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Europe to crank up regulatory pressure on China



This article is an on-site version of our Europe Express newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday morning.

Good morning and welcome to Europe Express, your daily guide to what matters in the EU and beyond. Today, we will stop in France, where lockdown restrictions are starting to ease one step at a time even as the number of daily infections remains high.

But first, we will take a bigger-picture look at legislative proposals the European Commission is scheduled to put forward on Wednesday in a renewed attempt to get tough on China. Not quite as tough as the US, though — mainly because of Germany’s lack of appetite for confronting Beijing.

And, as on every Monday, we will bring you the week’s agenda highlights, with a few notable elections and a weekend of summitry in Porto.

EU is no match for Joe

US president Joe Biden vowed last week to fight back against China’s unfair trade practices as part of a competition to “win the 21st century”, writes FT Brussels bureau chief Sam Fleming

This week, the EU will in a far more low-key and technocratic way take a step in a similar direction, as it unveils legislation to crack down on market-distorting subsidies from China and other third countries. 

The proposed regulation, first reported by the FT last week, would allow the commission to block takeovers of big EU companies if the purchase was juiced by public handouts from outside the bloc. It would also prevent some procurement bids when competition was warped by taxpayer money. 

The rules, championed by Margrethe Vestager, Brussels’ competition enforcer, were drafted with China firmly in mind and will be accompanied by a paper examining the bloc’s ability to stand industrially on its own two feet.

The effort also comes alongside a series of other initiatives, including tighter scrutiny over exports of dual-use goods and investment screening rules. Tougher provisions are also being debated to make companies legally responsible for violations of labour and environmental standards in their supply chains. In March, the EU joined western partners in imposing sanctions against Chinese officials over abuses in the country’s western Xinjiang region.

All this reflects a marked shift in EU thinking over how to handle relations with a more aggressive China. The push for “open strategic autonomy”, as the Brussels buzz phrase goes, is leading to a more assertive posture. 

But this cannot disguise the continued gap between the more openly confrontational US stance, underscored in Biden’s address to Congress last week, and the EU’s more cautious, incremental approach.

The US and EU do not inhabit separate planets when it comes to China policy, argued Noah Barkin of the Rhodium Group, “but there are big differences”.

Even as the commission tools itself up, EU nations have disagreed sharply over how far to push the clash with Beijing. Germany, for example, remains far less eager for confrontation with its huge trade partner, especially when EU economies are struggling to recover from the Covid-19 pandemic. 

Accordingly, in government consultations between Berlin and Beijing last week, Chancellor Angela Merkel lauded the stalled China-EU investment treaty struck late last year as a potential foundation for better economic relations between the two sides. 

The US president will probably push his European allies on the topic during summits this summer. As the FT discussed, one test is whether tangible joint action can be taken to counter China’s Belt and Road Initiative, which backs infrastructure projects across the world. 

Christophe Hansen, rapporteur for the European parliament’s trade committee, said it was critical to get transatlantic dialogue over China back on track. But the centre-right MEP warned that, given the divisions among member states, the EU was failing to speak to Beijing with a clear voice.

Chart du jour: Cherchez l’Allemagne

Bar chart of Goods exports, 2020 (€bn) showing Germany benefits most from exports to China

Germany stands to lose most from a sterner stance towards Beijing, as its companies have exported considerably more to China than have other European groups. (Learn more here)

Déconfinement, step one

With France’s devastating third wave of the Covid-19 pandemic just past its peak, President Emmanuel Macron will cautiously start to ease the country’s lockdown today, writes our Paris bureau chief Victor Mallet. Step one: Secondary schools will partially reopen and domestic travel restrictions will be lifted.

Macron, who is seeking a second term in next year’s election, continues to tread a fine line in managing a twin health and economic crisis that has already killed more than 105,000 people in France and plunged the country into recession. 

He has been criticised on the one hand by doctors and epidemiologists for lifting restrictions too quickly, and on the other by small businesses and frustrated citizens for not moving faster to reopen the economy.

A protester in Paris on May 1 calling for President Macron to resign
A protester in Paris on May 1 calling for President Macron to resign © Getty Images

So it was no surprise that amid the traditional May 1 trade union demonstrations across France, there was another sort of march through the centre of Paris on Saturday.

Shouting “Let’s liberate France!”, a few hundred anti-lockdown protesters mobilised by Florian Philippot’s far-right Patriots party voiced their anger with Macron and the rules that have kept restaurants, bars, cafés, gyms, cinemas and museums closed for months.

The easing of the lockdown will certainly be a risk, given the slow decline of infections and hospitalisations over the past week. Covid-19 deaths are running at about 300 a day, and at the weekend more than 28,000 people were hospitalised with the virus, 5,500 of them in intensive care — more than the total number of intensive care beds across France before the pandemic. 

But the reality is that many people are breaking the rules anyway, travelling at weekends, holding parties and ignoring the 7pm-6am curfew. Macron is relying on an accelerating vaccination campaign — France administered more than half a million doses on some days last week at vaccination centres, pharmacies and doctors’ surgeries — to keep the spread of the disease under control.

In an interview with regional newspapers, Macron defended the move to ease the lockdown even though there were still five times as many infections a day as the 5,000 marker he set in October.

“The big difference from October is that today we have a vaccine,” Macron said. “We’ve seen the effectiveness of combining the curfew with the vaccine’s arrival in January. That’s a real change for the management of the epidemic.” 

The next steps in Macron’s plan to ease the lockdown are as follows:

  • On May 19, the nightly curfew will be moved back from 7pm to 9pm, while shops, museums, cinemas and theatres will be allowed to reopen under strict social distancing rules. Restaurants and cafés will be allowed to serve tables of up to six people outside

  • On June 9, the start of the curfew will be further pushed back to 11pm and restaurants and cafés will be able to serve inside. Cultural and sporting venues will be allowed to accommodate up to 5,000 people with health passports and foreign tourists will be allowed in, again with health passports. 

  • On June 30, most remaining restrictions will be lifted. However, each step of the déconfinement could be delayed anywhere the rate of infections runs at more than 400 per 100,000 inhabitants.

Three things to watch today

  1. G7 foreign and development ministers gather in London for their first in-person meeting in two years

  2. European commissioners Valdis Dombrovskis and Paolo Gentiloni appear in front of the European parliament’s economics committee

  3. It’s World Press Freedom Day and Europe’s record is far from pristine

. . . and later this week

  1. Tomorrow: Madrid election, Polish parliament votes on the EU recovery fund

  2. Thursday: Elections in Scotland and Wales, EU foreign ministers meet virtually to discuss defence matters

  3. Summit weekend in Porto: EU social summit on Friday, informal EU leaders’ summit and EU-India summit on Saturday

Notable, Quotable

  • Spain’s rising star: The conservative Popular party is in for a comeback in elections in Madrid tomorrow, with Isabel Díaz Ayuso set to double the tally of PP seats in the regional assembly. (Find out why)

  • Vaccine inequality in the EU: Discrimination, fear of authorities and lack of paperwork mean that millions of Roma, migrants and homeless people risk being excluded from countries’ inoculation campaigns. (FT)

  • German cleaners: A German shipping company has loaded 59 containers of hazardous materials from last year’s explosion in Beirut. (Euronews)

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Greece sets tone for Europe’s summer travel




Kalimera and welcome to Europe Express. Tourists from the UK, Germany and other countries started arriving on Greek islands over the weekend, after Athens lifted all restrictions for Covid-19 negative or vaccinated travellers (Russian vaccine included), no matter where they come from. We will look at how this early experiment is shaping up and what difference the EU’s “green certificate”, expected to be rolled out next month, will make.

We will also explore how Finland got back on track towards giving its formal assent to the EU’s recovery fund borrowing, after a four-day filibuster that included the recitation of fairy tales and Bible excerpts. 

But first, news from Brussels, which is working with African capitals and EU member states to boost vaccine manufacturing capacity in Africa. Ursula von der Leyen, European Commission president, is expected to lay out her plans to support the effort at a global health summit she is co-hosting in Rome on Friday, European officials said.

Before then, France’s president Emmanuel Macron will tomorrow host several African leaders at a summit in Paris to discuss the economic fallout from Covid-19, including the burden on public finances.

This article is an on-site version of our Europe Express newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday morning

Summer travel

While the EU is ironing out the details of a digital platform aimed at simplifying travel this summer, countries including Greece and Portugal already have national systems up and running, write Eleni Varvitsioti in Athens and Valentina Pop in Brussels.

Greece was among the first EU countries to formally welcome foreign visitors last week, as it seeks to double the revenues of its tourism industry, a vital sector that has been heavily hit since the pandemic brought travelling to a halt.

Tourists arriving in Greece no longer have to quarantine if they provide proof that they have been fully vaccinated (including with Russia’s vaccine), a negative Covid-19 test or documentation that shows they have recovered from the virus. 

Since the EU-wide digital green certificate (nothing to do with energy consumption on appliances) that will incorporate national systems is not ready yet, individual member states are putting their own systems in place. 

What is the EU’s digital green certificate?

  • Digital proof valid in all EU countries that a person has tested negative, was vaccinated or has recovered from Covid-19

  • Format is a QR code in the national language and in English

EU affairs ministers last week gave their green light to the scheme, but final details are still being ironed out, with some countries taking part in pilot trials aiming to have the final system set up by the end of June. 

Meanwhile, negotiators from the European parliament, commission and member states are seeking to thrash out a deal on the final details of the certificates. Last week, one of the sticking points was the parliament’s insistence that Covid-19 tests should be free to avoid adding hundreds of euros to the cost of family vacations. The price of a Covid-19 test ranges from zero in France to about €200 in Finland.

Visitors arriving in Greece have to declare their contact information and final destination in electronic form so they can be traced if needed. 

“Greece has an internal green pass operational already and will be there from day one, June 1, participating in this important European achievement,” tourism minister Harry Theoharis told Europe Express.

Over the past weekend, the number of arrivals at Greece’s 14 regional and national airports was 23,455, according to the Ministry of Tourism, showing signs that the country’s most profitable industry is gearing for a comeback. 

Last year, the number of visitors to Greece was down roughly 80 per cent to 7.4m, from a record 34m in 2019. Greece’s finance ministry is hoping to reach about half its pre-pandemic tourism revenues in order to keep the country’s budget on track. 

Given how important tourism is for a swath of European economies, other capitals will be watching early experiments in re-opening very intently.

Chart du jour: All flights lead to Greece

Chart showing that passenger demand for summer travel to Europe has yet to return

Greece has been the only summer destination in Europe attracting more flights than in previous years — at least of British tourists. Some southern European countries are rethinking their tourism strategies (Find out why).

FI, for filibuster

Finland’s parliamentarians last week made some headway dispelling rumours that theirs is not a talkative population, writes Valentina Pop.

For four days, members of the Eurosceptic Finns party not only voiced their opposition to taking on any common debt with other EU nations, but they also filled speaking time by reading out fairy tales, hymns and Bible passages.

It was a classic filibuster move, even if the procedural manoeuvre is not as common in Europe as it is in the US Senate. “This is a once in a decade kind of thing,” said Johanna Vuorelma, a political scientist at Tampere University. Previous filibusters occurred in the 1990s in the run-up to Finland’s EU membership and in the early 2010s around bailouts in the eurozone financial crisis. 

The Finnish parliament debated the EU recovery plan for four days © AP

In Finland, the “own resources” decision needed to fuel the EU’s €800bn recovery plan already has a higher hurdle to pass than in most countries. A previous attempt by the Finns party-led opposition to thwart the initiative was successful in imposing a two-thirds threshold for the actual vote. 

But if the vote goes ahead as planned tomorrow, pundits including Vuorelma expect it to pass — even though some members of the ruling coalition have indicated they may oppose it. Passage would be met with considerable relief in Brussels, which has anxiously watched the progress of national votes on its unprecedented recovery fund borrowing powers.

A more consequential delay was averted last week when the chamber’s vice-chair from the Finns party, Juho Eerola, was sidelined. He had admitted that he could have used procedural quirks to delay the own resources vote until autumn — which would have created a massive problem for the bloc.

“It showed that they are willing to go quite far, this is a strong ideological position for them,” Vuorelma said. With municipal elections in June and the Finns party having polled first in the weeks prior to this debate, the filibuster may have also had tactical intentions. “It certainly raised their profile, even if some party members resented the move,” she said. 

Two things to watch today

  1. European parliament resumes its plenary session

  2. European affairs ministers hold an informal council

. . . and later this week

  1. France hosts a number of African leaders for a summit on Tuesday, and on Friday, Italy and the European Commission host a Global Health Summit in Rome

  2. EU finance ministers meet in Lisbon on Friday and Saturday for informal talks

Notable, Quotable

  • The EU and US are expected to announce a temporary truce on Monday in their dispute over Trump-era steel and aluminium tariffs. The deal would mean the EU would shelve plans to boost tariffs on certain US products next month, giving the sides space to negotiate a settlement to the metals dispute. (Bloomberg)

  • Italy’s digital transition minister tells FT Rome correspondent Miles Johnson why he wants to roll out a nationwide digital platform for public services as part of the €248bn recovery plan designed to reignite the eurozone’s third-largest economy.

  • Marine Le Pen is allegedly at the core of a fraudulent scheme funnelling EU funds from the European parliament, according to a French police report seen by Journal du Dimanche.

  • The UK is not very keen on Joe Biden’s global minimum corporate tax proposal, arguing that a digital tax should come first. (Read more here)

  • The Polish government has put forward a plan, in part funded by the EU, to boost health spending and cut income tax.

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Bullying Russia yearns to be treated as a great power




The writer is the author of ‘Putin’s Russia’ and a member of the Liberal Mission Foundation

At their Conference on the Future of Europe, which opened on May 9, EU leaders invited citizens to “join the debate” on the path ahead. In Washington, President Joe Biden has called for “togetherness” as he announces ambitious plans to transform the US economy and society. For the west, the way to deal with crises is to build images of a better, shared future.

By contrast, Russia is turning to the past in its search for unity. At a Red Square military parade, also held on May 9, President Vladimir Putin asserted that the Soviet people had fought “alone” on their road to victory over fascism in the second world war. In this way, he confirmed that Russia and the west are on opposite trajectories.

Putin’s emphasis on his nation’s past achievements could secure stability in Russia for a while. His rule benefits from the fact that the Kremlin today faces no serious internal or foreign threats. Why, then, is Putin acting like some geopolitical Alfred Hitchcock and creating suspense in international relations, forcing western leaders to play “who blinks first”?

As Russia’s chief decision maker, Putin’s personal moods obviously matter. However, more important is the logic of the Russian system of power, with its demand for recognition on the world stage of the nation’s great power status. According to this logic, Russia cannot be ignored and must be a member of the global concert of powers. It believes macho bullying is the entry ticket to the concert.

Despite the crackdown on domestic dissent and the anti-western rhetoric of state propaganda, the Kremlin’s policies are aimed at preventing Russia from turning into a sealed-off fortress. For in order to be a great power, Russia has to sit at the same table as its peers. To satisfy its global aspirations and conform with the logic of its domestic power arrangements, Russia has to be simultaneously with the west and against it.

In a sense, Putin is getting what he wants. Biden has suggested holding a US-Russian summit, and EU leaders are trying to keep open lines of dialogue with Moscow despite low levels of mutual trust. However, if western governments hope to find a modus vivendi with Russia, they may be disappointed.

For the price that the Kremlin is willing to pay for the risks its policies are incurring is higher than the costs that the west is ready to impose on Russia for causing disruption. In effect, the west is pursuing a dual-track policy towards Russia of containment and co-operation. In recent times, however, this policy has run into the problem that co-operation stalls every time the west feels a need to deter Russia. If they want their approach to work, western countries will have to do a better job of compartmentalising the two tracks.

There are important differences with the cold war era of Soviet-western confrontation. In those decades, the Soviet Union unintentionally consolidated western unity by behaving in ways that strengthened the west’s commitment to principles of liberal democracy and the rule of law. Nowadays, post-Soviet Russia undermines the west by mimicking its liberal principles and getting “inside” western societies through its political and economic elites, business operations and powerful lobbying machines.

Partly for these reasons, the west finds it hard to set clearly defined “price tags” for what it deems unacceptable Russian behaviour. The Kremlin’s recent military build-up on Ukraine’s borders was evidently no red line for the EU. Yet to accommodate Moscow simply encourages its assertiveness.

Nevertheless, a bitter irony may lie in store for Russia. Putin’s international bullying beefs up his image as a strong leader at home. Yet the Kremlin’s continual testing of western patience serves to undermine Russia in more subtle ways.

After the Soviet Union’s collapse, Moscow learnt to use the west as an economic and technological resource. The Russian elite made the west its home. But to preserve the west as a resource, Russia needs the trust of western partners. Instead, the Kremlin’s Hitchcock-style games of suspense provoke western suspicions and an instinct to fall back on deterrence.

There is a potential trap for the west, too. Its dual-track policy helps Russia’s power structures, as they have evolved under Putin, to limp on. The Kremlin and its agencies engage in international behaviour that the west finds disagreeable. But the west can hardly try to undermine them without running the risk that Russia would plunge into instability. Is the west really prepared for the huge uncertainties of a world in which the existing power structures in Moscow unravel before any domestic alternative is available to take their place?

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PiS unveils ‘Polish Deal’ to lift economy




Poland’s conservative-nationalist government has set out plans to boost health spending and cut income tax, as part of a sweeping programme designed to bolster the economy in the wake of the pandemic.

The so-called Polish Deal, which will include support for housebuyers, pensioners and families, as well as tax cuts for low and middle-earners, is widely regarded as an effort by the ruling Law and Justice party (PiS) to set out its stall ahead of parliamentary elections due at the latest in 2023.

Like most countries in the EU, Poland has been ravaged by Covid-19, with the pandemic claiming more than 70,000 lives and tipping the economy into recession for the first time in three decades.

Prime minister Mateusz Morawiecki said the Polish Deal — which will be buttressed by loans and grants from the EU’s recovery fund — was a chance to fulfil Poles’ dreams of catching up with richer countries in western Europe, as well as to expand the country’s middle class.

“We have a huge opportunity in front of us,” he said. “[In the past] we always had to worry about freedom from external oppression. But today, we can care about the freedom to decide about the rules of social and economic growth on our own sovereign Polish conditions.”

As part of the changes announced on Saturday, PiS and its two smaller allies plan to boost spending on the underfunded health system, parts of which have been overwhelmed by the pandemic, from 5 per cent of GDP in 2020 to more than 7 per cent in 2030.

The tax system will also be rejigged. The income-tax-free allowance will rise to 30,000 zloty, and the threshold at which Poles start paying the higher 32 per cent rate of tax will rise from 85,000 to 120,000 zloty per year.

Mortgage rules will also be revamped and guarantees will be provided to make it easier for the young to buy property, while the rules around building permits will be relaxed. There will also be further benefits for families with young children, and pensioners, as well as a programme of investments that PiS claimed would create 500,000 new jobs.

Morawiecki and his fellow speakers at the congress of the ruling camp gave few details on financing for the tax cuts.

Jaroslaw Gowin, deputy prime minister and head of Agreement, one of PiS’s two junior coalition partners, conceded richer Poles would have to pay more taxes, but did not go into detail. He also said the state budget would be hit.

Poland’s finance minister Tadeusz Koscinski told the FT that the tax cuts would partly be funded by faster growth. However, he added that the fiscal shortfall would also be partly covered by higher social security payments from workers and business, resulting from changes that would push more workers from self-employment to full employment contracts, and from the removal of a cap on social security payments for the self-employed.

Koscinski said the annual net cost to the state budget of the tax cuts would be about 7bn zloty. He added that there would be a further 3bn zloty in subsidies to co-finance investments by local governments that had lost revenue as a result of the tax changes.

Adam Czerniak, an economist at Polityka Insight, said the government’s assumptions about faster growth helping to cover the cost of the government’s plans were “optimistic, but I think they can happen”.

However, he expressed concern that the changes around housing — which include state guarantees on home loans for young borrowers — could cause a booming market to overheat.

“Guarantees on down payments are very risky at this point in the business cycle in the housing market,” he said.

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