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Although the talks between the US and the EU were ultimately cancelled last week due to the government shutdown, the EU-US negotiations are moving forward.

We are therefore pleased to present you with the October edition of the Pondhopper, Grayling’s transatlantic e-zine providing you with differing perspectives on issues currently spanning ‘the pond’.

Please do not hesitate to contact us if you have any questions on the attached or if you would like to learn more about Grayling’s transatlantic governmental affairs offering.

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ImageWe hope you had a peaceful Summer and are looking forward to what is sure to be a very busy end to 2012!

In preparation for the annual “Autumn onslaught” – or perhaps to take your mind off it –Grayling Brussels is pleased to present you with its latest edition of Espresso.

In this week’s publication:

On the run from the BRICs;

A preview of the Cypriot Presidency;

How health policy is affected by the financial crisis; and

An interview with Grayling Consultant Charlotte Ryckman.

You can access Espresso here.

Happy reading!

- Rob

Handling the Euro-crisis demonstrates the unity of the continent, but when it comes to open borders and immigration, European leaders show a different face.

No more queues and controls at the borders of European countries – Schengen makes it possible. For years, numerous holiday-makers and workers have been able to travel without barriers across the majority of the continent.Image

This week however French President Nicolas Sarkozy attacked this so-called “freedom of movement” by threatening that France will leave Schengen, should the Agreement not be renewed within a year after his possible re-election in May.

Sarkozy’s call is in line with other anti-immigration rhetoric used in national campaigns. However this current debate over border controls has been brewing for months and shows that Europe is threatening to fall back into old patterns.

We might recall a year ago, in the wake of the Arab Spring, that thousands of refugees fled to the Italian island of Lampedusa. The then Italian Prime Minister Silvio Berlusconi gave the refugees a six-month residence permit, which enabled them to travel freely throughout Europe.

This in turn made Sarkozy furious, and he decided to re-introduce controls on the Italian border.

Last year Denmark toyed with reintroducing permanent customs controls, and the Dutch are so worried that at the beginning of the year they established an automatic monitoring system at border crossings.

Finally, several EU Member States are still blocking Romania’s and Bulgaria’s entry into the Schengen area due to deficiencies in the judiciary and the fight against organised crime.

At the end of last year EU Justice Commissioner Cecilia Malmström announced that she wants to reform the Schengen Agreement, which she called “one of the most cherished achievements of the EU”.

The European Commission wants to put in place a more efficient and EU-based approach to Schengen cooperation, allowing Member States to independently introduce border controls only as long as the Commission agrees beforehand.

Many states consider these proposals as an attack on their sovereignty.

President-hopeful Sarkozy also blamed the bad “Eurocrats” for deciding over France’s sovereignty, while seeming to forget that the European Parliament together with the Council – including the French government – will first examine those upcoming proposals.

The debates show that the Schengen issue is one of the topics which are (ab-)used by politicians who like to stoke fears among their fellow citizens and blame over-technocratic Brussels.

One can only hope that the Schengen reform will take place in an atmosphere isolated from any populism and campaigning strategies and will result in an improved framework resistant to misapplication.

The Commission has yet to respond to Sarkozy’s statements, saying it does not comment on national campaigning.

However, in order to contradict populist claims and for the sake of explanations and communications – maybe there is a need for response.

-Thomas

This morning we wake up to news that – finally – Eurozone finance ministers have agreed to bail out Greece for the second time to the tune of €130 billion.

How much longer will this be flying over Athens?

The “aid”, as it is referred to (making Greece sound like a third world country) is conditional on the European Commission having a presence on the ground to oversee that this money is spent in the right way and is not frittered away or mismanaged.

Greece was the first of three Eurozone countries to receive a bailout and is the first to receive two. Lucky them. But throwing money at problems rarely makes them go away, and it remains to be seen:

a)      whether this €130 billion is enough to shore up Greece’s finance for the long-term, bearing in mind that 2011 saw the country’s economy shrink by 7%. To be clear – this is not a recession, this is a depression.

b)      Whether the Greek electorate will tolerate being told what to do by outside officials, be they from the Commission or another Eurozone country. History teaches us that, in the wake of depression, the political world can get shaken up, and parties from both sides of the political spectrum gain ground. There could be trouble ahead.

c)       Whether and to what extent the northern Eurozone population will tolerate granting hand-outs to their southern neighbours with little in return.

There are other fundamental questions too, notably the precedent this sets for the Eurozone and the EU at large.

If, as seems probable, the Eurozone will continue to shore up ailing economies for the foreseeable future, to what extent will this lead the Eurozone into full fiscal coordination, with budgets not just approved in Brussels but also drawn up.

This would seem to be in the Euro’s long-term interest, but where does this leave national governments and the notion of democratic representation?

And where does it leave non-Eurozone countries in the EU? Why on earth would they want such strict oversight and, indeed, governance of their budgets, when they are not even in the same currency?

Finally – and striking at the very core of the EU – why would the non-Eurozone countries decide to stay in a currency bloc which seems condemned to bail out Member States who have been shown to be persistently unreliable and irresponsible bedfellows?

The end of the affair? Why, this is just the beginning.

- Rob

The latest BigPictureBrussels from Grayling looks at the political priorities of the Danish Presidency of the EU and the likely impact Denmark will make during its 6 month term. Denmark takes on the Presidency of the European Union at a time of crisis and uncertainty. Only days after the highly-charged and bad-tempered Summit in Brussels, the Danish Government unveiled its list of priorities for the Presidency. Amid signs of the inter-governmental agreement on fiscal co-ordination and budgetary surveillance unravelling, Denmark is prioritising the Eurozone with the aim of keeping the show on the road. Read More

On 12 December Jonny Wilkinson announced that he is retiring from international test rugby. “Jonny Who?” non-rugby fans may ask. “And why is there sporting news on a blog dedicated to the world of EU affairs?” ask other readers.

So, who is Jonny Wilkinson? Jonny Wilkinson is a legend of world rugby, respected and admired by fans all over the world. He played through four world cups, won one of them by slotting the winning drop goal in the dying seconds of extra time, played a total of 91 test matches for England and 6 for the British & Irish Lions, and scored 1,246 test points, which makes him the second highest scorer in rugby history.

But why does this feature on an EU-related blog? First of all, with all this UK-bashing going on in EU-Brussels right now, it is good to think of some of England’s greats, thereby trying to deescalate – at least a bit – the current discussions. Of course, there is also the crucial factor that the author of these lines is a rugby fanatic. But mostly, because he (Jonny, not the author) is an inspirational figure both on and off the pitch.

Constantly striving for perfection, he (again, Jonny, not the author) was a model of hard work and dedication. He is said to be the first on the pitch and the last one to leave it during training sessions  – this resulted in his almost surgical precision when it came to slotting penalties, conversions, and drop goals.

He was the kind of player who was not afraid of doing the dirty work when his team needed it. As the cliché goes, he really did wear his heart on his sleeve and put his body on the line for his team

As well as being one of the world’s best players, he is also one of the world’s most modest players. Never did he seek the limelight, and he always put his team first. Full of respect for his team mates and opponents, he learnt French when he came to Toulon in 2009 and speaks it in very well.

So, again, what does all this have to do with the world of EU affairs? Well, hard work, dedication, humility, respect, and intelligence are qualities which will be needed to get through the current crisis. As such, Jonny is a role model for all EU affairs professionals and European politicians.

- Christian

Could another Treaty change be on the cards?

European leaders still bearing the scars of the tortuous ratification of the Lisbon Treaty are now having to contemplate the prospect of re-writing the rule-book to accommodate further fiscal integration of the beleaguered Eurozone.

German Foreign Minister Guido Westerwelle has said that Berlin believed all 27 EU member state leaders would need to convene next year to agree to a new Treaty.

This has caused alarm in Brussels. Treaty changes require ratification in each Member State – in some cases, a referendum is compulsory – in all cases, there will be a painful political process with numerous pitfalls on the way.   The Lisbon Treaty took eight years to ratify.

It seems that Germany believes a Treaty change is required for Eurobonds – something they are understandably reluctant to see introduced. The European Commission is expected to come up with proposals for Eurobonds later this year.

However, there is no reason why Eurobonds cannot be introduced through the “community method”. Of course, the community method requires enormous political will from the EU27.

It doesn’t help that the Commission is giving mixed messages. Commission President José Manuel Barroso has said the Commission is “open” to new Treaty changes but then went on to say at a high-level think tank event on Thursday this week that his 5-point Roadmap out of the crisis did not require a treaty change. He told the audience at the “Re-thinking Europe” event: “We can enhance growth without treaty change.”

But the devil is in the detail.

The five points in his plan – bailing out Greece, recapitalising banks, boosting the Eurozone rescue fund, pursuing growth policies, and building stronger economic governance – seem to be a reasonable response, but limits to the Commission’s competences will be increasingly tested.

Commission Vice President Joaquín Almunia went further and warned that the EU was too weak to go through another Treaty convention. As he put it: “We are not mature enough for Treaty change.”

Barroso spelt out his strategy at his annual State of the Union address at the end of September.  His plans are far-reaching, and he has clearly been stung by criticism that the solutions to the crisis have been piecemeal.

UK Prime Minister David Cameron wants the Eurozone to take the so-called “bazooka” approach – a one-off fix – instead of piecemeal measures. Barroso this week called it “getting ahead of the curve.”

The bazooka approach to dealing with the sovereign debt crisis is being applied to the financial services regulatory regime, including credit rating agencies and corporate governance. And he is deadly serious about his proposed financial transaction tax.

There is no real appetite among Europe’s leaders for Treaty changes – even in the UK where David Cameron resisted growing pressure from his own party to demand a referendum to repatriate some EU powers.

A referendum would be politically divisive in Germany too. It’s just a threat to ward off any attempts to bring in Eurobonds through the back door.

We shall have to wait until next week when leaders meet at the European Council and the Eurozone Summit to see whether Treaty changes are still seen as a realistic prospect.

- Kevin

As the second so-called “new” Member State to take over the EU Presidency after the much-maligned Czechs in the first half of 2009, Hungary was eager to showcase itself and demonstrate its leadership potential.

However, due to circumstances both inside and outside its control, it is hard to assess the Hungarian Presidency as anything other than a slight disappointment.

The big story of the last six months – indeed the last year – has been the Euro crisis, but as a non-Eurozone member Hungary was forced to retreat to the shadows whilst the two Jean-Claudes (Juncker and Trichet) hammered out a series of provisional solutions together with the big-hitters in the Council, President Sarkozy and Chancellor Merkel.

This, in addition to the degrading of the rotating EU Presidency following the entry into force of the Lisbon Treaty, also prevented Hungary from taking leadership on the issue of fiscal governance, which has divided both the EU and the Eurozone.

Yet Hungary also managed to shoot itself on the foot on several occasions, particularly at the beginning of its tenure, insodoing calling to mind their Czech predecessors.

The now infamous “media law”, which is causing concern for the Commission regarding its treatment of the press, the imposition of emergency taxes on foreign companies in Hungary, and an ill-judged carpet placed in the Council building which appeared to reference the idea of a much larger “Greater Hungary”: all emphasised the gap between established core European values and a Hungary that in recent months has been treading on dangerous ground.

But what of the successes?

It is true that Hungary has been key in supporting Croatia’s accession process, which now looks likely to take place on 1 July 2013, and has also successfully pushed through EU strategies on the Danube region and the Roma people – both of which give a distinct Hungarian flavour to this particular EU Presidency.

And yet, in these areas too, Hungary has been found somewhat wanting. Whilst Croatia was indeed a success, particularly given the supposed “enlargement fatigue” plaguing the EU today, the much heralded “Eastern Partnership” Summit has been pushed back for the Poles to organise in September, the Danube Strategy lacks teeth and does not bring any new funding to the table, whilst the Roma Strategy only affects a handful of Member States, as worthy as it may be.

Since the Lisbon Treaty came into force, EU Presidencies have had to focus even more on compromises. However, decision-making in the EU has always been centred on so-called “horse-trading” between various interests, and as ever the devil is in the detail.

This is why, when looking to influence the decision-making process within the Council, it is critical to focus on the Presidency as well as the other 26 Member States.

Building consensus across national boundaries is, after all, what EU decision-making is all about.

- Rob

When the press starts writing about budget negotiations, I always read the word “net contributor” at some point. And every time I read that word I am overocme by surprise and bafflement by the lack of either reflection or hypocrisy with which it is used both by journalists and politicians.

First of all, the EU is – by definition –  a community in which solidarity amongst its members is necessary in order to make it work, something which is too often forgotten.

Yet, even without being a “Euro-enthusiast”, there are obvious reasons why the word “net contributor” does not make any sense.

Let’s get the facts straight.

What is a net contributor? Quite intuitively, it is a Member State which is getting less out of the budget than it pays into it. Fair enough.

But is everything that Member States are paying into the budget their own money, or is it sometimes EU resources, which they are in fact just collecting? Quite often, it is the latter.

As the EU has a Common Trade Policy (which allows the EU to be an important worldwide player), much of the EU’s own resources are represented by tariffs.

Hence, some of the net contributors are only collecting monies which are the EU’s and spreading it around. This is especially the case for the Netherlands, where the so-called “Rotterdam-effect” leads to significant contributions.

One could argue that it is this Member State’s administration which has to do all the work, and that it is therefore their money as well – true, and this is why the country is allowed to keep 25% of the tariffs it is collecting. Quite a fair deal I would say.

And how do you quantify how much one gets? Is it only through what is coming out of the budget? Or do budgetary decisions and EU rules have implications which go beyond simple financial transactions?

It needs to be reiterated that the EU is a guarantee for peace and welfare on our continent, something which is worth investing in.

Yet, there are other reasons which show that the term net contributor does not make any sense:

  1. Most of the structural funds also benefit richer countries – first, because structural funds often create infrastructure, which is relied on by all Member States, including so-called net contributors. Furthermore, since many projects are international projects, it is possible that companies from richer countries profit from funds transferred to poorer countries.
  2. EU policies also create social welfare, especially in richer countries – The internal market is a success story for all EU countries, and especially Germany, the largest “net contributor”. Some policies cannot be quantified in budgetary terms, but in the end everybody should know that through EU policies we all get more out than we pay in.

The term “net contributor” is therefore flawed , leading to rebates which make no sense (and not just the British rebate – take a look at the list of rebates at the end of this report) and neither brings the EU closer to its citizens nor helps them to understand it.

- Christian

Spring is traditionally seen as the season of rebirth, renewal and regrowth.  Yet in Brussels, despite the unseasonably warm weather, this could be the Spring of discontent.

In recent months Portugal has been the third country to effectively request a bailout from the Eurozone and the International Monetary Fund (IMF) – this after the former government’s “austerity” proposals had come up against a brick wall in the form of the Portuguese Parliament.  With outside intervention now inevitable, the new government’s hands will be tied in any case.

Meanwhile, at the other end of the continent, the Finns have announced their apparent opposition to continually bailing out their
Southern partners.  The impressive showing of the True Finns party means that it will now likely sit as the main opposition in the Parliament and raises serious questions about the political will in the Member States when it comes to propping up failing economies.

Moreover, talks of Greece “restructuring” its debt are hardly reassuring to Eurozone ears. And if Spain were to join the debtors, it would really put the Eurozone in a downward spiral.

That’s for the euro – but there are wider concerns within the EU which are causing the 27 nation bloc to strain at the edges.

The EU’s budget is being called into question by the net contributors, including the UK and France, who are arguing for “austerity” to be transferred from the national to the EU level and reject any significant increase.

In the opposite corner is a larger group of countries, many of whom are net recipients of EU funds for their regions which lag behind the EU average – and the European Commission.

The battle for the budget has been a perennial highlight of Brussels, but with the current economic and financial context and voters disenchanted, the stakes are higher.

Meanwhile at the EU’s southern fringes there continues to be concern about a supposed flood of immigrants from North Africa following the region’s “Arab Spring”.  Once again, the EU’s solidarity is being called into question, with Franc unilaterally closing its border with Italy to prevent what it sees as a possible influx of French-speaking migrants making their way northwards.

Further north, Denmark also decided to reinstall border controls, ostensibly to reduce crime, but in practice to appease the Danish People’s Party, an anti-immigrant party which the government relies on for support.

Previously EU crises had either been bound up in Treaty reform (e.g. the failed Constitution referenda) or in the EU’s lack of competitiveness on the world stage.

Today, the EU seems to be tearing itself up from the inside.  Paradoxically, the deeper you integrate, the more likely fissures will open up (e.g. Schengen and the Eurozone). The test for the EU will be whether it can withstand the tensions raging from within, rather than without.

- Rob

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