European Union

Under the motto "NOlimpia", the Hungarian movement MoMo has launched a petition for a referendum opposing Hungary's bid to host the 2024 Olympics in Budapest. The Hungarian capital is competing alongside Los Angeles and Paris to host the summer games. The decision on which city will act as host is due in September. Hungary's media is deeply divided over the issue.

The two-day Syria peace talks in Astana ended without a major breakthrough. Russia, Turkey and Iran will try to strengthen the fragile ceasefire, it says in the final declaration. The talks are to be resumed at the start of February in Geneva. Commentators explain which basic conditions they consider necessary to find a solution to the Syrian conflict.

President Trump stressed in his inauguration speech that he wants to protect the US from foreign economic interests. One of his first acts as president was to sign an executive order on exiting the transpacific free trade agreement TPP. Protectionism didn't work during the Great Depression either, journalists point out, and lament the end of the era of global trading.

US President Donald Trump is on a confrontation course with Mexico. On Wednesday he issued a decree for the fortification of the border between the two countries. In reaction to a tweet by Trump, Mexican President Peña Nieto then cancelled a meeting that was to take place between the two. Trump responded by threatening to impose a 20 percent tax on Mexican imports to the US. How should the world respond to such an aggressive policy?

The Council (ECOFIN): 

1.     WELCOMES the Commission's sixth Alert Mechanism Report (AMR) which marks the starting point of the annual round of the Macroeconomic Imbalance Procedure (MIP) in the context of the 2017 European Semester. 

2.     BROADLY SHARES the Commission's horizontal analysis of the adjustment of macroeconomic imbalances in the EU and within the euro area. WELCOMES the further progress made by Member States in correcting their imbalances, thus contributing to the rebalancing in the EU and within the euro area. NOTES the continuing but still moderate recovery and low inflation, which continue to weigh on the reduction of imbalances and on macroeconomic risks. UNDERLINES that despite improvements the challenges and risks remain broadly unchanged and further progress on policy actions is needed to address imbalances, in particular the elevated levels of indebtedness, against the background of declining potential output and productivity growth and unemployment rates that remain historically high. At the same time, elevated current account surpluses in some euro area Member States with relatively low deleveraging needs persist and could under some circumstances indicate large savings and investment imbalances deserving progress on policy actions. NOTES that the rebalancing of deficits to surplus positions in many euro area countries coupled with persistent and high surpluses in others has implied an asymmetric adjustment leading to a large and increasing surplus position of the euro area as a whole whose consequences deserve further attention. Overall, AGREES on the need for additional decisive reform efforts to promote investment and unlock growth potential.  

3.     TAKES NOTE of the basic economic screening presented by the Commission in the AMR. RECOGNISES the need for further analysis through in-depth reviews (IDRs) of recent developments in the 13 Member States where imbalances were identified last year in order to assess whether the imbalances are unwinding, persisting or aggravating, taking into account the implementation of relevant measures to overcome the imbalances, including those previously recommended in the context of the European Semester. NOTES that vulnerabilities remain in some Member States for which IDRs are not warranted at this stage, and developments will need to be monitored. 

4.     WELCOMES the intention of the Commission to publish in February the IDRs embedded in the Country Reports, which also integrate the additional Commission analysis on other structural issues relevant for the European Semester. UNDERLINES the need to concentrate on addressing key challenges such as high private and foreign indebtedness, weak competitiveness and potential growth, risks linked to rising house prices, current account surpluses and deficits, adjustment issues reflected in high unemployment, while clearly distinguishing between Member States' challenges in terms of sources and severity of risks in order to highlight clear priorities and ensure swift action. UNDERLINES that the MIP procedure should be used to its full potential, with the corrective arm applied where appropriate. 

5.     WELCOMES the Commission's publication of a compendium on the MIP, which provides an overview of how the MIP framework functions and how its application has evolved over time. UNDERLINES that transparency and predictability of the MIP, in particular keeping the current categories of imbalances, is essential for ensuring Member States' ownership of the procedure, which in turn is central for the effectiveness of the MIP. HIGHLIGHTS the need to continue technical work to assess the appropriateness of the scoreboard and to further develop and improve analytical tools and frameworks for assessing developments and drivers behind the building up and unwinding of imbalances and related spillovers with a view of further improving the underlying analysis and results.  

6.     CONSIDERS that MIP specific monitoring helps fostering an effective implementation of measures to address macroeconomic imbalances. TAKES NOTE of the extension of specific monitoring to all Member States concerned by MIP surveillance and WELCOMES the streamlining of the procedure. UNDERLINES the importance of maintaining stable and transparent practices with respect to the implementation of specific monitoring. 

7.     AGREES in general with the assessment provided by the Commission in the specific monitoring reports concerning the action taken by Member States with imbalances in the context of the MIP and remaining policy gaps.  NOTES that the large majority of specific monitoring reports have been discussed already in Council committees, and that the remaining specific monitoring reports of Spain, Portugal and Ireland will be discussed in early 2017 in the context of their post programme surveillance reports. 

8.     INVITES the Commission to follow up on the findings from specific monitoring in a consistent and effective way for what concerns the implementation of the MIP, and INVITES Member States to address in an ambitious and concrete manner the policy gaps identified in the context of specific monitoring with a view to correct harmful imbalances. 

Plenary session and committee meetings, Brussels

Source : © European Union, 2017 - EP

The Council (ECOFIN): 

I.       THE 2017 EUROPEAN SEMESTER 

1.       WELCOMES the Commission's Annual Growth Survey 2017, which sets out broad policy priorities for jobs and growth in the EU and its Member States, and marks the starting point of the 2017 European semester. 

2.       BROADLY SHARES the Commission's analysis of the economic situation and policy challenges in the EU. Structural and fiscal policies need to contribute to consolidating the recovery and take advantage of the current situation to tackle macroeconomic imbalances and to implement ambitious reforms and pursue responsible fiscal policies. Despite recent improvements, the global economic outlook is becoming more uncertain. Economic performance, as well as reform implementation, remains uneven across the EU. Even though employment is expected to grow many economies still face far-reaching structural challenges, including in the labour market. Although declining, still high private and public debt levels contribute to holding back investment. As confirmed by the Commission's Alert Mechanism Report growth and employment are also constrained by the risk of a number of macroeconomic imbalances. 

3.       Against this background, AGREES on the broad policy priority areas outlined by the Commission on which national and EU level efforts should concentrate in 2017; Boosting investment, pursuing structural reforms and responsible fiscal policies. These priorities should be implemented in an integrated manner in order to tackle the challenges effectively at both EU and Member State level to ensure inclusive growth and sustainable economic development. STRESSES that too little emphasis is placed on the need for product market reform in this Annual Growth Survey. Product market reforms should be prioritised because of their more direct boost to productivity and output regardless of economic conditions. AGREES with the importance of reforms to increase labour supply and foster equal opportunities on the labour market, such as increased female labour force participation and integrating disadvantaged groups as a way to increase growth potential and social progress. ACKNOWLEDGES that a comprehensive approach is required to integrate migrants and the recent influx of refugees and facilitate their access to the labour market. 

4.       AGREES with the Commission analysis that the track record on reform implementation needs to be improved and UNDERLINES the importance of monitoring performance and policy implementation, including implementation of the country specific recommendations, throughout the year. INVITES the Economic and Financial Committee and the Economic Policy Committee to actively engage in this work based on Commission input. LOOKS FORWARD to a substantial discussion in council in March 2017 on the implementation of the country specific recommendations based on thorough assessment by the Commission. 

5.       ENCOURAGES further efficient and open dialogue in the capitals between Member States and the Commission, and an improved involvement of national stakeholders. 

II.      FISCAL AND MACROECONOMIC POLICY ORIENTATIONS

Re-launching investment

6.       RECOGNISES that in the context of low interest rates, ample liquidity in financial markets and deleveraging by public and private actors, investment levels remain low. There is an urgent need to boost investment by improving the overall investment climate in order to strengthen the EU's economic recovery, and to increase productivity and growth potential. RECALLS the December ECOFIN 2016 Council conclusions on tackling bottlenecks to investment identified under the Third Pillar of the Investment Plan, which also underlines the close relation between investment and structural reforms. Member States are urged to tackle national and cross border investment barriers, to strengthen the single market and investment environment in the EU as a whole. 

7.       Lending conditions are improving but companies continue to face varying financing conditions depending on their location. Many Member States face the challenge of private debt overhang and non-performing loans that impede the functioning of financial intermediation and hold back investment decisions. SHARES the Commission analysis that well-functioning insolvency frameworks are crucial for investment decisions. 

8.       SUPPORTS the view that the efficiency of national insolvency frameworks has to be further improved in order to contribute to addressing the high level of non-performing loans and AGREES with the development and implementation of an effective strategy, both at a Member State and EU level, to complement prudential supervisory action to address viability risks within the banking sector in some Member States, including as regards the high level of non-performing loans, inefficient business models and overcapacity. STRESSES that such actions should be in line with the existing regulatory framework, notably the Bank Recovery and Resolution Directive. 

9.       RECALLS that more developed and more integrated capital markets could unlock investment for businesses and infrastructure projects, attract long-term foreign investment, and contribute to growth and job creation. To this end, SUPPORTS advances in the creation of a fully-fledged Capital Markets Union and in the removal of barriers to cross-border investment, as well as diversifying the sources of funding, thus supporting notably the financing of infrastructure and SMEs, and leading, together with measures on the tax side where appropriate, to a more balanced financing structure between equity and debt of EU businesses and further cross-border private risk-sharing. 

Pursuing structural reforms to modernise our economies

10.     BROADLY SHARES the Commission view that Member States need to invest more in creating supportive conditions for greater labour market participation, and effective training and upskilling. UNDERLINES the importance of product market reforms and the opening up of markets to increase growth potential, productivity and efficiency gains. This can also facilitate the success of labour market reforms. In addition product market reforms can improve the adjustment capacity in the face of shocks, contribute to a re-balancing, lessen the negative side-effects of deleveraging and of globalisation while enhancing their positive effects, and contribute to the prevention of macroeconomic imbalances. STRESSES that the European single market remains the most powerful engine of growth and completing the single market in both goods and services, and further work on the Digital Single Market, the Capital Markets Union and the Energy Union should be the priority. 

11.     EMPHASISES that social protection systems should be fiscally sustainable. Pension systems have been reformed in a majority of Member States to enhance their sustainability, efficiency and adequacy, but additional steps are needed to consolidate these reform efforts. AGREES with the Commission analysis that the effectiveness of such reforms is aided by flanking policies boosting retirement incomes by extending working lives, and by supporting other complementary means of retirement incomes. 

Responsible fiscal policies

12.     WELCOMES the progress with fiscal consolidation, but ACKNOWLEDGES that the aggregate picture hides large differences across the Member States and that public finance challenges remain. RECALLS that for the euro area a strong coordination of national fiscal policies, based on common rules, is essential to arrive at an appropriate aggregate fiscal stance and for the proper functioning of the monetary union. NOTES the Commission Communication and analysis of the fiscal stance calling for a positive fiscal stance for the euro area as a whole. RECALLS that the Eurogroup in July concluded, on the basis of Commission analysis, that the broadly neutral aggregate fiscal stance in 2017 strikes an appropriate balance. RECOGNISES the importance in the current juncture to aim for an appropriate balance between the need to ensure sustainability and the need to support investment to strengthen the recovery thereby contributing to an appropriate aggregate fiscal stance and a more balanced policy mix. 

13.     AGREES that it remains essential for Member States to continue to implement structural reforms to increase potential growth and that Member States' fiscal policy should be supportive to growth while ensuring longer term debt sustainability, including through increased focus on the quality and the composition of budgets towards investment and other expenditure and revenue categories that raise economic growth potential. REAFFIRMS that fiscal policies should be pursued in full respect of the Stability and Growth Pact. SHARES the Commission view that challenges in terms of fiscal sustainability remain in a number of countries where public debt is high, which may be a source of vulnerability to adverse shocks and therefore HIGHLIGHTS the need to secure long-term control over deficit and debt levels to build resilience through prudent fiscal policies in those Member States with high public debt, including by complying with the debt rule. CONCURS that some Member States have outperformed their medium-term objectives and could use their favourable budgetary situation to further strengthen their domestic demand and growth potential, depending on country specific circumstances, while respecting the medium-term objective, the national budgetary prerogatives and national requirements. 

14.     RECALLS that the SGP allows the automatic stabilizers to work around the agreed path of structural adjustments and provides significant flexibility to adjust fiscal policy to developments in Member States without endangering the overall aim to promote sound and sustainable public finances. STRESSES the importance that requests by Member States for flexibility under the SGP, including for exceptional spending linked to unusual events outside the control of the governments, are considered by the Commission in a consistent manner. 

National MPs from across Europe will join MEPs in Brussels next week to debate the European Semester Cycle 2017 (Monday), Stability, Economic Coordination and Governance in the European Union (Tuesday) and national growth and jobs creation and financial assistance programmes (Wednesday). The events are part of the 2017 edition of the European Parliamentary Week (#EPW17).
Committee on Employment and Social Affairs
Committee on Economic and Monetary Affairs
Committee on Budgets

Source : © European Union, 2017 - EP

National MPs from across Europe will join MEPs in Brussels next week to debate the European Semester Cycle 2017 (Monday), Stability, Economic Coordination and Governance in the European Union (Tuesday) and national growth and jobs creation and financial assistance programmes (Wednesday). The events are part of the 2017 edition of the European Parliamentary Week (#EPW17).
Committee on Employment and Social Affairs
Committee on Economic and Monetary Affairs
Committee on Budgets

Source : © European Union, 2017 - EP

https://tvnewsroom.consilium.europa.eu/uploads/council-images/thumbs/uploads/council-images/remote/http_7e18a1c646f5450b9d6d-a75424f262e53e74f9539145894f4378.r8.cf3.rackcdn.com/fff147e6-e486-11e6-b6e5-bc764e093073_4.92_thumb_169_1485517989_1485517989_129_97shar_c1.jpg

The Justice and Home Affairs Ministers meet in Malta on two separate days to discuss, in a more informal manner, matters that fall within their remit, and to set the way forward on specific issues. The aim of the meeting is for the Ministers to discuss immigration, security as well as Criminal and Civil Justice matters.

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Chlorinated chicken is not, you would think, the stuff of transatlantic trade battles. But one of the more esoteric points of dispute between the EU and US down the years may well re-emerge between the US and UK.

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As one previous post on this blog detailed, the current political turmoil in Northern Ireland was sparked by a subsidy for renewable energy production.  Though it is tempting to blame political carelessness, the ongoing RHI scandal prompts a broader reflection about renewable energy policy instruments. Incentives akin to the RHI are relatively common in renewable energy policies across Europe and it is not the first time that they create difficulties. From the abrupt halt to support to photovoltaics in Spain in 2009 to issues with the territorial planning of incentivised wind power in France and Germany (or near Donald Trump’s golf course…) renewable energy policy can prove hard to manage, even (or especially?) when it relies on apparently simple market-based instruments.

Looking back on the French photovoltaic crisis

The history of solar photovoltaics in France is a good illustration, as I retrace in a recent paper in Environmental Politics. The uptake of photovoltaics in France was driven by a feed-in tariff scheme set up in 2006. These feed-in tariffs offered a fixed payment over 20 years for each unit of electricity generated by photovoltaic appliances and fed to the grid. Their introduction in France was directly inspired by the German FIT-based renewable energy policy. However, while the 2006 feed-in tariff scheme imported its basic template from Germany, it did not copy the features designed to control implementation and uptake. For example, tariffs were not set to decrease every year to follow cost evolutions, as they do in Germany. In addition, the policy did not create institutional or political arrangements to monitor implementation, and very limited manpower was devoted to its management within ministries. Photovoltaics, one of the least mature renewable energy sources, was clearly not intended to contribute significantly to a French electricity mix dominated by nuclear power; the incentive was expected to have only marginal effects, as is explicitly stated in the document planning investment in the electricity sector for 2005-2015 (p. 48).

 Figure 1: Evolution of grid-connected solar photovoltaics in France: installed capacity in megawatt-peak. (data: SOeS)

However, by 2009 the policy began to have significant impacts as sharp decreases in the costs of photovoltaic equipment combined with a surge in political enthusiasm for renewables. With feed-in tariffs guaranteeing record financial returns, the number of photovoltaic installations rocketed and it became very difficult to evaluate the share of serious projects v. speculative ones. Despite alerts in early 2009,  public authorities did not react before January 2010. When they eventually did, the lag between announcement and implementation of tariff cuts only accelerated the rush to register solar projects before cuts were imposed. They also did not have the information channels and the institutional resources to react efficiently. This resulted in high political instability: the policy was reformed again eight months later and no less than twelve regulatory documents about it where published over the year.

The scheme was funded by a levy on electricity use, so this translated in an increase in France’s electricity price for 20 years, the duration of the feed-in contracts. In 2015, feed-in tariffs for photovoltaics represented 35% of the taxes on electricity funding public services, and amounted to € 2,2bn, despite the fact that photovoltaics only accounted for 1% of electricity production in France (Ministry for Ecology, 2016 p. 26).

Unable to contain the policy, the government abruptly froze the scheme in December 2010 – without any warnings. This triggered a violent political crisis which culminated during an extremely tense consultation with stakeholders – though not nearly so tense so as to provoke resignations among the government (this video of a protest before a meeting during the consultation gives an idea of the climate). It ended with a revised version of feed-in tariffs that drastically restricted their ambition and scope to prevent any future crisis, and left the emerging French solar industry decimated. The emerging enthusiasm for photovoltaics plummeted. This is a good example of an ill-managed policy: an instrument was set up in 2006 as a mainly symbolic gesture, with little care for its potential impacts; it turned unexpectedly attractive and the government was unable to monitor its effects and contain its costs. The policy was managed haphazardly for a year, and it ended with an abrupt u-turn that virtually cancelled out the growth of a sector that had just been significantly invested in, when a successful policy should have been able to  both contain and sustain growth.

What can we learn from the French & Northern Irish cases?

What do these two stories tell us about renewable energy policies? First, it is not a matter of policy learning: the risk for such instruments to create windfall effects is well identified and the design and use of safeguard mechanisms is documented. These mechanisms may not always work as well as expected, but they were not even tried in both the French and Northern Irish cases. Careless design and limited resources for policy steering can account for the defects of these instruments, and they are likely to stem from unrealistically low expectations.

This suggests that there might be something specific about renewable energy subsidies, an issue that we are exploring as part of a research project on Energy transitions in-the-making. They aim to accelerate and sustain innovation and the widespread deployment of new technology, and ultimately work towards reconfigurations of the energy landscape. They are thus designed to spark novelty and make the unexpected happen (to an extent at least), but should do so in a controlled way. Precisely because of this objective, their calibration is a delicate business, even when conducted carefully. The subtleties of policy design then take on a major role: minor flaws can have major consequences given the potentially exponential effects of incentives.

This is evidenced by one striking common feature of the French and Northern Irish cases: the dramatic political effects triggered by relatively simple and widespread policy instruments. In both cases, the malfunctioning of instruments did not generate bounded, sectoral difficulties; instead, it degenerated into significant political crises that challenged established legitimacies –  especially so in Northern Ireland. This is a welcome reminder that market-based instruments are not politics-proof, and that the social and technological dynamics behind their workings cannot be eluded.

The post The politics of (bad) policy design: French solar panels and Northern Irish boilers appeared first on Ideas on Europe.