The EU thread

[Valmy]

Ah, so even more debt.

20 years ago US Vice President Dick Cheney announced that Reagan showed deficits and debt don't matter and the United States has sure taken that Reaganomics lesson to heart. Follow us to endless deficit spending Euros!

[Sheilbh]

I've mentioned before that I find Politico really valuable because it reports the EU as a centre of power for a global audience rather than through the focuses and interests of member state's media. This is an interesting example - have to say I've been more sympathetic to VdL following the two incidents mentioned here with Michel where I think his behaviour was not great. But also from covid to Ukraine and energy my impression is VdL has done a very good job while I'm not sure Michel seems that effective - and it's not always that way in terms of Commission v Council, I think Tusk was far more effective than Juncker for example:

Europe's odd couple: The dysfunctional relationship at the heart of the EU
Relations between European Commission President Ursula von der Leyen and European Council President Charles Michel have never been so bad.
By Suzanne Lynch
November 10, 2022 4:55 am CET

When the leaders of the world's most powerful countries meet at the G20 summit in Bali next week, don't expect the European Union to present a united front.

Rather than coordinate, the bloc's top two officials — European Commission President Ursula von der Leyen and European Council President Charles Michel — are more likely to avoid each other, with staffers involved in organizing the trip under strict instructions to avoid any overlap in itineraries.

In the nearly three years since their tenures began, relations between Michel and von der Leyen have undergone an extraordinary breakdown, with staff from the two institutions discouraged from communicating and the two leaders locking each other out from meetings with foreign dignitaries.

The dysfunctional partnership is not only impacting the EU's legislative and political agenda, which depends on a delicate inter-institutional balancing act. It's also threatening to undermine the EU's standing in the world.

One of the centerpieces of the G20 will be a meeting between Michel and Chinese leader Xi Jinping scheduled to take place on the fringes of the summit. Given the divisions within the EU about how to deal with Beijing, it's shaping up to be a crucial meeting. But von der Leyen hasn't been invited. The reason? Her refusal to allow Michel to attend a meeting with Indian Prime Minister Narendra Modi at the G7 in Germany in June.

Rivalry between the Commission and the Council has long been a challenge due to an inherent structural tension within the EU's byzantine system.

The Commission is the bloc's executive arm, with the ability to propose legislation, putting its president at the heart of nearly every EU initiative. But the Council is where heads of state or government meet to hammer out the bloc's biggest decisions. Though its president plays a coordinating role, moderating the debate between the real decision-makers, the position is arguably closer to where the bloc's real power lies.

With the two roles assigned overlapping areas of responsibility the result is added confusion to the age-old question often attributed to Henry Kissinger — who do you call when you want to call Europe? (The European Parliament, with its own president, provides a third center of power, but few would argue it is anything other than a younger sibling to the other two).

The personality clash between the current incumbents has taken inter-institutional competitiveness to another level, according to multiple EU officials, including those who worked under previous administrations when Jean-Claude Juncker headed the Commission and Donald Tusk was president of the Council.

Meetings between von der Leyen and Michel are virtually nonexistent, even in the run-up to European Council summits, typically the forum where the EU makes progress on the big strategic and immediate challenges facing the bloc.

Officials from other countries and international bodies are frequently confused as to who their interlocutor should be. Staffers at the two institutions report a tit-for-tat attitude between the Commission and Council toward attendance at meetings with third parties. During rolling discussions on the global food crisis, United Nations representatives were surprised when a senior EU staffer who had previously been part of the talks was suddenly cut out of subsequent meetings.

"Communication has completely broken down," said one official who wished to remain anonymous.

Von der Leyen on the couch

When von der Leyen and Michel were picked to head the two most powerful EU institutions in 2019 they made an unlikely pair. Von der Leyen, a defense minister in German Chancellor Angela Merkel's government, had spent most of her career in domestic politics; Michel, a former Belgian prime minister from a prominent political family had more EU experience, having sat around the European Council table as leader of his country.

The two shared some biographical similarities. Both came from families steeped in politics. Von der Leyen's father was director general of the EU's competition division in the 1970s and later enjoyed a successful career in state-level German politics; Michel's father was a well-known Belgian minister of foreign affairs, an EU commissioner and a member of the European Parliament.

But in terms of personality, the two are very different. Von der Leyen, a medical doctor and mother of seven, is analytically minded and carefully controlled. Michel is a soft-spoken turtleneck-wearing leader with a penchant for poetry. When he married his long-term partner last year, he invited the spouses of EU leaders to dinner and a special viewing of an exhibition of works by the British artist David Hockney in Brussels' Bozar center for fine arts.

According to officials, the relationship started off calmly. "There were some minor hiccups, but nothing unexpected," said one EU official. In the early months, the Council's secretariat scheduled a weekly afternoon meeting between Michel and von der Leyen every Monday.

But though the meetings soon petered out, things didn't completely fall apart until April 2021 after the two leaders traveled to Turkey to meet with Recep Tayyip Erdoğan.

Cameras caught von der Leyen's shocked reaction when Michel quickly snagged the only chair next to the Turkish president, leaving her to sit on a couch across from the Turkish foreign minister. The Commission president, the first woman to occupy the position, later told the European Parliament she was "hurt" by the incident, blaming the snub on sexism.

Dubbed "Sofagate," the incident went viral globally, with the mutual (if not always public) recriminations driving a downward spiral in relations that has only worsened since.

At the height of the uproar, it was widely reported that Michel added insult to injury by canceling a regular Monday lunch with von der Leyen due to a conflict with a visit by an African head of state. Today, Council officials say that von der Leyen had repeatedly canceled the lunch meetings, even before Sofagate. "In reality, it never took place weekly." Commission officials say the two meet "almost" every week in various fora, though the scheduled one-to-one has been abandoned.

In contrast, von der Leyen and Michel's predecessors Juncker and Tusk met most weeks and had a good working relationship, helped by their previous acquaintance as prime ministers and despite differences over policy issues like migration.

When it comes to Sofagate, Michel appears to have been slow to learn his lesson.

In February 2022, after months of being pilloried in the press, he stood by mutely during a handshake photo-op with African officials when Uganda's foreign minister breezed past von der Leyen to seize his hand and then Emmanuel Macron's. (The French president gently suggested to the African dignitary that he might want to acknowledge the Commission president.)

Public tensions

The breakdown in relations has started to impinge on the workings of the EU, according to officials from both institutions.

Though the two leaders appear alongside each other at post-summit press conferences, dialogue on day-to-day matters between the leaders and their close staff is all but nonexistent.

During the Juncker-Tusk years, the leaders of the Council and Commission met regularly ahead of euro-summits with the presidents of the European Central Bank and the Eurogroup, the informal body of finance ministers from the eurozone. Since 2019, however, the gathering has not happened — even as the bloc's economic difficulties have mounted.

The Council staff is forced to "chase information like journalists," said one official in the institution's Europa building headquarters, complaining that the Commission does not brief Michel on its upcoming proposals, even though those initiatives will ultimately need the backing of the national governments he works with.

The Michel cabinet typically learns of the Commission proposals at the same time as the "sherpas" or representatives of member countries. "It's a constant fight to get both sides to share information," said one Council official. (Commission officials point out that it is the Commission's prerogative to propose legislation without input from the Council.)

The breakdown in communication has spurred some EU commissioners to resort to reaching out directly to Council staff to ensure that their file or portfolio is given prominence in Council conclusions, the formal documents reflecting decisions taken by national leaders during EU summits.

With private channels unused, tensions have spilled out into public ones, especially over the handling of the energy crisis. This week, in a letter seen by POLITICO, Michel dinged von der Leyen for not coming forward with a proposal for a price cap on natural gas, after national leaders called for one during their October summit. 

The mistrust has also spilled into issues of security. Once, during the COVID pandemic, when von der Leyen's chief of staff Bjoern Seibert and an EU Commissioner wanted to speak to a high-level counterpart in the U.S. administration, the delegation decided to travel to the outskirts of Brussels to use the secure line in NATO headquarters rather than make use of the Council facility across the street.

It was only this year that the Commission got its own secure room to make calls to the United States.

'Both responsible'

In the contest between the two leaders, von der Leyen is seen as having the upper hand. Though Michel formally represents the EU at external events, the Commission president has emerged as the EU's most prominent leader, particularly when it comes to relations with Washington.

Since Russia's all-out assault on Ukraine, U.S. President Joe Biden's administration has cultivated a close working relationship with von der Leyen's team, cooperating closely in particular in the area of sanctions.

Michel, in contrast, struggles to break through. When Canadian Prime Minister Justin Trudeau visited Brussels in March, protocol dictated he meet with the Council president. But the Canadian delegation insisted that he also meet with von der Leyen, an indication of her international standing.

"Frankly, the view is that Michel has disappointed, but von der Leyen has exceeded expectations in her role," said one longtime Commission official.

But when it comes to the breakdown in relations, officials generally agree that both leaders are to blame — Michel for his mishandling of incidents like Sofagate and von der Leyen for her penchant for keeping close control at the expense of collaboration.

"Honestly, they are both responsible," said an EU official.  "You had tensions in the past as well, but in the end, it always came down to personalities. Their predecessors realized it was in both of their interests to find a stable working relationship."

Another longtime EU official said the inter-institutional relationship had never been so low.

"It makes no sense for the European Commission head and the European Council president to be fighting," the official said.

"In a crisis the EU is supposed to come together," the official added. "Yes, structurally the two institutions are in conflict. There is sometimes not a clear division of labor. But we need adults in the room."

Joshua Posaner and Barbara Moens contributed reporting.

Slightly interested in both of their backgrounds - I feel like that's something I've read with a few other politicians in the EU institutions and it seems to becoming more common around the world to more or less literally have a "political class". It makes me think of Helen Thompson's analysis of democratic issues in terms of the growth of "aristocratic" tendencies rather than democratic excess.

But I think it also captures something that I think is interesting about the EU which is that despite being, in theory, a fairly structured and rule-bound organisation it's incredibly flexible and personalist. If you think about both the leaps in EU integration they normally reflect responding to some crisis/event that requires European integration to lurch forward and the way that is shaped seems incredibly linked to the personalities in charge (particularly in terms of who has influence/power). If you think of Delors' Commission, Draghi's ECB and, it feels, at this point VdL's Commission.

[The Larch]

One would assume that this clashes will make it necessary for, in the future, clearly delimitate what each position is in charge of. Having overlapping areas of competence with no clear definition of who does what is a recipe for disaster when the internal coordination of the EU is not working, in this case because of the personality clashes of the presidents. Having a clear ranking of positions would also be helpful, I guess the Commission president should be clearly stated to be the visible head of the EU, while the Council president should be more of a number 2 in charge of internal coordination stuff.

At the end of the day, as long as the different governments want to retain a direct say on how the EU is run, these kind of clashes are inevitable.

[Sheilbh]

On a purely legal level the President of the Council is the representative of the EU on the world stage. It's why Trudeau would have to meet with Michel, but wanted to add VdL because at this point it's clear the Commission is in the ascendancy and VdL the more substantial actor.

According to the Lisbon treaty the President of the Council is really a more political role, while the Commission is more of a technical/operational one. In principle the theory is that the Council and President of the Council sets the strategy and the Commission implements. Of course part of the problem is as you say, while member states agreed to Lisbon, they don't really want the President of the Council to be too big a figure able to actually set strategy like that. When the role was created the talk was of someone like Blair or Gonzalez who are big political figures - while I think they had that a bit with Tusk, the other two Presidents have been relatively unimpressive. I don't think that's a coincidence. Worth noting that Blair and Gonzalez were mentioned by Sarko and that probably reflects the traditional French view that they want Europe to be political and strategi, but directed member states - ultimately the counter view (perhaps more German) of more of a mediating, coalition building but lower ambition role won.

The reality is personalities matter and so does the context. During the Eurozone crisis which was fundamentally about cash and common debt was politically impossible, the Council will have primacy because it's fundamentally about getting member states to agree and its about financial policy. Ultimately the Council flailed until the ECB stepped in and created a European response without common debt. I think in response to Covid and Ukraine there's been a more "European" response - including common debt - which means the Commission will take priority/strengthen because that's its realm.

Of course the other, not irrelevant point, is that governments have a democratic mandate - and I think the big problem is the differing views of what should be Commission v Council. Obviously, the Parliament has a mandate but limited power compared to the other institutions. I think even with more clarity in the treaties you'd have the same fundamental issue - the EU advances through crisis and which institution takes the lead on developing that response/leap forward will depend on what member states want or are willing to do (provided the institutions have a credible leader).

[Admiral Yi]

The EU gets everything right, but only after trying out everything wrong.

[Iormlund]

During the Eurozone crisis which was fundamentally about cash and common debt ...

Ugh. Are we still banging this drum, after all these years?

The cause of the crisis was a single monetary policy without fiscal equivalent. And when it blew up the markets were simply pricing in the logical conclusion: the collapse of the Eurozone.

Draghi put a bandaid on it, which understandably nobody else wants to rip out.
But the core problem remains and might rear its ugly head again now that there's widely disparate inflation throughout the Eurozone.

[Sheilbh]

Oh I totally agree - related to that problem is that the big constraint on the EU is that no-one really wants to re-open the treaties and it's really pushing at the edges of the possible. Because there were countries absolutely opposed to common debt, the Commission isn't really a relevant body and when it comes to financial policy member states are broadly pretty protective of their own policies. Similarly once the German Constitutional Court cast doubt on ECB policies - a ruling which happens during the pandemic - it becomes clear that you need common debt because you can't just rely on the ECB. Which makes the Commission a very powerful player in designing the policy and implementing it.

I'm also not clear there is democratic support for a fiscal equivalent. It's striking that while the EU has issued common debt and talked about raising taxes those taxes are effectively on external actors - they're not taxing citizens.

Given a lack of desire to legally take the next step in integration, a lack of clarity on whether it has enough democratic support (or democratic accountability within the EU to have common fiscal policy) and the constraint of the current treaties - I think it leads to creative solutions like Draghi's "whatever it takes".

[Admiral Yi]

The proximate cause of the crisis was buyers of sovereign bonds thinking they might not get repaid.

[Iormlund]

The proximate cause of the crisis was buyers of sovereign bonds thinking they might not get repaid.

That was a consequence, not a cause.

The cause was that the ECB set interest rates for France and Germany, which were experiencing a downturn.
Meanwhile countries like Spain were experiencing high inflation (eg. house prices were going up 15-20% a year).

Here, the logical consequence of having unsuitably low rates was massive private borrowing. That was exposed when the sub-prime fiasco set the world on fire.
The reaction was to bail out private lenders at the cost of public finances. The combination of that newly acquired debt and the loss of 10% of the economy overnight (construction) with no automatic stabilizers showed the markets that Club Med countries might have to exit the Euro, which led to the sovereign bond crisis.

Only that last link in the chain was addressed when Draghi made clear that there was no risk to exit the Euro. The inability to set a monetary policy that's optimal for every Euro country remains.

[Admiral Yi]

That was a consequence, not a cause.

The cause was that the ECB set interest rates for France and Germany, which were experiencing a downturn.
Meanwhile countries like Spain were experiencing high inflation (eg. house prices were going up 15-20% a year).

Here, the logical consequence of having unsuitably low rates was massive private borrowing. That was exposed when the sub-prime fiasco set the world on fire.
The reaction was to bail out private lenders at the cost of public finances. The combination of that newly acquired debt and the loss of 10% of the economy overnight (construction) with no automatic stabilizers showed the markets that Club Med countries might have to exit the Euro, which led to the sovereign bond crisis.

Only that last link in the chain was addressed when Draghi made clear that there was no risk to exit the Euro. The inability to set a monetary policy that's optimal for every Euro country remains.

That may have been the cause in Spain, Ireland, and Portugal but AFAIK that was not the cause in Greece and Italy.

And even accepting that in those countries mentioned it was originally a private debt crisis does not inevitably lead to the conclusion that the ECB set the wrong discount rate.  Rather that lenders, much like with the subprime crisis, mispriced real estate lending risk.

And none of that leads inevitably to the conclusion that taxpayers in other countries should pay for the mistakes made in those real estate markets.

[Sheilbh]

That was a consequence, not a cause.

The cause was that the ECB set interest rates for France and Germany, which were experiencing a downturn.
Meanwhile countries like Spain were experiencing high inflation (eg. house prices were going up 15-20% a year).

Here, the logical consequence of having unsuitably low rates was massive private borrowing. That was exposed when the sub-prime fiasco set the world on fire.
The reaction was to bail out private lenders at the cost of public finances. The combination of that newly acquired debt and the loss of 10% of the economy overnight (construction) with no automatic stabilizers showed the markets that Club Med countries might have to exit the Euro, which led to the sovereign bond crisis.

Only that last link in the chain was addressed when Draghi made clear that there was no risk to exit the Euro. The inability to set a monetary policy that's optimal for every Euro country remains.

I think it goes back to all of Europe's attempts at exchange rate stabilisation (internally) - Helen Thompson talks about this really well in her recent book.

And in a way it is a lesson of the compromises within the EU and how EU institutions actually structure it. The justification for the Eurozone was initially driven by France as a way of escaping the requirement to follow the Bundesbank's approach within the ERM when France doesn't have, as Germany does, a broad political consensus on the central importance of keeping inflation down. Germany agreed but on condition that the ECB be given a Bundesbank style mandate focused on price stability and an aversion to "democratic money".

Given that's the policy then it leans towards a small Eurozone - see the number of countries that dropped out of ERM in the 80s and 90s because their political consensus or economic situation wasn't aligned to Germany's. But at the time Germany was itself not meeting the convergence criteria because of the costs of unification which made it difficult to justify a hardline approach. The Eurozone became a political issue with the SPD campaigning for a small Eurozone, in response Kohl turned it into a symbol of European unity in that campaign and called it an issue of "war and peace in the twenty-first century". There was also on many states' part a desire to avoid a two speed Europe and being in the "non-core" bit of Europe.

So the purpose of monetary union was to remedy the problems of the ERM, the compromise for that was to replicate the problems of the ERM. That should lead to a smaller Eurozone, but it became a symbol of commitment to European unity and Southern Eurozone countries (especially Italy) took a huge political and economic hit to join - even though the policies required to join were destabilising.

The financial crisis exposed those fundamental issues again - in particular Trichet's tightening. What ultimately followed was that the ECB was the only actor able to, in some way, square the circle (and I think the German Constitutional Court have legitimate queries about whether the ECB is acting within its mandate - though I don't think they have a legal right to answer those questions).

But I think the fundamental problems are still there - I don't think there is a consensus around debt and price stability across the Eurozone in the way there is in Germany and similar countries (or vice versa), which I think is a challenge for the ECB; I think the ECB is possibly outside its mandate already; and, on the other side, I'm not sure there is the type of convergence necessary for monetary policy across the Eurozone. At the minute it's particularly extreme because of how much inflation varies depending on exposure to Russia but I'm not sure, even before then, there was much convergence. In general I think inflation will cause more politics about monetary policy - which may reignite some issues.

But I think those fundamental flaws are still there and I think it's a not insignificant cause of the collapse of the mainstream right and left in France and Italy. The challenge is that any solution probably requires moving on one or other of those points and certainly means opening the treaties - and that will hit the old problem of another French referendum which is particularly challenging if you keep the strict Bundesbank style ECB, but I'm not sure Germany could approve an approach without that. So I think we'll continue to see, as you say, band aids from the ECB operating at the very edge of their powers.

[Iormlund]

That may have been the cause in Spain, Ireland, and Portugal but AFAIK that was not the cause in Greece and Italy.

And even accepting that in those countries mentioned it was originally a private debt crisis does not inevitably lead to the conclusion that the ECB set the wrong discount rate.  Rather that lenders, much like with the subprime crisis, mispriced real estate lending risk.

And none of that leads inevitably to the conclusion that taxpayers in other countries should pay for the mistakes made in those real estate markets.

I actually agree with that last bit, except probably not in the way you meant it. Those banks that financed the credit bubble should have eaten the losses first, instead of taxpayers in Ireland, Portugal and Spain.

[Iormlund]

But I think those fundamental flaws are still there and I think it's a not insignificant cause of the collapse of the mainstream right and left in France and Italy.

Also in Spain. Though the alternatives haven't had that much success.

Ciudadanos missed the chance of becoming kingmaker and is pretty much history.
Podemos chose identity politics instead of left-wing economics and has petered out. Also suffered from internal purges and fragmentation (splitter!). Nevertheless, it is still a (very) junior partner in government.
Vox owes its rise to the mess in Catalonia, which was an indirect result of the crisis, after the regional hegemonic party (CiU) decided to embrace nationalism as a way to misdirect anger from their government. Until then the far right was a nonentity in Spain.

[The Larch]

Croatia will be joining the Schengen area in 2023. Romania and Bulgaria were also up for joining it but were vetoed by Austria and the Netherlands.

[The Larch]

Belgian police has detained a number of current and former MEPs on suspicion of taking bribes from Qatar.