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29
May
News

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.

27
May
Blog

Why now is the time to embed European affairs in your organization?

Author:

Margreet Lommerts

Managing Partner at Dr2 Consultants

More than ever, it is important to have a focused and effective European Affairs Strategy and structure in place to effectively contribute to the (re)shaping of the European economy for the next decades. Now is the time for organizations to see EU affairs no longer in isolation but as an integral part of their Corporate Affairs Strategy.

Soon after the start of the new European Commission at the end of 2019, we could already see the outline of the agenda of Commissioner President von der Leyen. The Commission’s Green Deal – published on 13 December – presents an overarching growth strategy to achieve a green transformation and climate neutrality of the economy.

Before the realization of tangible proposals for the green and digital transformations of the EU economy, COVID-19 turned the Commission into full crisis mode. Priorities shifted and the Commission and Council of the EU dedicated their work on drafting a comprehensive recovery plan from the health and economic crisis. It will not come as a surprise that a green recovery and the digital transformation will continue to be prioritized and play a central role in relaunching and modernizing the EU economy. According to the Commission, the trillions of euros for the recovery should be spent in a clean, competitive, resilient, and inclusive economy for the 21st century, into a new economy.

As the Commission is formulating its economic and green recovery plan, there is an enormous momentum for organizations to engage with EU institutions in Brussels and to play a role in the shaping of the new economy which will have a huge impact on all businesses.

Looking at the transport sector, it is clear that the demand for mobility and individual transport is changing due to the COVID-19 crisis. The European transport sector faces the great challenge of regaining consumer confidence while stimulating economic growth. According to the Commission, green and digital transitions are at the center of the recovery to create new jobs, remain internationally competitive and bring the sector in line with European climate goals. The Commission aims to better coordinate modes of transport and to encourage the use of sustainable fuels.

In addition, the European energy market will be heavily impacted by the EU’s climate ambitions. The European solar and wind energy market is expected to shrink by about 30% because of disruptions in the logistics chain, delays in projects and stricter financing conditions. As a result, the realization of the EU’s climate targets for 2030 are in jeopardy. This means that acceleration must take place to achieve the EU’s green ambition. The Commission is expected to make additional funding available for sustainable industrial projects and technologies (e.g. carbon capture and storage, relaxation of state aid rules, and alignment of energy taxation with climate ambitions with the aim of getting innovative projects off the ground and scaled up.

As an effect of the COVID-19 crisis, the digital transformation of more “traditional” businesses has definitely accelerated, like brick-and-mortar shops, some of which probably had no online presence whatsoever, maybe not even a Facebook or Google page, before the outbreak. In order to continue operating in a full lockdown situation, these businesses have had to quickly “go online”, either individually or in cooperation with other similar businesses or by relying on the services of online platforms such as e-commerce marketplaces.

As the Commission, Members of the European Parliament (MEPs), and Member States are actively reaching out for industry input, it is important for these businesses to get involved and make their voices heard at EU level, so that they can contribute to the shaping of EU policies that can actually benefit them.

Even though advocacy in these challenging times may not seem top priority and will take more time, the EU institutions are calling for input and involvement from industry which is a prerequisite for future-proof legislation.

Dr2 Consultants has a proven track record in supporting organizations to become more effective in their European Affairs by providing support in:

  • Identifying the role of European Affairs within the current structure and develop the ideal proposition for your organization;
  • Defining a targeted European Affairs strategy with key objectives;
  • Providing tools and know-how on how to execute the strategy successfully;
  • Creating effective internal structures.

For more information or to get in touch click here.

06
Sep
News

New offices in NYC and Copenhagen

DR2 Consultants opens offices in Copenhagen and New York, in addition to the existing offices in The Hague, Brussels and Shanghai. With this, DR2 Consultants expands its worldwide network even further.

During the late summer drinks in The Hague, DR2 Consultants presented its annual trend report, which this year is dedicated to global public affairs. Founder and senior partner Frans van Drimmelen indicated in his presentation that he sees a clear increase in the importance of global public affairs, in which policy areas and companies extend across borders.

DR2 Consultants Copenhagen

Your key to the Nordics
From Copenhagen DR2 Consultants focuses on public affairs and corporate communications in the Nordic region and the Baltic States. The new office is managed by Jeroen Lammers. He has extensive experience, including in Denmark, the EU, the OECD, and in the Netherlands, in assisting companies and organizations with substantive analyses and impact strategies.

DR2 Consultants New York

Your key to the world
From New York, DR2 Consultants focuses on global politics and developments, with a special focus on the Sustainable Development Goals (SDGs). The new office will develop public affairs strategies towards international organisations, including the UN and the IMF. DR2 Consultants New York is led by Eelco Keij, who has long-standing experience at the United Nations in international politics, lobbying and fundraising.

Learn why global Public Affairs is on the rise here.

27
Jun
Blog

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.

31
May
Blog

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

29
May
Blog

Brexit: Searching for a new leader

The resignation of Prime Minister Theresa May last week could not save the Conservative Party in the European elections. It was quite clear that the Brexit Party of Nigel Farage is the winning party, gaining 29 seats. The Liberal Democrats took 16 seats, the Labour Party 10, the Green Party 7, the Conservative Party 4, the Scottish National Party 3 and Plaid Cymru 1.

As the election results were devastating for the traditional parties, Labour deputy leader, Tom Watson, indicated that the Brexit stance of Labour costed Labour a lot of votes. In particular, the unclear position of Labour towards a second referendum. In addition, shadow chancellor John McDonnell, one of Labour leader Jeremy Corbyn’s closest political allies, told the BBC another referendum may be the only way to break the Brexit deadlock in Parliament.

But Brexit did not only had a huge effect on the elections in the UK, but actually in the whole European Union, at least that is what President of the European Council Donald Tusk claimed at yesterday’s informal European Council summit. Tusk argued that Brexit acted as a “vaccine” against Euroscepticism and, therefore, helped to limit the profit of anti-EU parties. Tusk also added that he is not optimistic about the future of Brexit, because “we are all aware of the state of things in London.” A no-deal scenario or the UK revoking Article 50 remains likely. Influential Tories, Boris Johnson and Dominic Raab, are for example still willing to leave the EU without a deal.

In the meantime, the European Union is preparing itself for Brexit, with or without a deal. When Theresa May offered her resignation last week, EU leaders already warned that nothing had changed in Brussels. The Dutch Prime Minister, Mark Rutte, is one official who said the EU would never reopen negotiations on the Brexit divorce deal, whoever succeeded May. Furthermore, a spokeswoman for the President of the European Commission, Jean-Claude Juncker, said that “Brussels’s position on the withdrawal agreement has been set out, there is no change to that.” In addition, Sabine Weyand, Deputy Chief Negotiator and right hand of Michel Barnier within the European Commission’s Article 50 Taskforce, has been appointed today as the new Director-General of Directorate-General Trade. This indicates that the European Union is preparing itself for the next step in the Brexit process as Weynand will lead the EU’s negotiations with the UK on its future trade relationship in the post Brexit phase.

What’s next?

It is still unclear if there will be a vote on the Withdrawal Agreement Bill next week as Theresa May announced earlier. For the time being the focus is more on the possible successor of May. Tory MPs have until 10 June to put their name forward, and the party hopes a new leader will be in place by the end of July. In addition, a possible general election seems unlikely. Foreign Secretary, Jeremy Hunt, already said that the Conservative Party would commit “political suicide” if a general election was held.

 

23
May
Blog

Brexit: the eye of the storm

After weeks of talks between the Conservatives and Labour to find a compromise Brexit deal to pass in the House of Commons, the dialogue collapsed without agreement. However, this came as no surprise as it was already clear that the two main parties are deeply divided over Brexit. In addition, the cross-party cooperation was not supported by backbenchers of either parties.

The failure of the cross-party dialogue, exacerbated by Theresa May’s own unstable position and increasing pressure from her colleagues to leave, incentivized May to announce that she will set a timetable for her departure. Before departing, May will still try to avoid British MEPs actually having to take up their seats in the European Parliament after the elections held today (Thursday, 23 May). She will also push for the new Withdrawal Agreement Bill to be voted on in June. As a compromise in the negotiations with Labour, the new Brexit deal would include a provision that states the UK Parliament has the final say on the backstop. Additionally, the bill would also grant Westminster the power to weigh on the future relationship between the EU and UK.

As May feels pressurized, she even announced a concession on a second Brexit referendum during a keynote speech in London. Concretely, a vote for a second referendum would be possible if her new Withdrawal Agreement Bill passes onto the next stage of the legislative process. In that case, May wants to give anti-Brexit MPs the chance to add the option of a second referendum to the new bill once it has gone through its second reading, a stage where MPs can attach amendments.

It seems that May is able to survive the latest storm, but for how long? After a lot of rumours, it was not the Prime Minister, but leader of the House of Commons Andrea Leadsom who announced she quits the government over Brexit and May’s handling of the process. Her resignation is the 36th by a minister under May and the 21st minister to quit over Brexit. Political pundits believe May’s resignation could be announced in a matter of just a few days.

What’s next?

The Conservatives are expected to perform badly in the European elections. Perhaps a departure of Prime Minister Theresa May after the elections could be a way to end a disastrous chapter in Tory/UK history and open up a new, more hopeful one. More ministerial resignations could still follow too, but not today. Today is voting time.