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Economic and Budgetary Outlook for the European Union 2018

Written by Alessandro D’Alfonso, Angelos Delivorias, Marcin Szczepanski,

Economic and Budgetary Outlook for the European Union 2018

© European Union, EPRS

In 2017, the EU and euro-area economies continued their moderate growth (slightly over 2 %) in a context of global improvement (3.5 %) underpinned by a strong rebound in world trade, continuing growth in China and a return to growth in countries such as Brazil and Russia. This growth, which should continue in the next two years, was shared by all euro-area Member States for the first time since the crisis, and was accompanied by the creation of jobs – unemployment is at a post-crisis low – and strong investment, which reached pre-crisis levels.

With regard to public finances, the general government deficit for both the EU and the euro area has declined and is projected to decline further in the following years, to below 1 %. The general government debt-to-GDP ratio is projected to follow a similar path, decreasing to 85.2 % and 79.8 %, for the euro-area and the EU-28 respectively, a trend that, while positive, means levels are still a long way from the expected 60 %.

After significant fluctuations in 2016, inflation rose closer to the target, of around 2 %, by the fourth quarter of 2017, helped by the recovery in oil prices, but is not expected to reach the target until 2019, due to a negative base effect in energy prices and the increase of the euro’s nominal effective exchange rate. In this context, the European Central Bank continued with its unconventional monetary policy in 2017 and decided to keep it for 2018, albeit moderating its purchases as of January 2018, due to the improving economic outlook and the need to reduce the risk of financial imbalances.

The aforementioned positive trends concerning the euro-area economy, as well as the results of the various elections held in 2017 in the EU, have likely outweighed the negative developments such as the deteriorating geopolitical context, the uncertainty concerning the Brexit negotiations and the policy-mix outlook in the US. This has helped to strengthen the common currency against its major counterparts since spring 2017. As a result, the euro has appreciated against most of its major trading partners’ currencies. While these trends are projected to continue over the next two years, their strength is expected to subside, on account of the phasing out of temporary supportive fiscal measures in Member States and the tapering of accommodative monetary measures.

The 2018 EU Budget amounts to €160.1 billion, representing only some 2 % of total public spending in the European Union – approximately 1 % of gross national income (GNI). Despite its volume, the overall impact of the EU Budget is amplified by a number features, including: a higher share of resources devoted to investment than in national budgets; the capacity to leverage additional funding from other sources; and attention to policy areas where the pooling of resources can provide the EU as a whole with added value (e.g. research, innovation and development cooperation).

Agreed by the European Parliament and the Council of the European Union, the 2018 budget focuses on priorities such as promoting sustainable growth, creating employment, especially for young people, and addressing migration and security challenges. In recent years, these persistent policy challenges have almost exhausted the flexibility provisions available under the EU’s 2014-2020 multiannual financial framework (MFF). However, the 2017 adoption of the mid-term revision of the MFF has strengthened a number of flexibility tools, proving instrumental in reinforcing the resources devoted to key policy areas in 2018.

With the 2014-2020 MFF in the second half of its programming period, the debate on its successor and further streamlining of the EU Budget has already gained momentum, with a reflection paper on the future of EU finances published by the European Commission. Taking into account difficulties that the current MFF has experienced, one objective is to increase capacity to respond to the concerns of EU citizens and to the unprecedented challenges the Union is facing. In May 2018, following a broad consultation of stakeholders, the Commission is expected to present its proposals for the post-2020 MFF and a possible reform of the EU’s financing system.

Many instruments in the EU Budget directly or indirectly address the objectives of industrial policy, against the backdrop of a quickly evolving sector. The importance of the sector to the EU, in both economic and political terms, as well as the changing nature and scope of industry and industrial policy, made it the subject of this year’s economic focus. This examines industry in the EU from four perspectives (production, gross value added, employment and the regional perspective), its evolution over the past decade and the impact of the crisis, and presents the EU-level initiatives designed to rekindle industrial activity.


Read the complete study ‘Economic and Budgetary Outlook for the European Union 2018‘ on the Think Tank pages of the European Parliament.


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Source Article from https://epthinktank.eu/2018/01/15/economic-and-budgetary-outlook-for-the-european-union-2018/

The Brexit process [What Think Tanks are thinking]

Written by Marcin Grajewski,

Brexit, flags of the United Kingdom and the European Union on asphalt road with legs

© Delphotostock / Fotolia

The EU’s Heads of State or Government gave the green light in December 2017 to the second phase of negotiations on the United Kingdom’s withdrawal from the EU. They agreed that ‘sufficient progress’ had been made in talks on issues in the first phase. Those include the UK’s financial obligations on leaving the EU, the rights of EU citizens within the UK and of UK citizens within the EU, and how to deal with the border between Northern Ireland and Ireland. The next phase of talks will focus on transitional arrangements and the future EU-UK relationship, including in the field of trade.

This note offers links to recent commentaries and reports published by major international think tanks and other organisations on EU-UK negotiations and on the implications of Brexit more widely. More studies on these issues can be found in a previous edition of ‘What Think Tanks are thinking’ from October 2017.

Brexit: Next steps in UK’s withdrawal from the EU
Library of the House of Commons, January 2018

‘Soft’ Brexit is no panacea: Why the Scottish government should lead on halting Brexit
Scottish Centre on European Relations, January 2018

The Brexit options, explained
Brookings Institution, January 2018

Blockchain and trade: Not a fix for Brexit, but could revolutionise global value chains (if governments let it)
European Centre for International Political Economy, January 2018

Brexit negotiators should consider global impact
Friends of Europe, January 2018

TPP: The UK is having a Pacific pipe dream
Centre for European Reform, January 2018

Brexit talks: What happens when the clock stops?
Scottish Centre on European Relations, January 2018

Compromis sur le Brexit: Trompe-l’œil ou réussite politique?
Institut des relations internationales et stratégiques, December 2017

An early transition deal won’t avoid the Brexit cliff edge
Institute for Government, December 2017

Brexit-Fortschritt?
Konrad Adenauer Stiftung, December 2017

Trade after Brexit: Options for the UK’s relationship with the EU
Institute for Government, December 2017

The shared market: A new proposal for a future partnership between the UK and the EU
Institute for Public Policy Research, December 2017

Brexit breakthrough: Into ever-deeper fog over both the Northern Irish border and the Channel
Centre for European Policy Studies, December 2017

Brexit talks move on: They will be tough
Scottish Centre on European Relations, December 2017

Finding a sensible Brexit
Chatham House, December 2017

Dispute resolution after Brexit
Institute for Government, December 2017

Brexit: Le scénario hard de Theresa May de plus en plus hypothétique
Institut Thomas More, December 2017

Opportunities and risks in Europe in 2018
Bruegel, December 2017

Beyond the Westminster bubble: What people really think about immigration
Open Europe, December 2017

The burdens of Brexit
Rand Europe, December 2017

Brexit readiness update: The players improved their score
Peterson Institute for International Economy, December 2017

Brexit and the border: An overview of possible outcomes
UK in a Changing Europe, December 2017

UK + EU = Canada+?
Centre for European Reform, December 2017

Brexit: UK defers the hard choices
Carnegie Europe, December 2017

Brexit: A negotiation update
Brookings Institution, December 2017

Optimistic UK business confidence indicators predict smooth Brexit
Bruegel, December 2017

Brexit begins to take shape, as debate in Scotland continues
Scottish Centre on European Relations, December 2017

Brexit: Launching satellite Britain
European Policy Centre, December 2017

Alternate forms of Brexit and their implications for the United Kingdom, the European Union and the United States
Rand Europe, December 2017

‘Why we’re stuck and how we want to get out of this’: Capacity building for the post-Brexit generation
Heinrich Böll Stiftung, December 2017

Britain opts for ‘Brexit in name only’
Peterson Institute for International Economics, December 2017

Perspectives on the Irish Border and Brexit negotiations
Policy Exchange, December 2017

Who’s afraid of the ECJ? Charting the UK’s relationship with the European Court
Institute for Government, December 2017

Brexit, phase two (and beyond): The future of the EU-UK relationship
Bruegel, December 2017

Brexit: Towards a deep and comprehensive partnership?
European Policy Centre, December 2017

Brexit: When the banks leave
Bruegel, December 2017

As Brexit negotiations are finely poised, the economic picture doesn’t get any less gloomy
Scottish Centre on European Relations, December 2017

Theresa May’s disunited kingdom
Carnegie Europe, December 2017

Ten predictions for the Brexit talks
Centre for European Reform, November 2017

A comment on the proposed EMIR revisions
Centre for European Policy Studies, November 2017

Dig for victory?
Centre for European Reform, November 2017

Europe’s problem with England
Institute of International and European Affairs, November 2017

The implications of Brexit for UK, EU and global agricultural reform in the next decade
Chatham House, November 2017

Negotiating Brexit: what do the UK’s negotiating partners want?
UK in a Changing Europe, November 2017

Brexit negotiations and legislation: Implied timeline
Institute for Government, November 2017

The Brexit negotiations: What do the British want?
Friedrich Ebert Stiftung, November 2017

Relaunching the EU
Centre for European Reform, November 2017

Can Northern Ireland be kept in the EU?
Carnegie Europe, November 2017

Brexit means…? Or the urgency of defining Brexit before the Brexit happens
Fondation Robert Schuman, November 2017

Ireland on the rocky road to Brexit
Notre Europe, November 2017

Vaping solutions: An easy Brexit win
Institute of Economic Affairs, November 2017


Read this briefing on ‘The Brexit process‘ on the Think Tank pages of the European Parliament.

Source Article from https://epthinktank.eu/2018/01/12/the-brexit-process-what-think-tanks-are-thinking/

European Parliament Plenary Session, January 2018

Written by Clare Ferguson,

Strasbourg - Plenary session November 2015

European Parliament (CC BY-NC-ND 2.0)

Twin key debates are scheduled on Parliament’s agenda on Wednesday morning, with the appearance of no less than two Prime Ministers. Bulgarian Prime Minister, Boyko Borissov, will present the programme of activities of the Bulgarian Presidency, followed by a debate with the Prime Minister of Ireland, Leo Varadkar, on the future of Europe. The Council and Commission will make statements reviewing the outgoing Estonian EU Presidency, and Donald Tusk, the European Council’s President, is due to report on the meeting of 14 and 15 December 2017, on Tuesday morning. The topical debate this session, scheduled for Wednesday afternoon, will explore the issue of Russia and the influence of propaganda on EU countries, an effect that is becoming pressing for Parliament in the light of the upcoming European elections, which the Parliament’s political groups have agreed should be scheduled for 23-26 May 2019. (The proposed dates have now to be confirmed by the Council.)

The EU’s young people and children are the future citizens of Europe and therefore a high priority for Parliament. A report calling for a Parliament resolution on the implementation of the Youth Employment Initiative is scheduled for debate on Wednesday evening. The report underlines the need to reach out to the most excluded young people, ensure that they receive good quality offers of employment, and that the Commission and Member States set realistic and achievable goals for the initiative. Regarding employment, Thursday morning’s agenda kicks off with consideration of an Internal Market and Consumer Protection Committee report on implementation of the Professional Qualifications Directive and the need for reform in professional services. With the best interests of the child the main concern, Parliament will also debate a report on the proposal to recast the Brussels IIa Regulation governing the jurisdiction, recognition and enforcement of decisions in matrimonial matters and matters of parental responsibility, and international child abduction on Wednesday evening. Parliament’s Committees on Petitions and Legal Affairs consider that the current proposals can be strengthened, particularly in cross-border cases, and to expand the child’s right to be heard in such proceedings.

Many of the issues on the agenda for this session concern, directly or indirectly, good stewardship of our environment for this next generation. On Monday evening, Parliament is due to discuss three of the eight Commission proposals in the clean energy package: a revised energy efficiency directive, a recast directive on the promotion of renewable energy sources, and a new regulation on energy union governance. These measures seek to deliver, by 2020, 20 % improved energy efficiency, for energy consumption to use 20 % renewable energy sources, and strengthened criteria for biofuels. For Parliament’s Committees on the Environment, and Industry, Research and Energy, these ambitions are insufficient (they propose 40 % and 35 % respectively), and their joint report calls for longer-term planning – to 2050. The votes are to take place on Wednesday lunchtime.

Where cooperation on issues such as nature protection or transport benefits all participants, the EU’s macro-regional strategy framework allows countries from the same geographical area to pool together resources, regardless of borders. However, the EP Committee on Regional Development considers that improvements could be made to the implementation of EU macro-regional strategies in respect of commitment to and ownership of the initiatives, resources and governance. A debate on the Committee’s report will be held on Monday evening.

A Commission statement is expected on Wednesday evening on the EU strategy on plastics – an initiative planned under the renewed EU industrial policy strategy measures on the circular economy. An oral question on trade and sustainable development chapters in EU trade agreements, of which the CETA agreement is an example, is also scheduled as the last item on the agenda for Tuesday. The other trade issue on the agenda, later on Tuesday evening, is the proposal to update EU rules on the control of exports, transfer, brokering, technical assistance and transit of dual-use items – goods and technologies that are usually used for legitimate purposes, but that can also be used as weapons, or for torture.

Calling for appropriate inclusion of gender aspects in EU trade and development agreements as well as all aspects of the EU contribution to the United Nations Framework Convention on Climate Change, a short presentation will take place on Monday evening of the Women’s Rights & Gender Equality Committee report on women and gender equality in climate justice. Also on gender issues, an oral question on the fight against trafficking of women and girls for sexual and labour exploitation in the EU is scheduled for Wednesday evening.

The oceans are an important part of our environment, and an Environment Committee report on international ocean governance: an agenda for the future of our oceans, in the context of the 2030 Sustainable Development Goals will be presented on Monday evening. Parliament will debate the proposals for a new framework for fisheries technical measures, which should simplify their application in the conservation of fishery resources and protection of marine ecosystems, on Monday evening. The current technical measures, which govern which fish are caught, where and how, are much derided for their complexity and rigidity. The proposal suggests splitting them into common measures for all fisheries, and a set of regional variants, a move supported by Parliament’s Committee on Fisheries. The European Union is a contracting party to the Convention Area of the South Pacific Regional Fisheries Management Organisation (SPRFMO). Parliament’s Committee on Fisheries considers that the proposal to transpose South Pacific fisheries management measures into EU law so that they are applicable to fishing vessels flying the flag of a Member State has already largely been carried out by the Commission, but makes specific changes to the text to cover use of certain nets that were not addressed. Their report is also on the agenda for debate on Monday evening.

Parliament’s agenda for Tuesday afternoon is reserved for the regular appearance of the Vice-President of the Commission/High Representative of the Union for Foreign Affairs and Security Policy, Federica Mogherini. This plenary session will include statements on EU support to the Colombian peace process, (rejected by the Colombian people); and on the situation in Iran and Kenya. Debates on breaches of human rights, democracy and the rule of law follow on Thursday morning, including cases in Nigeria, the Democratic Republic of Congo, and human rights activists in China.

Finally, following quite some years of legal debate as to whether or not the EU could conclude the Marrakesh Treaty, which aims to facilitate access to published works for persons who are blind, visually impaired, or otherwise print disabled, Parliament is expected to vote on Wednesday evening to give its consent to Council for the conclusion of the treaty. On Wednesday night the Commission will also make a statement to Parliament on the European Cultural Heritage Year 2018.

Source Article from https://epthinktank.eu/2018/01/12/european-parliament-plenary-session-january-2018/

EU efforts on counter-terrorism – Capacity-building in third countries [Policy podcast]

Written by Beatrix Immenkamp, with Patryk Pawlak and Georgios Barzoukas,

EU efforts on counter-terrorism - Capacity-building in third countries

© EUCAP Sahel Niger – Press and information team.

In the European Union (EU), responsibility for counter-terrorism lies primarily with Member States. However, the role of the EU itself in counter-terrorism has grown significantly in the aftermath of the terrorist attacks that have hit Europe in the post-‘9/11’ era. The cross-border aspects of the terrorist threat call for a coordinated EU approach. Moreover, the assumption that there is a connection between development and stability, as well as internal and external security, has come to shape the EU’s actions beyond its own borders. In the context of terrorism, the EU has an extensive toolkit of human and financial resources that support third countries in managing or mitigating terrorist threats.

A key element of EU action is capacity-building in partner countries, to ensure local ownership, a sustainable assistance model and the full use of local expertise for challenges that are geographically distinct. The EU’s external capacity-building efforts in counter-terrorism include security sector reform (SSR)-associated measures, such as strengthening the rule of law, improving the governance of security providers, improving border management, reforming the armed forces, and training law enforcement actors. As part of the EU’s multifaceted assistance, efforts to curb terrorist funding and improve strategic communications to counter radicalisation and violent extremism complement SSR-related activities. Soft-power projects funded through the Commission’s different funding instruments, coupled with both military and civilian common security and defence policy missions provide the framework through which the EU tries to address both the root causes and the symptoms of terrorism and radicalisation.


Read the complete briefing on ‘EU efforts on counter-terrorism – Capacity-building in third countries‘ on the Think Tank pages of the European Parliament.


Listen to podcast ‘EU efforts on counter-terrorism – Capacity-building in third countries

Source Article from https://epthinktank.eu/2018/01/12/eu-efforts-on-counter-terrorism-capacity-building-in-third-countries-policy-podcast/

Understanding artificial intelligence [Policy podcast]

Written by Vincent Reillon,

3D illustration, concept of artificial neuron with electrical pulses.

© ktsdesign / Fotolia

Artificial intelligence (AI) systems already permeate daily life: they drive cars, decide on mortgage applications, translate texts, recognise faces on social networks, identify spam emails, create artworks, play games, and intervene in conflict zones. The AI revolution that began in the 2000s emerged from the combination of machine learning techniques and ‘big data’. The algorithms behind these systems work by identifying statistical correlation in the data they analyse, enabling them to perform tasks for which intelligence is required if a human were to perform them.

Nevertheless, data-driven AI can only perform one task at a time, and cannot transfer its knowledge. ‘Strong AI’, able to display human-like intelligence and common sense, and which might be able to set its own goals, is not yet within reach. Despite the fears portrayed in film and TV entertainment, the idea of a ‘superintelligence’ able to self-improve and dominate humans remains an esoteric possibility, as development of strong AI systems is not predicted for a few decades or more, if indeed development ever reaches this stage.

Nevertheless, the development of data-driven AI systems implies adaptation of legal frameworks on the collection, use and storage of data, due to privacy and other issues. Bias in data supplied to AI systems can also reproduce or amplify bias in the decisions they make. However, the key issue remains the level of autonomy given to AI systems to make decisions that could be life-changing, keeping in mind that they only provide recommendations, that they do not understand the tasks they perform, and that there is no way to know how they reach their conclusions. AI systems are expected to impact society, especially the job market, and could increase inequalities.

To counter the abuse of probabilistic prediction and the risks to privacy, in April 2016 the European Parliament and the Council of the EU adopted the General Data Protection Regulation. The European Parliament also requested an update of the Union legal framework on robotics and AI in February 2017.


Read the complete briefing on ‘Understanding artificial intelligence‘ on the Think Tank pages of the European Parliament.


Listen to podcast ‘Understanding artificial intelligence

Source Article from https://epthinktank.eu/2018/01/12/understanding-artificial-intelligence-policy-podcast/

What if editing genes could fight rare diseases? [Science and Technology Podcast]

Written by Mihalis Kritikos,

A new technique to simplify gene editing might herald a new era of genetic modification. What are the benefits and potential dangers of this technique, and how should policy-makers respond?

genome editing

© Perception7 / Shutterstock.com

The capacity to engineer genomes in a specific, systematic and cost-effective way is a long-standing objective in the field of genomic studies. Several ‘gene editing’ technologies have recently been developed to improve gene targeting methods, including CRISPR-Cas systems, transcription activator-like effector nucleases (TALENs) and zinc-finger nucleases (ZFNs). The CRISPR-Cas9 system currently stands out as the fastest, cheapest and most reliable system for ‘editing’ genes. It is seen as the biggest game changer in the gene editing field, due to its high degree of reliability and effectiveness, as well as its low cost. This technological trajectory is expected to enhance our capacity to target and study particular DNA sequences in the vast expanse of a genome. CRISPR-Cas9 has the potential to cut the DNA of any genome at any desired location in many types of organisms, replace or add parts to the DNA sequence by introducing the cas9 protein, and appropriately guide DNA into a cell. This extremely powerful tool could help molecular biologists to explore how the genome works.

Potential impacts and developments

CRISPR-Cas9 has great potential as a tool for directly modifying or correcting fundamental disease-associated variations in the genome and for developing tissue-based treatments for cancer and other diseases by disrupting endogenous disease-causing genes, correcting disease-causing mutations or inserting new genes with protective functions. Researchers hope to use CRISPR-Cas9 to adjust human genes to eliminate diseases, fight constantly evolving microbes that could harm crops or wipe out pathogens, and even edit the genes of human embryos.

CRISPR-Cas9 can be used to alter the genes of a wide range of organisms with relative precision and ease, and also create animal models for fundamental research. Editing the genes of animals could improve disease resistance, control mosquito populations so as to mitigate or tackle malaria transmission, or even lead to the creation of ‘farmaceuticals’ — drugs created using domesticated animals — or better food production. The system could also facilitate the transplanting of animal organs into people by eliminating copies of retrovirus present in animal genomes that may harm human recipients.

Altering DNA in human embryos is also possible using CRISPR-Cas9 technology, which could eventually lead to transformative changes in human well-being, with consequences for people’s life span, identity and economic output. The technology can also be used to create a ‘gene drive’, which means that a particular selected gene will be preferentially handed down to the next generation, thereby rapidly spreading through entire populations.


Listen to podcast ‘What if editing genes could fight rare diseases?


While CRISPR offers many fascinating prospects, the use of CRISPR has also triggered socio-ethical concerns over questions such as whether and how gene editing should be used to make inheritable changes to the human genome, lead to designer babies, generate potentially risky genome edits or disrupt entire ecosystems. The use of CRISPR-Cas9 raises social and ethical issues not only for humans, but also for other organisms and the environment, leading scientists to recommend a moratorium on making inheritable changes to the human genome. For instance, the application of CRISPR as a pest control technique may produce unintended effects and mutations, which may lead to the dispersion of gene drive, the disappearance of a whole animal population, accidental releases and/or the irreversible disturbance of entire ecosystems. In fact, research activities intended to modify the genetic heritage of human beings which could make such changes inheritable are not financed under Horizon 2020, the EU framework programme for research and innovation.

Taking the non-maleficence principle into account in risk assessment, and distinguishing the clinical and therapeutic aims of gene editing from its enhancement applications/uses, have also become major sources of concern. Another important problem is the efficient and safe delivery of CRISPR-Cas9 into cell types or tissues that are hard to transfect and/or infect. Further concerns include the prospect of irreversible harm to the health of future generations, and concerns about opening the door to new forms of social inequality, discrimination and conflict, as well as to a new era of eugenics.

Anticipatory law-making

The rapid pace of scientific developments in the field of gene editing makes regulatory oversight particularly challenging. Moreover, there is a debate over whether CRISPR-Cas9 should be regulated as a gene editing technique, or whether its products should rather be controlled ad hoc with a result-based approach. International discussion on the regulatory status of genome editing techniques has focused on whether current definitions of genetic engineering or genetically engineered organisms could also apply to these recently discovered genetic editing tools.

The European Commission is currently working on a legal interpretation of the regulatory status of products generated by new plant-breeding techniques, to minimise legal uncertainties in this area. Such an interpretation may pave the way for a decision on whether gene editing technologies should fall under the scope of the EU legislative framework on the contained and deliberate release of genetically engineered organisms.

Patenting CRISPR-Cas9 for therapeutic use in humans is also legally controversial. In February 2017, the US Patent and Trademark Office (USPTO) issued a decision on who should hold the patent on using CRISPR-Cas9 to edit genes, defining the terms and conditions for profit generation from this technology in the years to come.

The risks of hereditary, unpredictable genetic mutations raise questions regarding the safety of the technique and the attribution of liability in case of damages. In a recent report, the US National Academies of Sciences, Engineering and Medicine urged caution when releasing gene drives into the open environment and suggested ‘phased testing’, including special safeguards, given the high scientific uncertainties and potential ecological risks. Safety measures are necessary to avoid dissemination of organisms that may cause ecological damage or affect human health.

In fact, many scientists caution that there is much to do before CRISPR could be deployed safely and efficiently. In particular, CRISPR might create additional challenges from a risk assessment standpoint, in that organisms produced by these methods may contain more pervasive changes to the genomes of living organisms than traditional genetic modification techniques.


Read this At a glance on ‘What if editing genes could fight rare diseases?‘ on the Think Tank pages of the European Parliament.

Source Article from https://epthinktank.eu/2018/01/11/what-if-editing-genes-could-fight-rare-diseases-science-and-technology-podcast/

Future financing of the Union [Ten issues to watch in 2018]

Written by Etienne Bassot,

Ten issues to watch in 2018

© pat pichaya, Vlad, pict rider, Maren Winter, Prazis, Zapp2photo, hm, Jonathan Stutz, andriano_cz / Fotolia – Kar Tr, Chinnapong, arapix / Shutterstock.com

The EU has a modest fiscal capacity in the form of an annual budget, whose size and structure are largely predetermined by a Multiannual Financial Framework (MFF). The current MFF covers the 2014-2020 period and amounts to €1.09 trillion, or roughly 1 % of EU GDP. The EU Budget funds spending priorities collectively agreed by the Member States, the Parliament and Commission. It is currently financed by three categories of ‘own resources’: ‘traditional own resources’ consisting of customs duties and sugar levies (€20.1 billion in 2016, or 14 % of revenue); an own resource consisting of a percentage of the Member States’ estimated VAT income (€15.9 billion in 2016, or 11.1 %); and an own resource based on a fixed percentage of Member States’ gross national income (GNI) (€95.6 billion in 2016, or 66.6 %). Other revenue includes income taxes on EU staff, contributions by non-EU countries to EU Budget-funded programmes, fines paid by companies in breach of competition law, and revenue from EU borrowing and lending operations. Unlike national budgets, the EU’s cannot be in deficit and spending must be matched by revenue. Own resources mobilised to cover EU Budget spending are capped at 1.23 % of EU GNI per year.

Some Member States’ GNI-based contributions are partly reduced by ‘rebates’, or reductions designed to offset the gap between their contributions to the EU Budget and their public and private sector receipts at home. While the United Kingdom’s rebate is the most high-profile of these, it has led to a series of other rebates for other net contributors.[1]

Significant spending on EU priorities is also done outside the EU Budget in a number of ways. One of them involves setting up a separate intergovernmental fund, one such example being the €30.5 billion 2014-2020 European Development Fund, to which Member States contribute individually. Others involve the use of various financial instruments and vehicles such as loans or guarantees managed by the European Investment Bank, or trust funds pooling EU Budget funds with contributions by other donors. The latter have grown in importance in recent years as the EU has sought to contribute to development both within and beyond its boundaries through leveraging private investment.

Potential for reform and expected developments in 2018

There is a broad consensus among the European Commission, the European Parliament and many academic observers that the current own resources system needs reform.[2] It is seen as complex and opaque, and as encouraging Member States to focus on getting a ‘fair return’ on their national contributions through money spent locally, rather than on shared European priorities. But while there is no shortage of ideas for alternative own resources that would radically simplify the system and endow the EU Budget with greater financial autonomy, achieving significant reform has proven difficult. Changes to the own resources system require the Council of the EU to agree unanimously after consulting the Parliament, and then need to be ratified by all Member States.

An opportunity for reform will present itself in 2018, however. The Commission plans to publish a package in May comprising a comprehensive proposal for the future MFF beyond 2020 and proposed changes to the EU Budget’s own resources. This will be followed by proposals for the next generation of multiannual spending programmes.

In anticipation of the proposal for the post-2020 MFF, in June 2017, the Commission published a reflection paper on the future of EU finances, linked to the March 2017 white paper on the future of Europe, setting out five scenarios of varying scale and ambition, with corresponding implications for EU finances. In the reflection paper, the Commission suggests simplifying or even abolishing the VAT-based own resource, and notes that Brexit renders the UK rebate obsolete, and with it the various ‘rebates on the rebate’. In the white paper, echoing a recommendation in the December 2016 report by the interinstitutional High-level Group on Own Resources (HLG) that any new own resource should be clearly and transparently linked to the core policy objectives of the EU, the Commission cites the possibility of levying common energy or environmental taxes to help incentivise decarbonisation of the EU economy, or of allocating a percentage of the common corporate tax base or creating a financial transaction tax to help stabilise the single market and the euro area.

The Commission also sees scope for an expansion of financial instruments such as loans, guarantees and equity, both within the EU Budget and beyond, as part of the EU’s ‘extended financial architecture’, of which the European Investment Bank is part. During the current MFF, the most noteworthy example of such a financial instrument has been the European Fund for Strategic Investments (EFSI). The Commission is interested in further exploring the potential of these instruments at a time when the EU budget comes under the twin pressures of responding to new challenges and adjusting to reduced revenue with the departure of the United Kingdom, or of doing ‘more with less’.

Role of the European Parliament

The Parliament has long advocated reform of the EU Budget, including its own resources. To this effect, it adopted one resolution in 2007 and another in 2011, calling for the introduction of genuine EU own resources to reduce the role of those perceived by Member States as national contributions, and to shift the focus of budgetary negotiations to activities with the highest EU added value. Setting up an HLG to conduct a thorough review of the own resources system was among the Parliament’s conditions for agreeing to the 2014-2020 MFF.

In October 2017, the Parliament adopted a resolution on the Commission’s reflection paper on the future of EU finances. Parliament agreed that any new policy priorities for the Union should be coupled with additional financial means, and reiterated that the EU should be funded by ‘genuine’ own resources, as provided for in the EU Treaties. The resolution encouraged the Commission to develop further the idea of ‘European added value’, seeing this as crucial to deciding on the Union’s spending priorities, and thus on the correct mix of own resources. The Parliament also reiterated its commitment to budgetary unity, and questioned the wisdom of creating additional funding instruments outside the EU Budget.

The Parliament plans to debate own-initiative reports on the post-2020 MFF and on future own resources in spring 2018.

[1]     A. D’Alfonso, The UK ‘rebate’ on the EU budget: An explanation of the abatement and other correction mechanisms, EPRS, February 2016.

[2]     See, for example, A. D’Alfonso, How the EU budget is financed: The ‘own resources’ system and the debate on its reform, EPRS, June 2014; Opinion of the European Economic and Social Committee on the Reflection paper on the future of EU finances, October 2017; M. Schratzenstaller, ‘The next Multiannual Financial Frame­work (MFF), its Structure and the Own Resources‘, in Fair Tax Working Paper Series No 14, November 2017.


Read the complete in-depth analysis on ‘Ten issues to watch in 2018‘ on the Think Tank pages of the European Parliament.

Source Article from https://epthinktank.eu/2018/01/10/future-financing-of-the-union-ten-issues-to-watch-in-2018/

North Korea [Ten issues to watch in 2018]

Written by Etienne Bassot,

One of the biggest concerns internationally is that 2018 could see the long-standing North Korean crisis develop into a larger-scale conflict, potentially affecting not only eastern Asia, but also a large variety of players across the globe.

Escalation under Kim Jong-un

Ten issues to watch in 2018

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Kim Jong-un succeeded his father as President of North Korea in December 2011. Under his rule, the régime has remained closed to the rest of the world while increasing its anti-American rhetoric; threatened Washington and Tokyo (which supports a strong US stance); and generally destabilised the region, thereby affecting EU interests, given the volume of the Union’s trade with China, Japan and South Korea. In March 2013, a month after North Korea had conducted its third nuclear test, Kim announced the adoption of the ‘Byungjin line’: a policy of simultaneous economic and nuclear development. Three nuclear tests followed, with September 2017’s the most powerful thus far: Pyongyang claimed that was a miniaturised hydrogen bomb, capable of being launched through an intercontinental ballistic missile (ICBM). Pyongyang has also developed its own ICBM technology: in July and September 2017 it fired a Hwasong-12 intermediate-range missile over the north of Japan.

The international community has reacted by adopting UN-backed sanctions against Pyongyang, to push it to return to the negotiating table and to abandon its nuclear programme. The increased frequency of North Korean nuclear and missile tests has stirred growing hostile rhetoric between the regime and the Trump administration: Pyongyang has even threatened to fire missiles at the US military base on Guam in the Pacific. This war of words has side-lined South Korea, which is striving to find the right line in its relations with the North. Although China is South Korea’s main trading partner, it has recently undertaken retaliatory steps against Seoul’s business interests, on account of the ongoing deployment by the USA of a terminal high-altitude area defence (THAAD) system on South Korean territory. Beijing also accounts for 90 % of North Korea’s trade and is deemed to have decisive leverage for the survival of the Pyongyang regime. Together with Moscow, it has prevented the UN Security Council from adopting more severe sanctions against North Korea, but is now under pressure (especially from Washington) to adopt a full embargo on oil exports to the reclusive country. Seen from China’s perspective, the regime’s collapse may imply an allied buffer state on its border (China and North Korea’s Treaty of Mutual Assistance goes back to 1961) being substituted by a unified Korea, allied with the US. China and Russia advocate the ‘dual suspension’ of both North Korean tests and US military exercises in South Korea.

An issue under the radar: Human rights in North Korea
Kim Jong-un has succeeded in distracting the international community’s attention away from the appalling human rights situation in his country. In February 2014, the UN Commission of Inquiry on Human Rights issued a report accusing North Korea of crimes against humanity, including arbitrary detention, torture, executions, abductions and the deaths of hundreds of thousands of political prisoners under conditions of unspeakable atrocities in prison camps over the past five decades. In November 2017, a report released by the UN Committee on the Elimination of Discrimination against Women underlined the systematic violations of women’s rights.

Latest developments

In September 2017, North Korea’s Foreign Minister, Ri Yong-ho, hinted at a possible atmospheric nuclear test over the Pacific. A two-month interruption of tests and lowering of the tone followed. Analysts suggested technical problems, or that Pyongyang may have refrained from provocations while waiting for the outcome of US President Donald Trump’s 11-day visit to five Asian countries in November 2017. Following that visit, the US re-designated North Korea as a state sponsor of terrorism, in a mostly symbolic move. It also imposed secondary sanctions on Chinese firms trading with Pyongyang. This drew opposition from Beijing, whose relations with Seoul have been improving, while those with North Korea have chilled; this became evident from the November visit to Pyongyang by President Xi Jinping’s special envoy, who did not meet Kim, and from China’s recent enforcement of the UN sanctions against North Korea. Meanwhile, the US administration has claimed that the sanctions are having an impact on the North Korean economy. Others had argued that North Korea was failing to make advances in its ICBM technology, but the regime’s response arrived on 28 November 2017, when Pyongyang fired its most powerful missile, a Hwasong-15, over the Sea of Japan, and Kim declared the goal of becoming a nuclear state achieved. Following the US-South Korean decision to delay annual joint military drills until after the winter Olympic and Paralympic Games in PyeongChang (South Korea), high-level talks are to be held to discuss North Korean participation in the Games.

Future prospects

Despite international sanctions and isolation, Kim is unlikely to put his nuclear programme up for negotiation. His goal is to be recognised as a de facto nuclear power similar to India, Israel and Pakistan, all outside the Non-Proliferation Treaty (NPT). Should Kim attain his goal, it might pave the way to a moratorium on nuclear bomb and missile tests by Pyongyang. On the other hand, it could push other countries in the region to adopt the nuclear option. Meanwhile, North Korea’s ultimate goal remains a peace treaty with the USA, which would replace the armistice agreed at the end of the 1950-1953 Korean War. Until then, the regime can play the card of unity against the external enemy, for which it draws strength, among other things, from the US President’s statements. At times, Donald Trump has indeed hinted at the possibility of a pre-emptive strike, a scenario with unpredictable consequences. Whatever its scale, it could provoke retaliation against South Korea, thereby endangering the lives of millions of Seoul’s inhabitants, given the proximity of the city to the border, and triggering an influx of refugees on China’s borders. The international community has not, on the other hand, invested in North Korea’s internal destabilisation, for instance, through disseminating outside information to pave the way for a leadership change. North Korean defectors, including high-profile ones, have nevertheless underlined the potential of this option, given also that a growing number of citizens turn a deaf ear to propaganda and that the elite is increasingly opposed to Kim’s rule.


Read the complete in-depth analysis on ‘Ten issues to watch in 2018‘ on the Think Tank pages of the European Parliament.


North Korea crisis timeline 2016-2017

Source Article from https://epthinktank.eu/2018/01/10/north-korea-ten-issues-to-watch-in-2018/

European elections [Ten issues to watch in 2018]

Written by Etienne Bassot,

Ten issues to watch in 2018

© pat pichaya, Vlad, pict rider, Maren Winter, Prazis, Zapp2photo, hm, Jonathan Stutz, andriano_cz / Fotolia – Kar Tr, Chinnapong, arapix / Shutterstock.com

The next European elections – for the ninth elected term – will be held in May/June 2019. But the European Parliament elections struggle to be truly ‘European’ rather than ‘national’ in both form and substance. Elections to the EP are often said to be ‘second order’ elections, since the campaigns are frequently dominated by purely national topics and are mostly led by national political actors. The ‘national’ label is even more firmly attached to European elections, because they are largely governed by national rules. The 1976 Direct Election Act (as amended) only establishes some basic common principles, such as proportional representation, a common ‘electoral period’ and a voluntary threshold of not more than 5 %. Conversely, all other aspects, such as the precise election day, the right to vote and to stand as a candidate, the deadline for nominating candidates, voting from abroad, and the use of closed lists or preferential voting, as well as the use of a minimum threshold, are governed by national rules, and therefore differ significantly among Member States.

Fulfilling the mandate of Article 223(1) of the Treaty on the Functioning of the European Union (TFEU) to propose either a uniform electoral procedure for European elections or electoral rules based on principles common to all Member States, in November 2015 the Parliament adopted a proposal to reform the current electoral law. The proposal sought to make elections to the EP more European, in both form and substance, as well as more democratic, through promoting electoral equality among EU citizens and by improving the functioning of Parliament. It contains, inter alia, provisions on a common deadline (12 weeks before the vote) for the establishment of electoral lists and for the nomination of lead candidates (Spitzenkandidaten). Other provisions concern gender balance on electoral lists; visibility of any national party affiliation to European political parties on the ballot papers; the right of EU citizens residing in a third country to vote in elections to the EP; simultaneous communication in all Member States of the first projections of results; and a minimum electoral threshold of 3-5 % in single-constituency Member States with more than 26 seats, and per constituency in Member States with multiple constituencies.

The proposal has faced severe opposition in the Council, with some Member States opposing it per se, deeming it ‘unnecessary’ for the conduct of European elections, and others arguing that most of the proposed legal provisions be converted into non-binding recommendations or discretionary provisions. The time for agreement on the many outstanding issues is short, due to some Member States’ legal requirements that any adjustments to electoral rules should enter into force at least a year before an election.

In particular, the reference in the proposal to the Spitzenkandidaten process is meeting resistance in the Council. This process, which first took place in the 2014 European elections, was made possible due to a change in Article 17(7) of the Treaty on European Union (TEU) introduced by the Lisbon Treaty, establishing that the European Council must ‘take into account the elections to the European Parliament’ when proposing to the Parliament a candidate for president of the European Commission, and that the Parliament now ‘elects’ the Commission President rather than only ‘approve’ his/her election. The Spitzenkandidaten process is of considerable constitutional significance for the institutional balance in the EU, as it establishes a direct political link between the European elections and the Commission President. Such a link between the EP and the EU executive has already translated into further parliamentarisation of EU decision-making, not only within the legislative process itself, but also in the rest of the EU policy cycle, including agenda-setting and evaluation. The Parliament’s voice in the EU’s political and legislative planning has seen an important boost, expected to strengthen further, through this new political link, rendering political and legislative agenda-setting more democratic and, indeed, more political.

However, despite its constitutional potential, the Spitzenkandidaten process has shown some limitations. Greater media interest during the lead candidates’ electoral campaigns in 2014 did not translate into higher turnout, although it may have prevented a further decrease. In general, media impact varied in relation to the candidates’ countries of origin. However, the process was found to have contributed to the ‘Europeanisation’ of the elections, by putting truly European topics at the centre of the electoral debate, and by increasing the Parliament’s visibility through the personalisation of the campaign. These developments, although at an early stage, show the potential of the Spitzenkandidaten process to help create a common European political space, in which voters make an informed choice about the different political options at hand during the election to the Parliament.

Furthermore, the Parliament’s proposal for electoral reform contains a legal basis for the introduction of transnational lists for the election of Members of the European Parliament (MEPs). Accordingly, in a constituency covering the whole EU, each political family would have a list headed by its lead candidate for the post of Commission President. Whilst transnational lists are meant to strengthen the European character of European elections, to ensure a more active role for European political parties and to foster direct political competition, they have been a controversial issue within the Parliament for many years, and only succeeded in making it into an electoral reform proposal in 2015. The idea seems also to be gaining support in the Council, even though to a rather limited extent, with the French government issuing a non-paper on a European constituency, with detailed proposals on the possible design of the election of MEPs on such transnational lists.

Discussions on possible transnational lists in a joint EU constituency have gained momentum with the prospect of 73 vacant EP seats after the UK withdraws from the EU. To redistribute some of these seats, but also to find a stable method for adapting the composition of the Parliament at each election, the Parliament’s Committee on Constitutional Affairs (AFCO) is preparing a report due to be voted in plenary in early 2018. The Lisbon Treaty mandated the Parliament to propose to the European Council a decision on the composition of the Parliament, while respecting three principles: a maximum number of MEPs set at 751, a minimum of six and a maximum of 96 seats per Member State, and ‘digressive proportionality’. The current composition was established by a 2013 European Council Decision, which also defined ‘digressive proportionality’ as proposed by Parliament: ‘before rounding up to whole numbers, each MEP from a more populous Member State represents more citizens than each MEP from a less populous Member State and, conversely, no less populous Member State has more seats than a more populous Member State’. The current distribution of seats does not comply with the first requirement in all cases. However, a new (permanent) distribution model is proving difficult to establish, first, because of the uncertainty surrounding the UK’s withdrawal date, and second, because most mathematical formulae lead to a loss of seats by mid-sized Member States, which has prompted some to demand a corresponding readjustment of the Council voting rules. So far, the draft report envisages that only some of the vacant seats after Brexit would be distributed among some Member States to achieve better digressive proportionality, with the remaining seats kept available for a possible future transnational constituency.


Read the complete in-depth analysis on ‘Ten issues to watch in 2018‘ on the Think Tank pages of the European Parliament.

Source Article from https://epthinktank.eu/2018/01/10/european-elections-ten-issues-to-watch-in-2018/

Future of the euro area [Ten issues to watch in 2018]

Written by Etienne Bassot,

Ten issues to watch in 2018

© pat pichaya, Vlad, pict rider, Maren Winter, Prazis, Zapp2photo, hm, Jonathan Stutz, andriano_cz / Fotolia – Kar Tr, Chinnapong, arapix / Shutterstock.com

The euro area twice came under immense pressure in recent years: in 2007, when the US financial crisis spilled over to Europe, and then, when the European sovereign debt crisis broke out, peaking in 2010-2012. The latter clearly revealed weaknesses in the original architecture of economic and monetary union (EMU). During and after the crises, a major legislative overhaul aimed to strengthen and complete the framework of EMU. The biggest changes involved revamping economic governance, henceforth to be accomplished through the European Semester and, most notably, its Six Pack set of rules for economic and fiscal surveillance. Moreover, changes were made through an inter-governmental approach, introducing the European Stability Mechanism (ESM), the Treaty on Stability, Convergence and Growth (TSCG) and the Europlus Pact. To alleviate the crises, the European Central Bank (ECB) took robust action, lowering its interest rates and engaging in quantitative easing. In parallel, the framework for regulation of financial services was extensively revamped. These efforts resulted in a more stable EMU, sometimes referred to as ‘EMU 2.0’.

Two main schools of thought exist with regard to the future of EMU. The first deems EMU nearly completed, while the second would like to see a substantially different EMU, or erect a lot more on top of what already exists. The latter strand of thought is exemplified by the 2015 ‘Five Presidents’ Report‘, which advocated that to complete EMU, further steps must be taken towards achieving a union in economic, financial, fiscal and ultimately in political terms. It is important to remember that the report reflects the personal views of five EU institutions’ presidents, but is not an agreement between the institutions they headed.

Several ideas from the Five Presidents’ Report have since been implemented rapidly. Among them are the establishment of national competitiveness boards and an independent advisory European fiscal board within the euro area, and the drafting of an action plan on building a capital markets union. The latter set out numerous measures to be adopted or implemented by 2019, including a European Deposit Guarantee Scheme (EDIS). Finally, the European Pillar of Social Rights, introducing 20 principles and rights to EMU, including the right to fair wages, was proclaimed and signed in Gothenburg in November 2017. Similarly, a roadmap towards Banking Union had already been launched in 2012.

European Commission’s view and proposals

In March 2017, the Commission presented a white paper on the future of Europe. Rather than proposing concrete ways forward, it outlined five possible scenarios of varying degrees of ambition, ranging from ‘carrying on’ with the current framework, to ‘doing much more together’. It also announced further reflection papers, including one on the deepening of EMU. The latter was published in May 2017, but just like the white paper, only suggested ideas for the future EMU, such as a macroeconomic stabilisation function or a European unemployment reinsurance scheme, and sought to inspire debate.

However, the Commission President, Jean-Claude Juncker, was more specific during his State of the Union speech, delivered to the Parliament in September 2017, and in the accompanying letter of intent. He proposed using the ‘passerelle clauses‘ to move from unanimity to qualified majority voting in several policy fields, including taxation. He further advocated steps to incorporate substantial parts of the inter-governmental TSCG into the EU legal framework. The inter-governmental ESM would be transformed into a European Monetary Fund (EMF) under EU law. A strong dedicated euro-area budget line would be created within the existing EU budget, which would offer (1) structural reform assistance, (2) a stabilisation function, (3) a backstop for the banking union’s single resolution fund (SRF), and (4) EMU pre-accession assistance. As part of the completion of banking union, measures would be taken to reduce the level of non-performing loans, and an enabling framework for the development of sovereign bond-backed securities would be created. In a 2025 perspective, the post of a European minister of economy and finance would be created to support structural reforms in the Member States (for the Commission, this figure should be a Commission vice-president who also presides over the Eurogroup), and exploratory work would be done on the possible development of a euro-area safe asset.

Building on these announcements, the Commission’s 2018 work programme, published in October 2017, envisaged concrete new legislative proposals concerning the ESM/EMF, the creation of a dedicated euro-area budget and the integration of the TSCG into EU law. Accordingly, legislative proposals as well as a roadmap for deepening EMU were published on 6 December 2017. Other legislative proposals planned include an enabling framework for the development of EU sovereign bond-backed securities.

The Parliament, which as co-legislator played a considerable role in establishing EMU 2.0, is also open to changes, as shown in the three resolutions prepared by rapporteurs Brok/Bresso (‘Improving the functioning of the EU’), Verhofstadt (‘Possible evolution and adjustment of the current institutional set of the EU’) and Böge/Berès (‘Budgetary capacity for the euro area’), which were adopted in plenary in February 2017.

The debate in 2018

Throughout 2017, many offered ideas about the future of Europe, but the French President, Emmanuel Macron, may well have stolen the limelight, including with his landmark speech at the Sorbonne on 26 September, in which he proposed a major step forward towards European integration. Although Presidents Juncker and Macron both suggest scenarios for making Europe advance, their solutions are sometimes diametrically opposed. Concerning EMU, Juncker wants a complete shift to the Community method, an increase in the Commission’s powers, more prerogatives for the EP and the creation of a strong EU budget with a dedicated euro-area budget line. Macron, on the other hand, tends to favour an approach featuring strong inter-governmental elements, such as a separate parliament and budget for the euro area. The issue is therefore not only where Europe is heading, but also how the balance of power within the EU may shift. Others, such as the Dutch and German governments, which are of the opinion that EMU 2.0 needs little change but would benefit from better enforcement, will also weigh in strongly.

In 2018, two more aspects – legal feasibility and political acceptance – should also be expected to move centre-stage in discussions. So far, most EMU integration advocates have avoided indicating which of their proposals would require amendment of the EU Treaties. Concerning political acceptance, any new step forward would require broad consensus between governments or even unanimity in case of Treaty changes. Public expectations regarding EMU vary considerably from country to country. Therefore, not all governments will be inclined to support change, and even those that are will need to take rising euroscepticism and its implications for elections into account.

At the 15 December 2017 Euro Summit meeting, at which the diversity of views concerning the future of the euro area became evident, it was decided to convene a further Euro Summit in March 2018. Issues such as the completion of the banking union and the transformation of the ESM, will be at the centre of that debate.

Source Article from https://epthinktank.eu/2018/01/10/future-of-the-euro-area-ten-issues-to-watch-in-2018/