Energising debate keeps the EU show on the road - Post-Summit Analysis

25 March 2006

In the current EU political climate, an uneventful European Council can be considered a mixed blessing.

It is bad news, in a literal sense, in that the international media are left with little “colour” to work and report on: no dramatic confrontations, no big clashes over policy. But it is good news in that major crises are averted and the EU “show” can go on, albeit without any spectacular results to boast about.

The Spring 2006 European Council falls into this category. True, the outcome was relatively modest, but the climate of division, crisis and hard bargaining of the June and December 2005 summits appeared to have waned.

This is probably due to the fact that, as often happens on these occasions, the potentially controversial issues were addressed and partially settled in the run-up to (or on the very eve of) the summit, thanks not least to a carefully worded and politically balanced final text.

To a certain extent, the EU-25 also managed to shift the focus of the summit from the implementation of the so-called ‘Lisbon Strategy’ - launched in 2000 and revisited in 2005, but now essentially stalled - to the brand new ‘Energy Policy for Europe’.

While the former has failed to achieve its main goals, the latter has now taken centre stage and managed to concentrate the minds of policy-makers and commentators alike. This is probably why European Commission President José Manuel Barroso characterised the result of the European Council as “solid work and sound debate”, although the real debate did not take place at the summit proper.

In this respect, and considering the tense situation when it began, the final outcome may well be considered a diplomatic success for the Austrian Presidency.

The context

The run-up to the European Council was characterised by mounting tensions over what has come to be labelled as “economic patriotism” (from a famous and somewhat unfortunate statement by the French Prime Minister Dominique de Villepin) or just nationalism.

However different from one another, the takeover battles involving Suez/GDF/Enel (in France) and Endesa/Gas Natural/E.on (in Spain) - along with the Polish reluctance to allow an already agreed takeover in the banking sector - had cast a dark shadow over the EU's single market.

Direct interventions by the respective national governments to stop or prevent cross-border mergers had sparked controversy over their compatibility with Union rules and the spirit, if not the letter, of the EU treaties. As a result, the summit faced the real risk of a major row over both principle and practice.

Arguably, the fate of the alleged Italian-sponsored letter to the Presidency denouncing the return of “protectionism” helped avert the lingering crisis. Apparently, the Italian government had prepared a draft text that was tentatively submitted to some others - including the British, Dutch, Danish, Finnish, Irish and Slovaks - for signature.

The Hague reacted quasi-officially by saying that it did not intend to proceed in this way, despite its willingness to push for more liberal policies inside the EU: a decision which was probably also influenced by the bilateral disputes of the previous days over an Italian minister's description of the Dutch law on euthanasia as “nazi”.

At the end of the day, no other government signed up to the initiative (although British Finance Minister Gordon Brown is said to have warmly supported it), which also seemed to have been inspired, at least in part, by the electoral campaign under way in Italy.

Moreover, Italy itself could hardly boast of immaculate liberal credentials, not least given the recent case of the Antonveneta Bank takeover which led to the resignation of the Governor of the Bank of Italy, Antonio Fazio. As a result, Rome not only withdrew the letter, but even denied ever having drafted it.
This did not mean that the European Council was entirely devoid of uneasy moments, particularly French President Jacques Chirac’s irate reaction to the speech given in English (and against cross-border protectionism) by UNICE President Ernest-Antoine Seillière in the opening session.

In a way, the issue of economic protectionism was the 'ghost at the feast' throughout the summit, as underlined by the ironic reference to its absence from the official debate by Luxembourg Prime Minister Jean-Claude Juncker over dinner.

Most of the negotiations on the text of the Council conclusions revolved around the wording of the parts devoted to market liberalisation. Yet the formulations eventually adopted by the 25 EU leaders were a relatively satisfactory balance between different approaches which allows the Union as a whole to move ahead.

In the end, the direction of policy in this area is more likely to be determined by market developments and rulings on specific cases than by general declarations at the European level.

The outcome

Whatever the tenor and content of the behind-the-scenes negotiations, the collective reaction to of the summit has been largely positive. Clearly, apart from the invitation to “maintain momentum across the board” and make the most of the economic growth resuming across the continent, the ‘Lisbon Strategy’ has been somewhat played down.

Even the Presidency Conclusions, building on the Commission’s assessment, highlighted the fact that “some” of the National Reform Programmes (NRPs) to implement it “could include more specific targets and timetables and that they could also be more detailed as concerns competition and removing obstacles to market access”.

In other words, the level of commitment to both liberalisation and modernisation is still uneven among the Member States, while the Commission is largely impotent in this area - with the partial exception of its regulatory powers, of course - especially after the idea of “naming and shaming” individual countries was abandoned last year. Herein lie the structural limits of the “open method of coordination” adopted to implement the Strategy.

Furthermore, the emphasis seems now to be more on specific indicative targets - such as spending as much as 3% of national GDP on research and development by 2010, and creating at least two million new jobs EU-wide every year until 2010 - than on solemn and hardly attainable goals such as becoming “the most dynamic economic area in the world” by the same date, as initially stated in the Lisbon Strategy.

Still, such targets/estimates seem somewhat optimistic in light of the modest growth rates of European economies. In addition, such a sharp increase in R & D spending is unlikely to materialise without tailored incentives and even creating up to two million new jobs per year would reduce overall unemployment in the EU by only 1%.

More specific (but not entirely uncontroversial) projects put forward by the Commission, such as the establishment of the European Globalisation Adjustment Fund and the creation of a European Institute for Technology, are expected to be finalised in the coming months: the former is part of the current inter-institutional negotiations over the EU budget for 2007-13; the latter will be dealt with at the June European Council on the basis of a more detailed proposal.

Much more emphasis, instead, has been put on the launch of the new ‘Energy Policy for Europe’ (EPE). The original impulse in this direction was given at the October 2005 informal European Council meeting at Hampton Court. The supply crisis which erupted at the beginning of the 2006 in the wake of the gas dispute between Russia and the Ukraine, coupled with constantly rising oil prices, has since prompted a broader debate.

This culminated in the Green Paper published by the Commission on 8 March (“A European Strategy for Sustainable, Competitive and Secure Energy”) and the article published the day after in the Financial Times by the EU's High Representative for the Common Foreign and Security Policy (CFSP), Javier Solana.

As a result, a significant chunk of the Presidency Conclusions was devoted to the EPE: at the final press conference, Mr Barroso went as far as to say that the summit would be remembered in future for giving birth to this new common policy.

This may appear somewhat excessive if looked at from a historical perspective: after all, it was the shared management of strategic energy resources which launched the process of European integration 50-odd years ago, with the European Coal and Steel Community and Euratom.

The fact that energy policy then gradually disappeared from Union's radar screen is due to a number of different factors, and also proves that policy integration is not a linear and irreversible process. Still, it is worth noting that, with the newly launched EPE, Europe is rediscovering a common interest in an area that had been increasingly left to national actors and decisions.

At the same time, energy policy now touches on many more policy areas than in the past. In this respect, part two of the Presidency Conclusions offered a very broad - and mostly convincing - analytical framework, highlighting the complex and multi-faceted nature of the EPE, encompassing growth and investment, technology, competition, transport, environment, domestic and external trade, neighbourhood and also foreign policy at large.

As a result, it should aim at a) more effective EU policy (including the single market), b) coherence between Member States, and c) consistency between actions in different policy areas, not least to find the right balance between the three main objectives of security of supply, competitiveness and environmental sustainability.

Regarding security of supply, the Council Conclusions call for the development of a common external policy approach, including greater dialogue with producer, transit and consumer countries in Europe’s vicinity and worldwide. Diversification of external and indigenous sources as well as suppliers and transport routes is encouraged, as is addressing possible crisis situations “in a spirit of solidarity” - a demand made in particular by the new Member States from Central Europe, some of which were heavily hit by last January's “gas crisis” (although the Polish request for an ad hoc treaty, a sort of “NATO for energy”, was not agreed by the Council).

In order to better articulate this dimension of the EPE, the summit tasked Javier Solana, together with the Commission, to “provide input for an EU strategy” to be discussed at the next European Council meeting.

Particular importance was given to revitalising the stagnating energy dialogue with Russia, capitalising on Moscow's current presidency of the G-8, in order to secure its eventual ratification of the Energy Charter Treaty with the EU and the speedy completion of the related Energy Transit Protocol, which is meant to ensure non-discrimination in supply. However, it was made clear that energy dialogues will have to be developed also with countries in the Middle East and North Africa as an integral part of the EU’s fledgling foreign and security policy.

On the insistence, in particular, of the Dutch government, the Conclusions devoted special attention to environmental sustainability by stressing both efficiency (the Commission estimates potential savings of 20% by 2020) and diversification, especially by increasing the share of renewable sources.

During the summit debate, some other governments emphasised the need to increase the share of nuclear energy, but the issue is too sensitive domestically in most EU countries and thus was not directly incorporated in the Conclusions, which only mention the right of the Member States to adopt their own energy policy “mix”.

Finally, the Presidency Conclusions insist that, in order to ensure the competitiveness of European economies and affordable energy supplies for both businesses and consumers in a stable regulatory framework, the Commission must work with the Member States “to complete the opening of the internal market for electricity and gas for all consumers by mid-2007” and ensure “full, effective and transparent implementation of internal market legislation”.

In a way, therefore, the issue of market liberalisation that was shut out of the main European Council door to avoid divisions re-entered through the EPE window, but without creating much controversy: the target date of mid-2007, stressed in particular by British Prime Minister Tony Blair after the summit, is purely indicative, while the reaffirmation of the principles of transparency, non-discrimination on markets and respect for competition rules are partially offset by the restated respect for “public service obligations”.

Similarly, the explicit endorsement that the European Council eventually gave to the controversial services directive, as amended by the European Parliament last month, shows that a broader political compromise has been struck inside the EU on these issues. It is a diluted text that leaves national governments with significant room for manoeuvre in terms of implementation and probably reflects the maximum common denominator currently achievable in Europe.

The players

A relatively uneventful summit makes is slightly more difficult to analyse how the ever more numerous actors on the EU stage performed. Moreover, the script - i.e. the agenda of the meeting - was not wildly exciting in its own right. Still, a few points are worth highlighting.

The Commission President gave further evidence of his inclinations and style: while leaning more on the liberal side (out of political persuasion as much as because of his institutional role), Mr Barroso prefers not to antagonise individual Member States and to present the Commission as being at the service of the consensus achieved inside the Council. (At the end of the summit, he boasted about how many elements of the Commission’s Green Paper on energy had been incorporated in the Presidency Conclusions.)

This may well prove to be the best possible approach in the current circumstances. Still, it comes at a price, with Mr Barroso himself stressing at the final press conference that the Commission was not demanding more competences in energy policy.

Such institutional self-restraint is matched by the very low political profile the Commission has kept over the past 18 months in the debate over the EU's Constitutional Treaty. Again, this may well be wise at this stage – but it is worth noting that the Constitution would, for instance, provide a solid legal basis for a common energy policy, thus conferring many more competences on the Commission.

Javier Solana kept a very low profile throughout the summit, mainly because the agenda touched only tangentially on his portfolio. He played a role, alongside Austrian Foreign Minister Ursula Plassnik, in preparing the Declaration on Belarus describing the 19 March elections as “fundamentally flawed” and announcing the adoption of “restrictive measures against those responsible for the violations of international electoral standards, including President Lukaschenko”. Together with fellow Spaniards Prime Minister José Luis Zapatero and European Parliament President Josep Borrell, Mr Solana was also quick to express satisfaction at the recent announcement of a permanent ceasefire by the Basque terrorist organisation ETA.

At the same time, Solana's overall role is enhanced by the new EPE: the Member States appear to be ever more reluctant to confer new powers on the Commission in any policy area but much more open to strengthening the High Representative’s policy domain.

In other words, the traditionally separate (and virtually antagonistic) roles of the Commission and Council are being increasingly blurred. This trend may reflect practical and also occasional considerations, of course, but it is not necessarily a negative one in light of the increasingly cross-pillar and multi-faceted nature of most of the policies the Union carries out.

Following the role she played at last December's European Council, huge media and political attention was focused on German Chancellor Angela Merkel. In her intervention on the energy debate, she insisted on two main points: the need to build “European” rather than “national” champions in the energy sector - a remark aimed at France, though without ever mentioning it - and the refusal to give the Commission “additional” competences.

On this point, Berlin appears to have sided with London and to be contradicting the traditional German view of European integration. Yet Mrs Merkel's comments can also be seen as a defence of specific national interests: E.on, after all, has a quasi-monopolist hold on the German energy market as well as being a “national” champion aiming to become a “European” one.

Still, the Franco-German axis is not in a good shape, despite President's Chirac's repeated protestations to the contrary. The German government rarely refers to convergence with Paris and appears intent at steering a middle path among all the Member States - old and new, big and small, West and East - in virtually all policy areas.

This may well be a most welcome revival of the best traditions of German European policy (although less Community-minded than in the past). But it may also be the best possible way of dealing with the constraints of the Grand Coalition Merkel is leading.

In a way, as happened in the 'good old days' between France and Germany, a compromise between the CDU-CSU and the SPD today also represents a viable compromise for the EU as a whole – and can be sold as such. The recent deal on the services directive in the European Parliament, which was masterminded by Martin Schulz for the Party of European Socialists and Hans-Gert Pöttering for the European People's Party - may be further evidence of this.

Whether this trend will last (and for how long), and whether it is a good or a bad thing for Europe, remains an open question.

Another phenomenon worth mentioning is the rebirth of the Benelux ‘coalition’. After a few years of growing divisions between the trio - on issues from security and defence policy to immigration, from the ‘Constitution’ to the EU budget - the Netherlands, Belgium and Luxembourg presented and distributed a joint paper on energy policy at the summit which provided an important building block for the EPE.

Similarly, Spain and Poland presented a common statement on energy, emphasising in particular the need for solidarity and collective action, demonstrating the increased levels of bilateral consultation and cooperation between two countries that seem to have many common interests in the enlarged EU.

Last but certainly not least, the Franco-Italian dispute over the Suez/GDF/Enel takeover bid which enlivened both ends of the European Council was illuminating. In response to the Italian letter which failed to materialise, President Chirac devoted part of his final press briefing to insisting on the openness of the French economy and warning those who accused France of protectionism to “go to school first”. For his part, Italian Prime Minister Mr Silvio Berlusconi said virtually nothing and preferred to concentrate on domestic political themes.

Arguably, neither came out of the summit well. Mr Chirac was on the defensive most of the time, as both his outbursts amply demonstrated. Mr Berlusconi was unusually subdued and controlled, partly burned by the blunder of the letter, partly distracted by the electoral campaign in Italy. Some diplomats feared he would end his stint in the EU with a bang, since this was probably his last European Council (even if the centre-right coalition he leads wins a majority in Parliament next month, he will probably not remain as prime minister, as he has his sights set on the post of President of the Republic from next May). Instead, he was silent throughout the summit and left with a whimper, thus underlining the decline of influence Italy has suffered in Europe under his leadership.

The reasons for all this are numerous. For one, Mr Berlusconi has hardly been Europe-minded, with his personal interest in European affairs modest and certainly conditioned by the political rivalry with Romano Prodi when the latter presided over the Commission. Also, Mr Berlusconi's government pursued shifting and often incoherent alliances (with France and Germany to dilute the stability pact, against France and Germany in foreign affairs) and policies (liberal or protectionist, for or against the Commission according to the dossiers). Finally, Italy has hardly delivered in terms of budgetary commitments, policy targets, transposition and implementation of EU laws. Some of these failures may not have been entirely new - or unique to Italy, for that matter - but their overall combined effect has significantly weakened its position in the EU. Whoever succeeds Berlusconi, in other words, will have a difficult task.

Still, he may not have been the only EU leader bowing out at this summit. Elections are also scheduled shortly in Hungary and the Czech Republic, and opinion polls are not particularly encouraging for the incumbents.

The prospects

As already said, the Austrian Presidency did well. It refrained from engaging in the controversies that preceded the summit and concentrated instead on forging a common approach and language. It broadly succeeded and can now look with some confidence at the much more difficult tasks ahead.

The EU faces a fairly full agenda over the next three months. This includes the Commission's report on the readiness of Bulgaria and Romania for EU membership, with a view to their accession in 2007 or 2008, which may trigger controversy and present the EU-25 with some sensitive policy dilemmas. Also, the Doha negotiations are approaching crunch time.

The situation in the Balkans is likely to attract much attention as well as several delicate issues (the arrest of indicted war criminals, the referendum on independence in Montenegro and the international negotiations on the final status of Kosovo) look set to come to a head at the same time - and Austria has particular interest in this area.

The debate on the future of the Constitution, so far neglected by almost all the main players, is also expected to resurface as the “pause of reflection” decreed in June 2005 is expiring and the June European Council is bound to say something in this respect.

It would be good news if, come mid-June, the EU could claim - again and for real - to have accomplished “solid work and sound debate” on all these dossiers.