommendations on how member states should promote the inclusive integration of migrants and citizens of migrant background.; @mehreenkhn

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Emerging Markets

Australia calls Great Barrier Reef warning politically motivated




Australia has labelled a draft decision by the UN’s World Heritage Committee to include the Great Barrier Reef on its “in danger” list as politically motivated.

The committee, which is chaired by Tian Xuejun, China’s vice-minister for education, and selects Unesco World Heritage sites, proposed adding the world’s largest collection of coral reefs to the danger list because of the damaging impact of climate change and coastal development.

The designation could ultimately lead to the reef losing its World Heritage status, although officials said listing was intended to prompt emergency action to safeguard a living structure that stretches 2,300km along Australia’s eastern coast.

But Sussan Ley, Australia’s environment minister, said the government had been “blindsided” by the committee’s finding and alleged there was a lack of consultation and transparency. She added that Canberra would challenge the draft decision.

“When procedures are not followed, when the process is turned on its head five minutes before the draft decision is due to be published, when the assurances my officials received and indeed I did have been upended, what else can you conclude but that it is politics?” she said.

That the World Heritage Committee is chaired by a senior Chinese official has stoked suspicions in Canberra that it had been singled out over its diplomatic and trade clash with Beijing.

China-Australia relations have soured following Canberra’s call last year for an inquiry into the origins of Covid-19 and Beijing’s imposition of tariffs on Australian wine and barley imports.

Ley said she and Marise Payne, Australia’s foreign minister, had already spoken with Audrey Azoulay, Unesco director-general, to complain about the draft decision.

But scientists downplayed the suggestion that the “in danger” listing was politically motivated. Three mass bleaching events in five years demonstrated the need for the government to do more to tackle climate change, they said.

“I’m seeing some press coverage saying this is all a plot by China not to buy wine, lobsters and to screw the Barrier Reef. I think that’s pretty far-fetched given that the draft decision released overnight will be voted on by 21 countries,” said Terry Hughes, professor of marine biology at James Cook University.

The controversy will heap further international pressure on Canberra, which has been pressed by the US, UK and others to commit to a national target of net-zero emissions by 2050.

In a draft decision due to be voted on next month, the committee urged Canberra to “provide clear commitments to address threats from climate change, in conformity with the goals of the 2015 Paris Agreement, and allow to meet water quality targets faster”.

It noted the loss of almost one-third of shallow-water coral cover following a “bleaching” event in 2016 — a process linked to warmer than normal water that can lead to a mass die-off of coral.

The row over the “in danger” listing occurred at a difficult time for Australia’s conservative coalition, which is embroiled in internal squabbling over climate policies.

On Monday, Barnaby Joyce, a climate sceptic and supporter of coal mining, ousted Michael McCormack to become leader of the National party, the junior coalition partner to the Liberal party, and Australia’s deputy prime minister. Joyce is expected to oppose any move to commit to net zero by 2050.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here.

Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here

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The slippery slope of politicised street names




It is confusing for taxis and Amazon delivery drivers, but in England I live in a Kent village on a street called simply “The Street”. Google Maps disconcertingly emphasises the “The” in big letters.

Surely no street name can be less political than mine. But in a much bigger conurbation, the decision by the mayor of Budapest to impose new street names in the Hungarian capital to highlight China’s human rights abuses is the latest example of the tendentious politicisation of place names around the world. 

There is no doubt about Gergely Karacsony’s purpose. By calling the streets around the site of a proposed Budapest campus of China’s Fudan University “Dalai Lama Road”, “Free Hong Kong Road” and “Uyghur Martyrs Road”, the mayor wants to embarrass Viktor Orban, the authoritarian and pro-China prime minister of Hungary.

He seems to be succeeding. In the face of public protests, Orban is now hesitating to impose the Chinese university project he previously championed to please Communist party leaders in Beijing. You can see why Karacsony did it. He is an opposition politician, and Orban has steadily undermined Hungarian democracy, limiting the scope for other forms of political action. 

But renaming streets for short-term political ends can be the start of a slippery slope. It does nothing to satisfy residents or help visitors find the place they are looking for, which are surely the main reasons for having names at all. And future mayors might change them all back again or impose their own ephemeral political views on the city nomenclature. 

Phnom Penh, the Cambodian capital, has undergone such a bewildering series of street name conversions since the end of French colonial rule — a reflection of sometimes violent regime changes — that avenues are often known to locals by several different names and visitors struggle to navigate the city.

When I lived in the Zambian capital Lusaka in the 1980s, one avenue was briefly renamed Saddam Hussein Boulevard after the Iraqi dictator gave a shipment of oil to the cash-strapped government of Kenneth Kaunda. Now that Saddam is dead and no longer so popular it has again been renamed, this time as Los Angeles Boulevard. But because there was already a Los Angeles Road, that too was renamed last year after national footballing hero Kalusha Bwalya.

Many political or nationalist renamings, it is true, can stand the test of time. There are countless streets and squares in France named after General Charles de Gaulle, and scarcely a substantial town in India without its MG Road in memory of Mahatma Gandhi. 

Some names, however, inevitably lose their appeal. In Madrid I bought my car from a Renault dealer in a street I was amazed to discover was still called the Calle del General Yagüe, a Francoist commander in the civil war known as the Butcher of Badajoz. The name was changed in 2017 to Calle de San Germán. 

A court has just ruled that another Madrid street, called the Calle de los Caídos de la División Azul, can retain its name because the fallen Spanish soldiers who fought for the Nazis on the eastern front might be considered victims of the war as well as perpetrators. 

But the lesson must be that there is little to be gained for mayors, governments or inhabitants if street names are changed purely for short-term political advantage, whether for celebration or denigration.

In our small village in Kent, there was not much scope for change, but change came anyway. There were always three principal roads: The Street, where the church is; Back Street, which runs parallel to it behind the village; and the main road, which joins them at the top and leads to the local towns in either direction. My first experience of the political or social motivations behind street-naming was when Back Street became Swan Lane (after a pub) and the main road was fancifully relabelled Poplar Road. 

Such cosmetic changes are innocent enough — who wants to live with an address on Back Street or the B2082? — and they have become part of the local geography. But somehow I doubt that Budapest’s Free Hong Kong Road will be called that a few years from now.

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Western powers reignite Beijing anger after G7 and Nato warnings




For more than six weeks, Taiwanese military officers wondered where the Chinese fighter jets had gone.

During May, only four entered the island’s air defence identification zone. In the first half of this month, there were incursions on only four days and a stretch of nine days without any activity at all. This compared to a previous pattern of as many as 20 incursions a month.

But on June 15, a day after US president Joe Biden and other Nato leaders issued a statement condemning China’s “stated ambitions and assertive behaviour”, 20 PLA fighter jets, four nuclear-capable bombers and four additional military aircraft entered Taiwan’s ADIZ. It was the largest number of planes ever dispatched by the People’s Liberation Army into the zone, with some of them also skirting around the southern tip and east coast of the island before turning back

One senior Taiwanese government official said Beijing could not restrain itself after the Nato communique — and a G7 summit statement issued just days earlier — criticised Beijing’s activities in the Taiwan Strait and its crackdown on Hong Kong’s pro-democracy movement.

“Beijing wanted to prove wrong those in the west whom they accuse of hyping a China threat theory,” the official said, referring to the reduced military activity in May and early June. “But of course they could not keep it up. Once Taiwan gets a little support, they have to react.”

Chinese analysts said Beijing had no choice but to show its resolve after the Biden administration accelerated its efforts to build a “united front” against China at the G7 and Nato summits — something President Xi Jinping’s administration had long feared but that never materialised when Donald Trump was US president.

“The G7 and Nato have been distorted into anti-China platforms,” said Victor Gao, a former Chinese diplomat now at the Center for China and Globalisation, a Beijing-backed think-tank. “There are increasingly large forces in China that believe if the US wants to single out China as its fundamental enemy, then let the US have an enemy.”

Beijing also responded to the G7’s criticism of its policies in Hong Kong with a show of force in the territory, where it recently snuffed out the only public commemoration of the 1989 Tiananmen Square massacre on Chinese soil. In the early hours of Thursday, police arrested senior staff at the pro-democracy Apple Daily newspaper for alleged “collusion with a foreign country or with external elements to endanger national security”.

A senior officer with the Hong Kong police force’s national security division later said the arrests were related in part to more than 30 articles published in the newspaper.

Beijing’s actions around Taiwan and in Hong Kong were matched by scathing rhetoric. Zhao Lijian, a foreign ministry spokesperson and one of China’s most outspoken diplomats, said the G7 communique “exposed the bad intentions of the US and a few other countries to create antagonism and widen differences with China”.

“The US is sick,” Zhao added. “The G7 should take its pulse and prescribe medicine for it.”

Such comments appeared to contradict recent instructions from Xi, who said last month that official propaganda should “set the right tone, be open and confident but also modest, humble and strive to create a credible, loveable and respectable image of China”.

Xi, however, also noted that China was involved in a “public opinion struggle” internationally. “Powerful anti-China forces in western society want to attack and discredit China,” Lu Shaye, China’s ambassador in Paris, said last week in a state media interview. “We must fight back to safeguard our own interests. Our sovereign security and development interests are inviolable.”

Yun Sun, a China foreign policy expert at the Stimson Center in Washington, said such rhetoric reflected growing alarm in Xi’s administration. “There is a real concern in Beijing that a united front is forming [and] includes many elements that China does not wish to see such as Taiwan, maritime security and human rights,” Sun said. “That’s why we are seeing some unusually harsh responses from Beijing on G7 and Nato.”

Hong Kong police blow out candles lit by activists to mark the 1989 Tiananmen Square massacre. Beijing responded to G7 criticism of its policies in Hong Kong with a show of force in the territory © AP

“Germany, France and other EU countries are hesitant to confront China as [openly as] the US,” added Shi Yinhong, a professor at Renmin University in Beijing, who advises the State Council on foreign policy issues. “But they are now closer to the US when it comes to dealing with China.”

Some Chinese officials and analysts argue that while Beijing will continue to respond forcefully when criticised over Taiwan, Hong Kong or other “core interests”, this does not preclude co-operation with the US on other issues such as climate change or global tax reform.

Fu Ying, a former Chinese ambassador to the UK, said at a recent seminar that the Biden administration wanted to “prevent China from moving forward to replace the US”. But, she added, “we hope [technological and economic] competition can be managed to ensure it is on a positive track, pushing each other to seek joint development and improvement”.

Beijing “should stand firm on matters of principle but not be too distracted by anti-China hostility”, Gao said. “In the long term China will have a larger economy than the US — no one can change that. Time is on China’s side.”

Additional reporting by Xinning Liu in Beijing

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