EU27 Blog

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Mark Dempsey2nd April 20201min

This briefing by Tony Brown examines the key initiatives put forward by the Commission to create a more inclusive, fairer and people-centered social policy, which leaves no one behind and to emphasize the social element in Europe’s social market economy. The briefing also assesses the significance of these proposals for Ireland.This paper is part of the Future of the EU27 Project, which is sponsored by the Department of Foreign Affairs and Trade.

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Mark Dempsey2nd April 20206min

This blog by Tony Brown examines the heightened importance given to the social dimension of the EU in the EU's Strategic Agenda for 2019-24, a move that has been welcomed by the Irish Government. It also explores the synergies between the EU's social policy agenda and the priorities of the Irish Government, as outlined in the Roadmap for Social Inclusion 2020-25.

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Mark Dempsey24th March 20206min

Author: Cillian Rossi

Introduction

“Whatever it takes”. Three words that saved the single currency.

Mario Draghi’s iconic utterance – delivered to an audience of London investors in July 2012 — is  widely regarded as the turning point in the Eurozone crisis. At a time when government bond yields across the Eurozone were soaring, Mr Draghi’s assurance that the ECB would do everything within its mandate to save the euro instantly calmed financial markets. More than anything, it demonstrated that the ECB was — at last — prepared to utilise the firepower at its disposal to prevent the breakup of the Eurozone.

Of course, Mr Draghi’s words alone did not end the Eurozone crisis. But the confidence that his remarks restored in the euro project was immediate. They also demonstrated the profound influence that effective monetary policy communication can have on market behaviour. As the Eurozone faces yet another crisis — the expected economic and financial fallout from the COVID-19 outbreak — many have looked to Mr Draghi’s replacement as ECB president, Christine Lagarde, for an equally decisive intervention.

The ECB has responded to the COVID-19 crisis with two packages of monetary policy measures. The first package was announced on 12 March 2020 to an underwhelming market response. Disappointment quickly turned to panic, however, as a communication error by Ms Lagarde cast doubt on the ECB’s ability to drive down spiralling Italian borrowing costs. The ECB’s second, more ambitious package was delivered just under a week later and eased market turmoil. Ms Lagarde also sought to make amends for her earlier comments with clear and direct communication across different channels.

Communication Misstep

On 12 March 2020, the ECB’s Governing Council — comprised of the six members of the bank’s Executive Board and the governors of the 19 Eurozone national central banks — unanimously agreed a first course of action. The bank announced an expansion of its quantitative easing (QE) programme with an envelope of €120 billion in additional asset purchases by the end of 2020. The ECB also launched a new programme of cheap loans in a bid to safeguard commercial lending to small businesses. Many investors expected the bank to follow the Federal Reserve and the Bank of England by cutting key interest rates, but the ECB kept its rates unchanged.

Market reaction to the package was muted. Investor confidence in the ECB’s ability to fight the crisis was rattled, however, by comments made by Ms Lagarde in a subsequent press conference. In an uncharacteristic communication error, Ms Lagarde said that it was not the ECB’s role to “close the spread” in yields between the Eurozone’s core Member States and those at its periphery. Market panic ensued. Her comments sent yields soaring in Italy, the Member State worst hit by the COVID-19 outbreak. As borrowing costs rose, concerns about the sustainability of Italian debt resurfaced.

Doubts about EU solidarity — a familiar narrative during the Eurozone crisis — re-emerged. Ms Lagarde quickly walked back her comments, stating in a television interview less than an hour later that she was “fully committed to avoid any fragmentation in a difficult moment for the euro area.” She also acknowledged that “high spreads due to coronavirus hamper the transmission of monetary policy.” The damage was done, however, and Ms Lagarde is understood to have apologised to the ECB’s Governing Council for her error.

In a pointed reply to Ms Lagarde, Italian prime minister Giuseppe Conte said “the job of the central bank should not be to hinder but to help such measures by creating favourable financial conditions for them.” Philip Lane, the ECB’s Chief Economist, sought to reassure investors — and the Italian people — by publishing a blogpost on the bank’s website clarifying the analytical framework underlying the measures. Professor Lane affirmed that the ECB was “ready to do more” to address tensions in government bond markets, emphasising that the ECB would not tolerate any threat to the “smooth transmission” of ECB monetary policy throughout the Eurozone.

Sending the Right Message

On 18 March 2020, the ECB issued a rare public rebuttal of a Governing Council member after Austria’s central bank governor, Robert Holzmann, cautioned earlier in the week that monetary policy had reached its limits. That same day, and contrary to Professor Holzmann’s claims, the ECB announced a second, more comprehensive response to the COVID-19 crisis. Following a late-night emergency phone call, the bank’s Governing Council agreed a new programme of asset purchases amounting to €750 billion by the end of the year. Purchases of private and public sector assets under the Pandemic Emergency Purchase Programme (PEPP) will be conducted until the Governing Council judges the crisis to be over, meaning the programme may last beyond 2020.

In a significant move, the ECB opened the door to purchasing Greek debt for the first time. The bank will also consider removing self-imposed limits on the amount of bonds that it can purchase from each Member State. This would enable the bank’s purchases to target the most at-risk countries, like Italy. The announcement pulled yields down across the Eurozone— notably in Italy and Greece — reducing government borrowing costs and reversing in part the asset price volatility that followed Ms Lagarde’s communication error.

With echoes of Mr Draghi’s famous words, Ms Lagarde tweeted after the announcement: “Extraordinary times require extraordinary action. There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate.” Ms Lagarde also published a blogpost on the ECB website and in The Financial Times, in which she addressed the “unbearable human tragedy” of the crisis. She also explained — in the straightforward language typical of her time as Managing Director of the IMF — how the PEPP will support “every citizen of the euro area through this extremely challenging time.” This time, the message was clear.

Conclusion

At a hearing in the European Parliament on 6 February 2020, Ms Lagarde said, “Good communication forms the bedrock of the ECB’s credibility and underpins our legitimacy in the eyes of the people we serve.” In her first major communication challenge as ECB President, Ms Lagarde stumbled. Markets have since calmed — for now — but the sharp fluctuations in Eurozone government bond values have undermined the bank’s credibility. Restoring legitimacy in the eyes of the Italian people will be an even greater challenge.

Ms Lagarde’s political skills will continue to be tested over the coming weeks amid reports of disharmony over the ECB’s approach to the COVID-19 crisis. The hawkish Dutch and German members of the Governing Council are reported to have expressed misgivings about the bank’s ultra-loose monetary policy measures. In the context of this apparent disunity, Ms Lagarde deserves credit for reconciling the views of the Governing Council’s hawks and doves to deliver the PEPP.

Combined with the bank’s existing QE programme, the ECB’s two COVID-19 packages will bring the total amount of asset purchases this year to more than €1.1 trillion. Impressive though this figure may be, monetary policy alone cannot solve the current crisis. The ECB’s actions have put Eurozone governments in a position to finance the programmes needed to protect vulnerable workers and businesses. The onus now rests with national governments to implement fiscal and health policy measures commensurate with the challenges presented by COVID-19.

The view expressed in this blog are those of the author, and not the IIEA.

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IIEA12th February 20207min

Author: Dr Róisín Smith

Introduction

In unveiling its work programme for 2020, the European Commission has set out an agenda of both new and familiar policy areas. Although the programme is varied and comprises several priority actions, including a stronger Europe in the world, European Commission President, Ursula von der Leyen, has stated the need to be ‘bold and resolute in tackling generational challenges.’ The Commission President now leads a college of 27 Commissioners, and a more gender balanced team, with eleven women and fifteen men. It is also the first college of Commissioners without a UK Commissioner.

Top of her programme is an emphasis on climate change and digitalisation; “We are committed to deliver on the European Green Deal and to improve chances for European citizens and businesses in the digital transformation. This Work Programme will help building a Union that strives for more.”

Yet, the key task for the leadership team in the European Commission, the European Council and the European Parliament is not merely to forge ahead with new or ambitious policies, but to work together to implement strategies and prioritise the major difficulties currently facing the EU. This will require the establishment of a good working relationship between all EU institutions, their support, confidence and backing – no easy feat.

The Task Ahead for the European Commission

The union will need strong political direction and leadership, decisive action at the right time, especially when the EU is under pressure to perform in key policy areas. As President von der Leyen declared; “this is an unsettled world, where too many powers only speak the language of confrontation and unilateralism. But it is also a world where millions of people are taking to the streets – to protest against corruption or to demand democratic change. The world needs our leadership more than ever.”

The Commission President has set the task of meeting the first one hundred days challenge or fourteen weeks to change and transform Europe. In her speech to the European Parliament, she stated that “our Union will embark together on a transformation, which will touch every part of our society and economy (…) and it will not be easy.” The first one hundred days will end on 9 March 2020, less than one eighteenth or roughly five percent of her allocated time in office, an artificial political construct,[1] but perhaps a necessary one, given the complexities of the obstacles ahead for the EU.

A Fresh Start for Europe

Von der Leyen has six key priorities and undertakings for the new Commission, outlined in the European Commission’s 2020 work programme; a European Green Deal; an Economy that works for people; Europe Fit for the Digital age; Promoting our European way of life; a Stronger Europe in the world; and a New push for European Democracy. The Commission President will need to exert effective clout in terms of implementing her policies, where she hopes to give Europe the fresh start it badly needs. As she stated; “We sometimes forget that our greatest achievements have always come when we are bold. We were bold when we sought peace where there was pain. We were bold when we created a single market and a single currency. We were bold when we welcomed part of our European family that had been out in the cold for too long.” Under her ‘let’s get to work’ mantra, von der Leyen will focus on Europe’s green deal, on unemployment, migration, and gender equality; “things that people care about.” The Commission President has also declared that she wants to enact new rules on artificial intelligence within the 100-day timeline.

Europe as a Role Model in Climate Change 

Von der Leyen has put climate action front and centre of her Presidency, of which protecting the planet from the harmful effects of global warming is key to the Commission’s agenda. The European Commission President is keen to work with Member States and admits that for some sectors it will be more difficult to transition to climate neutrality.

In March 2020, the Commission will present its proposal for Climate laws for the implementation of the Green Deal, bringing the climate neutrality target into law in the first 100 days in office.

By summer 2020, the Commission will also present a plan to increase the EU’s greenhouse gas emission reductions target for 2030. As the EU sets its own ambitious targets, it will also continue to lead international negotiations to increase the ambition of major emitters ahead of the 2020 United Nations Climate Change Conference in Glasgow.[2]

The European Green Deal proposes actions across the EU economy and a new circular economy action plan; the Commission will put forward a Strategy for Smart Sector Integration and a Renovation Wave.[3] However, turning Europe into a Green Superpower while maintaining economic growth will be challenging and among others, it will involve substantial changes to the way Europe currently uses energy resources.

Von der Leyen’s Upcoming Priorities

In addition to the European Green Deal, the Commission President has emphasised “building a more inclusive and fairer EU”. One of the instruments the Commission has proposed is the introduction of a legal instrument on a minimum wage within the first 100 days. This has not been without controversy. Prioritising the protection of workers’ rights through regulation will be essential given today’s often precarious working arrangements, unstable or low incomes.  For example, a recent EU observer commentary noted that ‘obliging Member States to a minimum wage on a certain level or calculated according to a certain formula, it would effectively force all EU countries to have either a statutory minimum wage or a system for extending collective agreements to all workers within a sector.’[4] Others argue that Member States who do not have statutory minimum wages, such as Denmark, Italy and Sweden may expect exceptions or protection of some kind, and it is unclear at this stage how this could be implemented.

Moreover, none of President von der Leyen’s priorities can be realised without the completion of the Multiannual Financial Framework (MFF) and negotiations over the EU’s budget to date has been slow. The European Council President, Charles Michel, has been mandated to preside over the negotiations. Michel admitted that the negotiations will be “extremely complex”, and the “most difficult one ever in EU history because of the Brexit gap.”

Europe’s Global Role and Citizen Engagement

The international aspect to President von der Leyen’s programme is equally united and bold, where ‘Europe can also stand taller in the world’. While the EU may well be attempting to cement an enhanced global role, protecting its interests and ‘domestic’ concerns may be at the core of its agenda and prove problematic in the coming months: in addition to endeavouring to develop and map out the future relationship with the UK.  The European Commission is also setting up a European Defence Fund, meant to foster collaboration between EU countries in defence research and development.

A future of Europe conference is on the agenda, with a proposed launch date on Europe Day, 9 May 2020, and it is clear that the Commission President wants citizens to have their say on the future direction of Europe. Civic engagement and “meaningful dialogue through a bottom-up approach” have been proposed, although the ultimate goal of hosting a two-year conference on the future of Europe has yet to be determined.  The Commission proposes two parallel work strands for the conference; the first strand will focus on priorities and the second strand will focus on topics specifically related to democratic processes and institutional matters. Nonetheless, a key element of its success will be making the conference relevant to citizens.

Conclusion

The level of aspirations from the European Commission President is noteworthy. She has challenged Europe to be ‘united and bold’, and despite the exit of a large Member State, Europe could ‘stand taller in the world’, if the European Commission’s programme is successful. In addition, Brexit has demonstrated that Europe can be united.

It will be important that the Commission’s programme does not overreach or where ambitious promises are ostensibly not fulfilled. The European Commission President von der Leyen has also displayed pragmatism, policies will not be easy to implement. Yet, she declared: “We are ready, Europe is ready. My message is simple: Let’s get to work.”

 

[1]See Politico ‘Von der Leyen’s real 100 days challenge’. https://www.politico.eu/article/ursula-von-der-leyen-european-commission-first-100-days-timeline/

[2] Commission Work Programme 2020. A Union that strives for more. https://eur-lex.europa.eu/resource.html?uri=cellar%3A7ae642ea-4340-11ea-b81b-01aa75ed71a1.0002.02/DOC_1&format=PDF

[3] Ibid.

[4] EU Observer. ‘Why EU minimum wage is actually bad idea for workers.’ https://euobserver.com/opinion/147050

The view expressed in this blog are those of the author, and not the IIEA.