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Summer recess – what’s next?

As EU leaders agreed on a new proposal for the new Multiannual Financial Framework and the Recovery Plan on 21 July, the European Parliament was given good food for thought over its summer recess. However, the new long-term budget is not the only priority on the EU agenda. The Commission is already chewing on a series of proposals to be expected later this year and in 2021. In fact, now is the moment to deliver input on some key, planned legislative proposals, as the Commission launched a series of public consultations that are open until after summer. Let’s have a look what is next after the 2020 summer recess.

Transport: smarter and greener

The green and digital transition as the twin priorities of the Von der Leyen Commission are also reflected in the upcoming transport initiatives. To deliver the ambitious European Green Deal climate neutrality objective, the mobility sector needs a 90% emission reduction by 2050. The Strategy for Sustainable and Smart Mobility, expected towards the end of the year, will be the overarching strategy for the delivery of the twin transitions in this area. Stakeholders can contribute to the public consultation until 23 September.

Expectedly, the strategy will include the integration of alternative fuels, in line with the recently published hydrogen strategy that already outlines a pathway for the deployment until 2050 in all modes. The strategy is also complemented by the upcoming FuelEU initiatives for the maritime and aviation sector. The FuelEU Maritime initiative, aimed at boosing alternative fuels in shipping specifically, is open for feedback until 10 September. The public consultation on ReFuelEU Aviation, initially planned for the first quarter of 2020, is still to be expected ahead of the Commission proposal this year.

Sustainability: a bigger role for tax

Taxation will become a more important instrument for the Commission to align consumer choices and business investments with its climate targets. On 23 July, public consultations on both the revision of the Energy Taxation Directive and the creation of a Carbon Border Adjustment Mechanism were launched. Having been unchanged since its adoption in 2003, the Energy Taxation Directive will be subject to a thorough review. The exact changes are yet to be determined based on the consultation outcome, however, what is clear is that it will include a correction of the minimum taxation rates for electricity, gas, and coal, as well as a tax exemption reduction for fossil fuels. The proposal, which is part of the European Green Deal, is scheduled for June 2021. The consultation is open for feedback until 14 October.

In addition, the Commission proposes a Carbon Border Adjustment Mechanism to prevent ‘carbon leakage’. This ‘CO2-tax’ internalizes emissions in the price of a product, so production does not shift to countries with lower climate ambitions. The exact instrument is still to be determined, and could take the form of an EU-wide import tax or an extension of the Emmission Trading System (ETS). The latter has already seen critical responses, as this may not be in line with WTO rules. The Commission plans to scrutinize the issue and present a proposal later this year. The revenues would directly contribute to the ‘own resources’ of the EU budget for the next seven years that would help finance the new €750 billion recovery plan. Stakeholders can deliver their contribution to the plan until 28 October.

Digital: fit for the COVID-19 reality

Following its pledge to make Europe ‘fit for the digital age’, the Digital Education Action Plan and the Digital Services Act are also high on the Commission’s agenda. The Digital Education Action Plan, due to be published in September this year, will be part of the Next Generation EU program. The COVID-19 crisis has seen schools and universities close their doors and increasingly turn to remote, digital teaching. The Action Plan aims to promote high-quality and inclusive education and training in the post-COVID digital reality. Feedback on the proposal can be delivered until 4 September.

Part of the Next Generation EU financing is the digital tax element of the Digital Services Act, to be presented by the end of 2020. The Digital Services Act is an attempt to regulate online platforms when it comes to illegal goods, product safety, political advertising and offensive content. The initiative may face intense debates before its approval, as previous attempts to implement an EU-wide Digital Taxation mechanism have so far been unsuccessful. The consultation remains open until 8 September.

Next steps

The Commission’s proposals on the above initiatives are expected before the end of 2020, except for the Energy Taxation Directive which is due in June next year. From the above-mentioned public consultations, it is evident that the European Commission is gearing up for a busy end-of-year period. Early (proactive) action is desirable for stakeholders that aim to represent their interests on these files, which will also be closely examined by the European Parliament and Council of the EU in 2021 (and later).

Want to know more about the upcoming initiatives, COVID-19, or other files that might affect your business? Please contact Dr2 Consultants to see what we can do for you.

From Green Deal to Green Recovery

While the COVID-19 crisis has seen unprecedented challenges for the European transport sector, it also demonstrated the crucial role transport plays to ensure an uninterrupted supply of goods and services across Europe. Although the recovery of the sector is of vital importance of Europe’s economy, the recovery from the crisis also provides a momentum for the industry to act on the ambition of decarbonization and reaching climate neutrality by 2050. As put forward in the Commission’s EU Recovery Plan, the COVID-19 recovery phase should be used to pave the way towards not only a resilient and reliable transport sector, but also a sustainable one that is at the heart of the European Green Deal.

Following the publication of the Commission’s plan for recovery – dubbed as ‘Next Generation EU’ – as well as its updated Work Program for 2020, we have a clearer picture how the greening of the sector will unfold in the coming years. Dr2 Consultants’ transport team presents four take-aways for sustainable transport that will dominate the EU’s policy agenda in the years to come.

1. Alternative fuels, sustainable vehicles

Alternative fuels are a key priority for the Commission to cut emissions and create jobs. The EU’s executive arm aims to accelerate the production of low-emission fuels and the deployment of sustainable vehicles and vessels. In order to finance this, public investment should come with a commitment from the industry to invest in cleaner and more sustainable mobility.

The roadmaps for the further deployment of different fuel types are expected to be part of the highly-anticipated FuelEU proposals – to be published later this year – that will aim at increasing the use of alternative fuels in the maritime and aviation sector. Furthermore, in early 2021, the Commission will put forward the revision of the Alternative Fuels Infrastructure Directive, which will ensure the development of the necessary infrastructure across Member States to stimulate the uptake of sustainable fuels for all transport modes. 

2. The convergence of the energy and mobility systems

In order to decarbonize the transport sector, no stone is currently left unturned. Although electrification seems to be the most viable option on the short term, hydrogen is dubbed as the energy source for the future. The Commission’s flagship instrument for research and innovation, Horizon Europe, will be instrumental to kick-start the clean hydrogen revolution. The Commission has increased its budget in the new Multiannual Financial Framework (MFF) with €13.5 billion, bringing Horizon Europe’s new budget to a total of €94.4 billion.

Later this month, the Commission will launch the Clean Hydrogen Alliance to stimulate the upscaling of clean hydrogen production in Europe. Also, the work of the European Battery Alliance will be accelerated. On 24 June, the Hydrogen Strategy is expected to be published.

3. Cities at the heart of sustainable mobility

With over 70% of EU citizens currently living in urban areas, achieving sustainability in cities across Europe is one of the main challenges of the recovery period. As a direct result of the COVID-19 crisis, noise pollution and air quality figures have dropped to an unprecedented level. Moreover, cities reinvented the way citizens move around, e.g. by giving priorities to pedestrians, introducing speed limits for vehicles and implementing new cycling lanes. The shift towards smart and more livable cities, therefore, places a big responsibility on the transport sector.

The Commission aims to increase the support for zero and low-emission mobility in cities by investing significantly in clean urban mobility. Funding calls in the Connecting Europe Facility (CEF) and InvestEU programs will focus on clean fleet renewals by cities, the deployment of charging points and mobility-as-a-service solutions.

4. Taxation, anyone?

In the Next Generation EU, the Commission proposes to generate additional own resources by new taxes. Although the Commission still must draw up the specifics, it floated the option of extending the EU’s Emissions Trading System (ETS) to the maritime sector, thereby raising up to €10 billion annually that will feed into the EU’s budget. In addition, the so-called carbon border adjustment mechanism is likely to be introduced, putting a carbon levy on non-EU imports.

Raising these kinds of ‘European’ taxes is unprecedented. As Member States have diverging views on this matter, it remains to be seen whether we can expect a breakthrough on these new own resources any time soon.

Next steps

The Commission aims to have the new MFF and recovery fund operational by 1 January 2021. EU leaders are expected to start the negotiations on the budget proposal during the European Council Summit on 19 June and will have multiple rounds of very difficult talks until a compromise is made. This ultimately means that the budget as proposed now for transport-related funding instruments can still change. The budget negotiations are expected to accelerate when Germany takes over the rotating six-months Presidency of the Council of the EU on 1 July 2020.

Europe’s green recovery from the COVID-19 pandemic

On 27 May, the European Commission’s published its historic proposal for the ‘Next Generation EU’ recovery fund worth €750 billion, topping the renewed proposal for a €1.1 trillion Multiannual Financial Framework (MFF) 2021-2027. This proposal for unprecedented investment in the European economy is set to dominate the political agenda of the European institutions for the upcoming months. However, as the European Green Deal was put on the top of the agenda only recently, the current situation begs the question how Green Deal initiatives are incorporated into the Commission’s recovery plans.

Main takeaways                

  •  The European Green Deal will be central in Next Generation EU, public recovery investments should follow EU energy and climate priorities;
  • Additional funding of €30 billion for the Just Transition Fund, bringing the total up to €40 billion;
  • The CAP budget will fall by around €34 billion, but farmers will receive funds for the green transition;
  • The Commission will increase its own resources via an extension of the Emission Trading System (ETS) to the maritime and aviation sectors and a carbon border adjustment mechanism.

Accelerated investments in the green transition

Within the recovery fund, the Commission proposes to set up a Solvency Support Instrument to mobilize private investment and thereby kick-start the economy. The Solvency Support Instrument will have a budget of €31 billion and will unlock up to €300 billion in support that will be linked to the green and digital ambitions of the EU. Apart from that, a new Strategic Investment Facility will be built into InvestEU, generating investment up to €150 billion in boosting the resilience of strategic sectors, notably linked to the green and digital transition.

To kick-start the green transition in times of crisis, the European Commission will come up with a Communication to start a European ‘renovation wave’ in the third quarter of 2020. This massive renovation wave of buildings will improve energy efficiency and promote the circular economy, whilst creating local jobs in the coming years.

On top of the renovation wave, the Commission will focus on rolling out renewable energy projects, especially wind and solar. To this end, the Commission will publish an offshore renewable energy strategy later this year. Moreover, the EU will reinforce its efforts to develop a clean hydrogen economy in Europe, something that is currently mainly promoted by Germany and the Netherlands.

When it comes to clean transport and logistics, the Commission aims to accelerate the production and deployment of sustainable vehicles and vessels as well as alternative fuels. This ambition includes the installation of one million charging points for electric vehicles and a boost for rail travel and clean mobility in European cities and regions.

The Next Generation EU recovery fund also adds €30 billion to the Just Transition Mechanism, bringing its allocated budget 2021-2027 up to €40 billion. As part of the Just Transition Mechanism, the Just Transition Fund will be reinforced to support re-skilling and to help businesses create new economic opportunities in the regions of the EU that are most affected by the green transition.

EU ‘green’ levies to finance recovery

How will this sustainable recovery be financed? The Next Generation EU will raise money by temporarily lifting the own resources ceiling to 2.00% of EU Gross National Income, allowing the Commission to use its strong credit rating to borrow €750 billion on the financial markets. To repay these loans in a fair and shared way, the Commission proposes a number of new own resources. The Commission will for example increase its own resources via an extension of the Emission Trading System (ETS) to the maritime and aviation sectors and a carbon border adjustment mechanism.

Next steps

German chancellor Angela Merkel, shortly before the start of the German Presidency of the Council of the EU, expressed the ambition to reach a compromise on the future EU budget and recovery fund by fall 2020. The proposal of the Commission, as well as the plans put forward by the Franco-German axis and the Frugal Four (Austria, Denmark, the Netherlands and Sweden), have kept the green transition high on the agenda and one can therefore reasonably expect the EU’s great leap forward in green technologies to materialize in the upcoming years.

The EU Budget proposal and its impact on the digital sector

On 27 May, the European Commission put forward its proposal for a major recovery plan. The plan includes not only a proposal for the EU’s Multiannual Financial Framework for 2021-2027 – The EU budget powering the recovery plan for Europe, but the European Commission also proposes to create a new recovery instrument, Next Generation EU.

Next Generation EU, with a budget of €750 billion, together with targeted reinforcements to the 2021-2027 EU budget with a proposed budget of €1.1 trillion, will bring the total financial firepower of the EU budget to €1.85 trillion. Including other schemes such as Support to mitigate Unemployment Risks in an Emergency (Commission’s safety net for workers), the European Stability Mechanism Pandemic Crisis Support (Eurozone’s enhanced credit line) and the European Investment Bank Guarantee Fund for Workers and Businesses (focused primarily on small and medium-sized companies), with a combined budget of €540 billion, significant funds will be available for European recovery.

Next Generation EU will raise money by temporarily lifting the European Commission’s own resources ceiling to 2.00% of EU Gross National Income, allowing the Commission to use its strong credit rating to borrow €750 billion on the financial markets. To help do this in a fair and shared way, the Commission proposes a number of new own resources among which extension of the EU Emission Trading System (ETS) to include maritime and aviation sectors, a carbon border adjustment mechanism, a digital tax and a tax on large enterprises.

Finally, the Commission has published an update of its 2020 Work Program, which will prioritize the actions needed to propel Europe’s recovery and resilience.

The future is digital

The outbreak of COVID-19 has highlighted the importance of digitization across all areas of the economy and society. New technologies have helped businesses and public services to keep functioning and have made sure that international trade could continue. It is expected that, in the long run, the pandemic will have triggered permanent social and economic changes: more remote working, e-learning, e-commerce, e-government. It has, therefore, become imperative for businesses and governments to invest in digitalization.

The twin transitions to a green and digital Europe remain the defining challenges of this generation. This is reflected throughout the Commission’s proposals, which stress that investing in digital infrastructure and skills will help boost competitiveness and technological sovereignty.

Implications for the digital sector

A new instrument, the Solvency Support instrument would be primarily aimed at countries hit hardest by the crisis and unable to provide state aid to their most vulnerable sectors. The distribution of this ‘immediate and temporary’[1] tool will also aim to prioritize green investment according to the Commission. While welcomed by poorer countries the instrument might not have the desired effect unless agreed upon and deployed quickly by the Member States.

The Strategic Investment Facility will be used to promote the green and digital transitions by investing in 5G, artificial intelligence, the industrial internet of things, low CO2 emission industry and cybersecurity. Since such investments might become significantly riskier in the aftermath of the pandemic, the Commission stands behind a common European approach to provide the crucial long-term investments for companies implementing projects of strategic importance. The Strategic Investment Facility will take a more forward-looking approach by focusing on ‘projects relevant for achieving strategic autonomy in key value chains in the single market.

The Digital Europe Programme will be used for the development of EU-wide electronic identities and for the building of strategic data capabilities, such as artificial intelligence, cybersecurity, secured communication, data and cloud infrastructure, 5G and 6G networks, supercomputers, quantum and blockchain. The Commission has managed to withstand the significant pressure from Member States to reduce the funding of the Programme and the digital transition remains one of its key priorities.

In terms of financial inputs, the digital sector would be affected by two of the newly proposed taxes, aimed at funding the Commission’s so called ‘own resources’ used to repay the recovery package. The new digital tax would come into play at EU level if no global solution could be reached at OECD level. If the tax is applied to companies with an annual turnover higher than €750 million, it could generate up to €1.3 billion per year for the EU budget. The other relevant provision is the new corporate revenue tax, which if applied according to the same principle as the digital tax at a rate of 0.1 percent could generate up to €10 billion annually.

The Commission tried to introduce a European digital tax last year but its proposal was blocked by several Member States. The chance of such a proposal being accepted at this date appear slim as unanimity is required and Ireland, amongst others, has been adamantly against it. However, with the departure of the UK who had previously provided strong backing for Ireland’s opposition, some form of digital taxation being accepted remains a possibility. The new corporate tax was also previously unsuccessfully introduced by the Commission in 2016 and would be aimed at ‘companies that draw huge benefits from the EU single market and will survive the crisis.’[2] The chances of the proposal being accepted are also relatively low with countries such as Ireland, Denmark, Luxembourg and the Netherlands strongly opposing it. The proposal might also provoke a ‘race to the bottom’ phenomenon where companies relocate to countries willing to provide them with the most favorable business conditions. While both taxes are facing strong opposition from some Member States, the alternative of increased national contributions might convince leaders that accepting a form of these levies would be the more politically savvy option.

In conclusion, the new EU budget proposal creates new opportunities and challenges for the digital sector with the potential application of new pan-European taxes but also with additional funding devoted to digitalization, increased connectivity and sustainable value chains. The Coronavirus pandemic has demonstrated the increasing importance of digitalisation for the daily functioning of the economy and the Commission’s proposal reflects that through a series of digital political priorities. Increased connectivity, investment in strategic digital capacities (artificial intelligence, cybersecurity, data and cloud infrastructure, 5G and 6G networks, blockchain and more) building a real data economy and legislative efforts on data sharing (a EU-wide Data Act), as well as a thorough reform of the single market for digital services (Digital Services Act expected in late 2020). The combination of budgetary provisions and policy priorities makes the moment beneficial for a transition to online business models, a trend which has appeared during the pandemic but is expected to remain for the next few years.

[1] Annex to the Commission Budget Communication, p 6.

[2] Commission Budget Communication, p 15.

Brexit: impact of the COVID-19 crisis and the latest negotiatons rounds

During the last two months, the world has come to a stop because of the worldwide COVID-19 pandemic. Trade negotiations have not been exempted, and the EU-UK negotiations have been severely affected. As the virus broke out in Europe, the EU’s chief Brexit negotiator Michel Barnier tested positive for the coronavirus and only a day later the UK chief Brexit negotiator, David Frost self-isolated, together with other key members of the negotiation teams. This obviously casted a shadow of doubt on the future of the negotiations, when expectations were already quite limited concerning what could be achieved in such a short amount of time.

Despite the major disruption, and the delay taken in the negotiations, the EU and the UK resumed the Brexit discussions on 15 April. During that call they agreed on negotiating rounds lasting a full week during the weeks of 20 April, 11 May and 1 June.

After the negotiations round of 20 April, Michel Barnier immediately expressed his disappointment regarding the progress of the talks, specifically on key issues such level playing field and fisheries. The UK, too, recognized the lack of progress on governance and level playing field and stressed that there cannot be any deal until the EU drops its insistence on imposing conditions on the UK which are not found in any other EU trade agreements.

Unfolding a blaming game between the UK and the EU, where Britain accuses the EU of treating the UK as “unworthy” partner in the negotiations, Michel Barnier blaming the UK for not being realistic and EU Trade Commissioner Phil Hogan adding that the UK would be ready to accept a no-deal, while blaming the failure to reach a deal on the impact of COVID-19 on the negotiations

However, according to Frost, a comprehensive free-trade agreement is within reach, alongside individual agreements on issues such as law enforcement, nuclear energy, and aviation. On 19 May the UK Government published 12 legal texts on several of the above mentioned issues which will be the basis of the last negotiations rounds in June, following the EU’s publication its own draft trade deal earlier this year.This new UK text appears to be both surpringly ambitious in certain areas (for example, equivalence provisions on sanitary and phytosanitary measures and technical barriers to trade) and less surprinsingly, lacking ambition on regulatory cooperation and level playing field.

Extension of Brexit?

As stated above, there will be only one additional negotiation round before the agreed high-level stock-taking conference, where the UK and the EU are supposed to determine whether enough progress has been made or if an extension to the transition period is required in order to reach an agreement.

Such an extension would have to be requested by the UK Government, and agreed by the European Council before 1 July. However, the UK has consistently made clear that it will not ask to extend the transition period as it would only prolong the negotiations, business uncertainty, and delay the moment at which the UK can take back control of its sovereignty.

With the lack of progress, how the events will unfold in the coming two months remain extremely uncertain, while pressure on both sides of the channel grow in favor of an extension.

Dr2 Consultants hosts webinar on competitiveness of transport sector post COVID-19

Main takeaways

The COVID-19 outbreak has seen an unprecedented impact on the transport sector in the EU. Due to national containment measures, travel restrictions and the closure of border crossings, passenger transport is at a standstill and trade flows are severely impacted. In order to help EU citizens and businesses, the Commission has issued several contingency measures to support the transport sector, e.g. by identifying green freight lanes, issuing guidelines on passenger rights and allowing financial relief under the temporary state aid framework.

In this context, Dr2 Consultants organized a dedicated transport webinar on 7 May 2020, focusing on the question how to reinstate the EU’s transport industry in a post COVID-19 era, in order to ensure the transport sector can enable economic growth, secure jobs, increase global competitiveness and allow people and goods to move across Europe and beyond. Mr. Daniel Mes, Member of the Cabinet of Executive Vice-President on the European Green Deal, Frans Timmermans, responsible for the transport portfolio, and Mr. Jan-Christoph Oetjen, Member of the European Parliament (Renew Europe) and Vice-Chair of the Committee for Transport and Tourism took part in the panel discussion and shared their views on the subject.

 

The main takeaways from the webinar are:

  • The Commission is working on a coordinated exit strategy in which all modes of transport are covered, including practical advice on how to restart operations while ensuring the safety of the passengers;
  • It is crucial that the transport sector returns to its old strength and becomes even more resilient. It is a joint effort by the EU and its Member States to ensure the European transport sector remains competitive on a global level;
  • Mr. Mes highlighted the need for political guidance when national measures are taken to ensure consistency in sectoral investments. The transport sector will be dependent on both public as well as private investments, which the Commission will aim to mobilize;
  • Both speakers highlighted that transport will be one of the main pillars in the green recovery of the European economy. Mr. Oetjen emphasized the need for using a mix of transport modes based on their characteristics and respective advantages. Mr. Mes stated that it is key to ensure that the recovery of the transport sector is green recovery, and conditions can be attached to financial aid received by the sector.

As the webinar was recorded, please find the playback link here.

As a next step, the Commission is expected to publish a follow-up to its ‘European roadmap towards lifting coronavirus containment measures on Wednesday 13 May, which will entail a broad package of recommendations aimed at reinstating connectivity and tourism. The package will include a Communication on tourism, protocols on health and safety for main tourism locations, guidance on safe and healthy resumption of passenger transport and guidance on lifting of international borders. The package is also expected to include an assessment of the application of the temporary restriction on non-essential travel to the EU.

COVID-19 services

The fight against the spread of COVID-19 has unprecedented consequences for the daily life of almost everyone and puts pressure on the global economy. The crisis leads to questions and uncertainty, while companies try to anticipate and mitigate the impact on their daily business operations. Dr2 Consultants offers clarity to companies during the COVID-19 crisis. Please check out our webpage to explore the possibilities for your company.

Habemus Presidentus

After long and difficult negotiations, the European leaders have come to an agreement on the four top jobs in the European Union. After all, none of the previously speculated candidates have been rewarded for their campaign.

The EU’s top jobs go to:

  • President of the European Council is Charles Michel (Renew Europe) from Belgium;
  • (nominated) President of the European Commission is Ursula von der Leyen (EPP) from Germany;
  • (nominated) President of the European Central Bank is Christine Lagarde (EPP) from France;
  • (nominated) High Representative of the Union for Foreign Affairs and Security Policy is Joseph Borell (S&D) from Spain.
  • President of the European Parliament will be David Sassoli (S&D) from Italy.

It is clear that there is now no geographical balance between the Western and Eastern European countries and the above nominations have been a result of days-long tough negotiations. Traditionally the function of the Presidency of the European Commission is reserved for the biggest group in the European Parliament, which has been the EPP. Since the introduction of the Spitzenkandidaten process (by the Lisbon Treaty), the European Parliament even tried to institutionalize the nomination of the President of the European Commission, but after all the European Council has the final word to decide over this role. The Spitzenkandidat of the EPP, Manfred Weber, lost substantial support in the last weeks and there were doubts regarding his nomination even within his own party. Most of the criticism was due to his lack of experience in the executive branch. Therefore, there have been a few alternative names floating, including Chief Brexit negotiator Michel Barnier, but also German Chancellor Angela Merkel as possible successor of Jean-Claude Juncker.

Frans Timmermans, however, seems to be the biggest loser. During the G20 Summit in Osaka, Angela Merkel proposed the social democrat Frans Timmermans as the new President of the European Commission. However, EPP was not in favour of this solution. alongside with the V4 countries that opposed Timmermans because, as Vice-President of the Commission, he often criticized these countries due to their issues with the rule of law.

In the afternoon of 2 July, the name of German Defense Minister, Ursula von der Leyen, emerged as a new option as President of the European Commission. She is German and knows Brussels very well, but she also speaks French, something that made her also a good option for French President Emmanuel Macron. In return, Macron proposed Christine Lagarde as the new president of the ECB. Gender balance has thus been achieved and in order to meet the geographical balance, the Member States proposed the Bulgarian Sergei Stanishev as new President of the European Parliament. However, the European Parliament has the right to choose its new president and the MEPs voted in favour of David Sassoli (S&D) from Italy.

Ursula von der Leyen is yet to be confirmed by the European Parliament as the President of the Commission, however, it seems that the Socialists and the Greens are not satisfied with the choice of the Member States.

What’s next for payments in the EU?

The past mandate has heavily contributed to shaping the future of the payment landscape in the EU. Among public affairs professionals involved in payments for more than 5 years, the fact that payments used to be a very niche topic which wasn’t a very “sexy” conference topic has become a recurring joke. Regulation around payments or impacting payments is now in the center of key debates, including, for example, the international role of the EU and the autonomy of the EU. Regulatory workstreams are converging in an attempt to develop innovative, cost-effective and consumer-centric solutions in the EU.

In 2015, the EU adopted a new directive on payment services (PSD2) to adapt rules to the new realities of the payment landscape, promote competition and the development of innovative payment solutions as well as to reinforce consumer protection (against fraud, for instance). PSD2 has been described as the advent of Open banking and innovation. ‘Open banking’ is used to describe the shift from a closed model to one in which data is shared between different members of the banking ecosystem – with consent from the customer – to encourage collaboration between established banks and fintech companies.

While the expected “revolution” and disruption of traditional models is slower than expected, there are high expectations for the development of new, innovative, consumer-centric and affordable solutions. Discussions on the technical application of PSD2, for instance, around what Application Programming Interfaces (API), used to allow access to the payment account, should look like are still ongoing in certain European groups and are likely to continue in the coming months.

More recent communications for the European Commission opened the door for further regulatory developments when it comes to innovation in the financial sector, including the FinTech action plan and the workstream on Artificial Intelligence. There is no doubt about the strategic role of data and future regulatory developments regarding access to data on the payment landscape in the coming years.

Costs of payment have also been high on the previous Commission’s agenda and will continue to be in the coming years. In 2015, the EU also adopted a Regulation on Interchange Fees which aims at – together with PSD2 – limiting transaction fees based on consumer debit and credit cards and banning retailers from imposing surcharges on customers for the use of these types of cards. The European Commission is now looking into the effect of this Regulation and is expected to release an implementation report in 2020, possibly accompanied by amendments.

In addition to the discussion on Interchange fees, the EU adopted new rules to make cross-border euro transfer cheaper and currency conversion in the EU fairer.

At the intersection of questions of innovation, evolution of consumer expectations and costs is the conversation about instant payments, which will likely be an important focus for the next European Commission. The European Commission has expressed its wish to further promote the development of European solutions, relying on tools such as SEPA Instant Credit transfer scheme or the TARGET instant payment settlement (TIPS) service.

The EU is well aware of the fact that global – non-EU – providers are tapping into the potential created by favorable infrastructure and regulatory framework, and this trend is of course reinforced by the technological superiority of other regions, for instance on AI. Further actions are therefore expected on these fronts in the coming years.

Future priorities for the circular economy

Circular economy has been a priority for the European Commission, and it will continue to be high on the agenda of all the European Institutions and Member States for the coming mandate as well.

The Circular Economy Action Plan adopted in 2015 was a flagship project of the current European Commission. While taking stock of its achievements, the European Commission recently laid down its vision for the future of sustainability and circular economy in the EU. The Commission’s recent communications will heavily contribute to the European agenda for the next five years.

It is very clear that further to the need to deliver on the adopted legislation such as the Circular Economy Package, the European Commission will mainstream its activities on sustainability and circularity.

In its reflection paper on Sustainable Europe by 2030, the European Commission identifies the move from “linear to circular economy” as one of the policy foundations for a sustainable future. The European Commission believes that this requires thinking about circularity from the product design – to ensure possibility for repair and reuse – to collection and waste management. In its paper, the European Commission also highlights the need to integrate sustainable thinking in finance, pricing, taxation and competition to address social and environmental issues and trigger behavioral change throughout the economy.

The European Commission also recently adopted a comprehensive report on the implementation of the Circular Economy Action Plan, where it insists on the fact that new actions would be needed to ensure that the EU maintains its leadership in designing and producing circular products and services.

Questions of circularity and sustainability are also likely to spill over into other sectors, with the European Commission trying to adopt a holistic approach to climate change, mainstreaming circularity in various tools and policies. This would potentially translate into organizational changes within the new European Commission.

Member States have also expressed their common interest in pursuing the work on circular economy. While national governments are now implementing certain key EU legislation, such as the Packaging and Packaging Waste Directive, the Council of the EU recently adopted its conclusions on an “EU industrial policy strategy: A vision for 2030“.

In these conclusions, the Council highlights that there are important challenges that need to be addressed in order to speed up Europe’s transition towards circularity. It also stresses the potential of new technologies to improve the economy’s circularity by promoting sustainable models of production based on primary and secondary raw materials and resource efficiency, in which products and materials are designed to be reused, re-manufactured and recycled, in order to be maintained in the economy for as long as possible.

It also underlines the importance of a fully-fledged, well-functioning and harmonized Single Market for secondary raw materials and circular products, cutting red-tape and legislative hurdles.

If you are interested in obtaining more information on this topic, do not hesitate to reach out to us at j.beaulaton@Dr2consultants.eu or call us at +32 (0)2 512 37 22

Informal European Council meeting kicks-off the process to agree on new leaders of the EU top jobs

Yesterday, 28 May, EU leaders gathered in Brussels for an informal summit following the European Parliamentary elections. Under the first agenda item, the state of play of the populist parties was discussed among the Heads of States. Despite the loss of votes for the European People’s Party (EPP) and the Social Democrats (S&D) the electoral gains of the anti-EU parties remained relatively limited. In the new European Parliament, pro-European parties will be able to keep their majority. Furthermore, centrist parties, such as the Alliance of Liberals and Democrats in Europe (ALDE) and the Greens won quite some seats. President of the European Council Donald Tusk argued that Brexit helped as a “vaccine” against the hard-liner slogans of the Eurosceptic parties. Tusk additionally said that even the most anti-EU parties had to change their rhetoric from abandoning the EU to reform the EU, which, according to him, is a positive development.

However, the most important topic of yesterday’s summit was not about Brexit, but about the future of the European Union and the future European top jobs. The European leaders decided not to discuss names of individual candidates but mandated Tusk to look for a new President of the European Commission through engaging in a dialogue with both the European Parliament and the Member States. Tusk hopes to present a candidate Commission President by the June European Council meeting (20-21 June), supported by both European leaders and the European Parliament. Factors that play a role for the top job are experience, geographical distribution, power distribution between the big and small countries, demography, political party affiliation and gender balance. As only the High Representative for Foreign Affairs and Security Policy is now a woman, it will be interesting to see whether the future top jobs will effectively be held by women. This could of course help the ambition of Margrethe Vestager as next President of the European Commission.

Other candidates in the race are the Spitzenkandidaten of the European political parties. The Party of European Socialists (PES) will push for the candidacy of Frans Timmermans, as he has the best profile and the most executive experience. On the other hand, the EPP is still the biggest party in the European Parliament, but EPP Spitzenkandidat Manfred Weber lacks executive experience, both at national and at EU level, which seems a prerequisite to hold the office of Commission President. Therefore, current Brexit negotiator Michel Barnier, also EPP, could be a compromise candidate if Germany accepts a French instead of a German candidate.

The stakes are high because in addition to the position of Commission President (currently Jean-Claude Juncker), also a new President of the European Council, a new High Representative for Foreign Affairs and Security Policy (currently Federica Mogherini), a new Parliament President (currently Antonio Tajani) and a new President of the European Central Bank (currently Mario Draghi) will have to be elected. According to EU diplomats, Tusk will eventually draw up a list of one candidate for each of the four posts. A separate procedure for the presidency of the European Central Bank will be followed.