Thu. Jan 27th, 2022


Good morning and welcome to Europe Express.

The German Greens have certainly lost the first round in defining the EU rulebook of what a green investment – and the last round, although delayed by another week, also does not appear to be a victory, as gas and nuclear power are there to stay. We will explore how this battle was lost and where things are likely to go from here.

On the Russia-Ukraine ahead, another round of talks is taking place today at NATO Headquarters in Brussels – and the US seems very eager to make a point of defusing all possible EU counterparts not included in the talks.

And with the new coalition government in the Netherlands after we were sworn in Monday, we look at their spending plans and what independent bodies calculate it will mean in terms of budget deficit and debt.

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Germany’s taxonomy problems

Brussels’ torture negotiations over its green labeling rules will be extended by another week, prolonging the accusations surrounding the so-called “taxonomy of sustainable finances”. Mehreen Khan in Brussels.

The European Commission’s consultation on its draft taxonomy rules would end today, but has been extended to 21 January, giving a group of independent experts and member states more time to give their feedback on the controversial nuclear and gas treatment.

A leaked copy of the concept, first reported by the FT, caused uproar from environmental campaigners and some member states because they included nuclear power and natural gas under the green label. The taxonomy is designed to help private capital lead to truly sustainable economic activity to eradicate “greenwashing”.

Germany’s Green Economy Minister Robert Habeck was one of the earliest critics of the draft, using a press conference yesterday to reiterate its opposition. “We would not have needed the second delegated action. “The first act was good, it did not require the inclusion of nuclear power and gas,” he said.

The taxonomy appears to be an early test of the new coalition’s unity and the Greens’ determination. The Greens’ coalition partner, the liberal FDP, celebrated the commission’s text, calling gas a vital transitional energy for a country weaning itself from nuclear power.

Officials told Europe Express that Berlin could abstain during a member state vote on the taxonomy that should be in the coming months. The abstention will have little impact on the adoption of the legislation, which has the support of a super-majority member state.

But tensions over the taxonomy could be a prelude to broader rifts between the traffic light trio over related EU topics.

Leading them is the debate on how to reform the EU’s budgetary rules – where the Greens have called for a softer stance on debt and deficit management. This is in contrast to the hawkish FDP that runs the Ministry of Finance. The FT reports today on how commission officials are trying to bridge rifts between thrifty northerners and the south over the coming reform of the Stability and Growth Pact.

And before MEPs and member states have their say on the taxonomy, it will first have to go through the College of Commissioners. EU Commissioner for Budget and Human Resources Johannes Hahn told Europe Express he had “strong concerns” about the safety, security and economy of nuclear power.

Austria and Luxembourg have said they will sue the commission over the rules in protest against the inclusion of nuclear power. Hahn, an Austrian, endorsed Vienna’s opposition and warned that the taxonomy would open the door to “nuclear operations to continue well into 2050, which in my opinion is no longer a transition”.

Chart of the day: OECD inflation

Line chart of annual% change in consumer price index, OECD average showing Inflation in rich countries reaches 25-year high

Inflation in the world’s rich economies has peaked at 25 years, raising concerns about rising cost of living and increasing pressure on central banks to raise interest rates. The annual rate of consumer price growth in the OECD group of developed countries reached 5.8 percent in November, according to data released yesterday, from just 1.2 percent in the same month last year and the highest rate since May 1996. (More here)

Debriefing overload

Talks between Russia and Western allies to prevent further Russian aggression against Ukraine move to Brussels today, with a meeting of the NATO-Russia Council, the first time this group has met since 2019, writes Ben Hall in Brussels.

The discussion at NATO’s headquarters on the outskirts of the Belgian capital is the second in a series of three meetings this week aimed at reducing tensions and addressing Russia’s security issues.

With some leaders torment about the lack of an EU voice in potentially critical deliberations on Europe’s security, US officials break every tendon to inform and consult their partners – and to make sure their outreach efforts are recognized.

Wendy Sherman, US Deputy Secretary of State for Foreign Affairs, flew from Geneva to Brussels before dawn yesterday to brief NATO Secretary-General Jens Stoltenberg, followed by NATO ambassadors, on the eight-hour talks she had with the previous day. her Russian counterpart Sergei Ryabkov in the Swiss rally. City. She then addressed a meeting of envoys from the EU’s 27 member states.

The White House even issued a long list of opportunities when U.S. officials consulted European partners over the past three months in connection with the Ukraine crisis.

Moscow may be trying to undermine Western unity by rejecting the EU, but Julianne Smith, the US ambassador to NATO, said Washington’s efforts had forged “widespread consensus” within the alliance.

“Not a single ally is willing to give way or negotiate anything when it comes to NATO’s open door policy,” she said, referring to Moscow’s biggest demand for a ban on further NATO enlargement. “I feel very good about it,” she said.

After Monday’s leg, Ryabkov said Russia could walk away from talks if the West continues to reject its red lines.

The NATO-Russia Council starts at 10:00 Brussels time, with Stoltenberg scheduled to hold a press conference at 13:30. Before leading the US delegation to the NATO talks, Sherman will also meet with Stefano Sannino, Secretary-General of the EU’s diplomatic service.

Dutch open purse strings

The Netherlands’ new but remarkably well-known four-party coalition government was formally inaugurated this week, marking a decisive shift in the country’s approach to public spending, writes Mehreen Khan.

After years of fiscal honesty, the new Dutch government has promised to spend heavily on housing, education, defense and climate – to reverse Liberal Prime Minister Mark Rutte’s years of support for market forces and a small state.

The shift to looser fiscal policy was confirmed yesterday by the Netherlands’ independent economic policy bureau (CPB) which cracked the figures on the government’s spending plans.

According to the CPB’s projections, the Netherlands’ debt-to-GDP ratio will rise to 56 percent by 2025 – below the EU’s 60 percent ceiling. This is compared to a baseline of 54 percent without the promised spending flash. The budget deficit will worsen from 0.7 per cent to 2.7 per cent of GDP in 2025 – also just within the EU’s 3 per cent limit.

The numbers are relatively modest compared to the Netherlands’ EU neighbors, but striking in contrast to decades of Dutch thrift.

To set the point, the CPB notes that the country’s debt burden will increase by up to 65 percentage points over the long term by 2060 – handy illustrated in this alarmist chart below where a bright pink bar literally falls off the edge. the page (below).

CPB projection on the Dutch debt trajectory over the next four decades

Dutch greatness will be applauded in southern EU capitals, but should probably not be confused for a broader Dutch U-turn on the importance of fiscal responsibility.

The fact that the big spending government chooses to stay strictly within the EU’s debt and deficit limits means that the new coalition will be waving the flag of thrift in Brussels for years to come.

What to watch today

  1. NATO-Russia Council meets in Brussels

  2. EU defense ministers meet in Brest, France

Remarkable, quotable

  • Cosmetic changes: Kazakhstan’s President Kassym-Jomart Tokayev told parliament on Monday that he intended to fight against the country’s entrenched inequality an issue that caused protests that left 164 dead, before being suppressed with the help of Russian troops. But analysts say significant structural reform is unlikely, with wealth remaining among elites.

  • No Korean merger: EU competition officials prepares to stop a $ 2 billion merger between two of the world’s largest shipbuilders in South Korea, Daewoo and Hyundai, the first time since 2019 that Brussels has decided to veto a corporate commitment.

  • Sassoli tributes: Politicians across the political spectrum paid tribute yesterday to the late President of the European Parliament, David Sassoli, who died after a “dysfunction of his immune system”. The Italian center-left politician was elected in 2019 and would resign next week under a power-sharing agreement with the center-right.

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Today’s Europe Express team: mehreen.khan@ft.com, ben.hall@ft.com, valentina.pop@ft.com. Follow us on Twitter: @MehreenKhn, @hallbenjamin, @valentinapop.





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