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Is it a suitable trick to override Viktor Orbán’s veto power? At today’s meeting of EU foreign ministers, Josep Borrell plans to present a proposal on how Hungary’s blockade of the European Peace Facility could be circumvented.
The trick goes like this: The member states’ contributions to the common pool would no longer be obligatory, but would be formally declared voluntary. Hungary would therefore not have to pay, but would also no longer be able to block the common instrument to support Ukraine.
The Peace Facility instrument is intended to help member states finance military aid for Ukraine. However, Orbán has been blocking the disbursement of €6.6 billion for over a year now, a constant source of annoyance. A decision is not expected today, but the foreign ministers could give the EU chief diplomat the green light to concretize his proposal.
However, the trick is not without risks. For example, the parliaments in most member states would have to approve the voluntary contribution again, which is anything but certain in view of tight budgets and difficult majorities, such as in France. And once the course has been set for voluntary contributions, it will be difficult to return to compulsory payments.
Also on today’s agenda are new sanctions against Iran for supplying ballistic missiles to Russia, although the regime in Tehran denies this. The punitive measures are intended to affect companies and individuals involved in the supply of Iranian armaments.
In addition to the situation in Ukraine, the escalation in the Middle East will be the main topic. Israel’s government must expect clear criticism following the shelling of positions of the UN peacekeeping mission in Lebanon. The heads of state and government will then take over the summit in Brussels on Thursday and Friday, focusing on migration, Ukraine and the Middle East.
The dispute over the Heating Act in Germany has shown what can happen when plans for the energy transition are not coordinated. The Ministry of Economic Affairs had to withdraw an initial draft because it had not sufficiently considered how the phase-out of gas heating is linked to the expansion of district heating networks.
There are similar challenges regarding coordinating the various grids for electricity, natural gas, hydrogen, district heating and cooling and, in future, carbon dioxide for the production of e-fuels. Ultimately, neither too much nor too little of the expensive infrastructure should be built, and nothing in the wrong locations. A new proposal from a working group set up by the EU Commission with representatives from science and the energy industry should now provide a solution.
The first steps towards coordinated energy infrastructure planning (CEI) in the EU should emerge as early as next year. A European pilot model for joint planning of electricity and gas grids is to apply new methods for integrated planning for the first time, according to the report by the group of experts on the EU Strategic Energy Technology Plan (SET Plan).
The first attempts have already been made. The mandate for joint planning of electricity and gas grids, including storage facilities and LNG terminals, was issued by the European legislator back in 2013. It was only in April that the ENTSO-E and ENTSO-G associations presented the latest report on the topic to also take into account the planning of the future hydrogen network.
In Germany, Dena presented considerations for a system development plan in its Grid Study III in 2022. However, the latest Electricity Network Development Plan (NEP) for a climate-neutral grid 2045 from March did not yet comprehensively apply such system-wide planning.
In any case, practitioners in Germany doubt whether comprehensive planning for all grids up to distribution in every residential area is really feasible. In the run-up to the current NDP, the electricity grid operators wrote that no study could provide a conclusive and comprehensive view of all relevant interrelationships. Dena sees a system development plan more as an additional step that precedes the planning for the individual grids in order to improve coordination.
Coordination is also in the name of the new European proposal. The experts also see a need for coordination with the telecommunications, transport and water networks. For example, the wastewater network is a possible source of heat for the heat supply. A concrete improvement would therefore be joint cost-benefit analyses that not only examine the effects of an individual expansion project on its own sector.
At the same time, however, the authors also propose a research program to spell out the details of coordinated infrastructure planning. The new method would then have to be in use by 2030 in order to have an impact on Europe’s climate neutrality by 2050.
In its latest position paper, the EU Chamber of Commerce spoke of a “tipping point” for European companies. Can you tell us what the current situation looks like?
Many European companies have done well in China over the years despite many challenges and hurdles they face in developing and foreign economies. However, more recently, the rewards and returns on investment here simply do not keep up with the increasing challenges that companies face.
We see several major challenges. First, the economic slowdown is affecting nearly everyone. Profitability and revenue outlook are at record lows. Second, although market access has improved on paper, the regulatory environment for our members has become increasingly difficult. Third, we face a much more politicized environment, which adds to general business uncertainty. National security has become a real focus of the economy here in China. A lot of the initiatives focus on self-reliance, dual circulation, autonomous innovation.
Is there still some optimism?
We still see the potential in the market. But the risks and the uncertainty have just reached a level right now where, frankly, some companies can look elsewhere in other markets around the world and can get the same marginal return or more. Diversification also brings some additional layer of security that some companies are looking for in a more politicized business environment. We believe that these are some of the key reasons that have resulted in a decrease in foreign direct investment that we have seen over the last few years. It is a real lost opportunity because we think the market still has significant potential. It just does not have the supporting framework for it right now to give the confidence to the companies to make those investments.
The Chinese government recently announced a major economic stimulus. Does that change your view?
I personally don’t think a stimulus is the answer. I think some of the regulatory reforms we are asking for would be much cheaper and more efficient. There is sufficient liquidity already in the market, but Chinese consumers are also not spending as much as they used to. There is a lack of confidence, causing consumers to save for rainy days, particularly in the absence of strong social safety nets. On the supply side, investors need to see a positive return on their investment. Lowering interest rates may not be enough. Many sectors suffer from overcapacity: coal, cement, steel, apparel, electric vehicles, textiles, solar and panels, etc. It is a very challenging market right now. And so, the question for many companies is: Is the reward still worth the risk?
What are the biggest hurdles currently?
The number one challenge, first and foremost, is the economy. People are concerned about the trajectory of the economy. We think it needs a full-out effort to address all the different ways to let market forces play a more dominating role in the economy. Two areas where we have been most active in the last year are procurement and cross-border data transfer. Many companies that used to do very well in terms of procurement as a part of their business have seen a decline. And despite the comments about equal access to procurement, that’s not the reality. That’s not the message that I hear from our members. The other area is cross-border data transfer. These were issues that were very painful for us last year. The cross-border data restrictions (CBDT) really put a chokehold on companies’ ability to innovate.
Do you see any positive developments?
Yes, we have seen several improvements. This summer, we got a number of CBDT approvals in many sectors, from pharma to medical devices to IT. The negative list has been reduced, and China has eliminated some remaining joint venture requirements. China has also announced many goals. It aims to attract more foreign investment, create new quality productive forces and open up further. The Ministry of Commerce, at all levels, is doing a lot to get that message out and encourage companies to expand and invest in here. However, they are not the sole decision-makers when it comes to investment approvals and the additional regulatory concerns our members face.
The EU has approved the tariffs on Chinese electric vehicles. Are European companies in China afraid of reprisals?
Yes, European industries in other sectors are worried that they could be subject to investigations as well. This is already a reality for some. It is exactly the sort of lack of predictability that really discourages companies from investing. You think that this is only an auto industry issue, and not related to your sector, and then ‘bam’ you are reading about your sector in the news the next days as possible subject of investigations.
My advice is to keep calm. China has invested so much into the e-vehicle industry, and it has reaped a number of real technological advances. China’s e-vehicle prowess is here for the long-term. So likewise, China needs to think long-term. I strongly believe it is in its interest to ensure a degree of market stability. Further, by identifying win-win-relationships with its partners, I believe it can help it maintain access to those markets accordingly. This is actually very similar to what foreign companies have experienced in China.
Adam Dunnett is the Secretary General of the European Chamber of Commerce in China, having previously served as Chairman of EBO Worldwide Network and worked at APCO and the Canadian Embassy in Beijing.
Her political career seemed to be over – now she is making the big leap to Brussels. Nine years after her term as Finance Minister, five years after leaving the national parliament and three years after leaving the regional parliament of Almeida, 57-year-old economist Maria Luís Albuquerque is making another start at the European level. Ursula von der Leyen wants to make her Commissioner for Financial Services and for the Savings and Investment Union.
She began her professional career in the Portuguese Ministry of Finance. Between 1991 and 2011, she worked her way up the career ladder in government-related financial jobs. In 2011, the mother of three managed to enter the Portuguese parliament with the center-right PSD party (EPP). As Secretary of State for Finance, she immediately became part of the government.
These were turbulent times, marked by the euro crisis and the austerity policy demanded by the troika of international lenders, of which Albuquerque was sometimes perceived as the enforcer. When the then Finance Minister Vítor Gaspar resigned in 2013 due to increasing public pressure, Albuquerque succeeded him. Her nomination almost led to a rift in the center-right coalition at the time, as the coalition partner wanted to deviate from the austerity policy.
After the 2014 EU elections, she was already considered the favorite for a commissioner position – but ultimately, Carlos Moedas was nominated. Albuquerque remained Finance Minister until her party was ousted from the government after the 2015 elections.
Although the former finance minister remained in the national parliament for another four years, she increasingly turned her attention to the private sector. She took on mandates in the financial sector, first at European fund manager Arrow Global Group, then at Horizon Equity Group and, since September 2022, at the European branch of Morgan Stanley.
Maria Luís Albuquerque will soon be facing her former employers as a regulator. For Markus Ferber (CSU), who will question Albuquerque as a member of the economic committee in the parliamentary hearing in November, this experience from the private sector is not a bad thing. “She has to prove that she thinks for herself and that Morgan Stanley does not think for her,” he told Table.Briefings.
During the hearings, Ferber wants to know from Albuquerque what exactly she means by the “savings and investment union” that she is supposed to promote according to the mission letter. The Savings and Investment Union, or the Capital Markets Union as it was called until recently, has been making very slow progress for years. “We need to breathe some life into it now,” demands Ferber.
This will not be an easy task, even though Albuquerque was a member of an EU expert group on the Capital Markets Union in 2019 and 2020 and is therefore very familiar with the topic. Member states are reluctant to agree to harmonization efforts if they could jeopardize the competitive position of national financial market players. Olaf Scholz’s criticism of the takeover of Commerzbank is just the most recent example.
Albuquerque’s party colleague on the Economic Affairs Committee, Lídia Pereira (EPP), hopes that the new Financial Markets Commissioner will complete the “Banking Union including a European Deposit Insurance Scheme.” However, the European Deposit Insurance Scheme (EDIS) has already failed several times due to resistance from some member states, particularly Germany.
The mission letter for Maria Luís Albuquerque probably also remains very vague in many places due to this experience with the strong resistance from the member states. It should “work to improve market surveillance at EU level,” for example. This year too, finance ministers and heads of government have cut their teeth on the issue of harmonized market supervision.
One of the few clearly formulated mandates is to revive the securitization market. The Commission has already launched a consultation on this this week. A first legislative proposal from Albuquerque should therefore be available soon after she takes office.
However, if she wants to achieve more and actually make major progress towards a capital markets union, Albuquerque will have to demonstrate extraordinary political skill. As Finance Minister, it was pressure from international lenders that helped her to push through reforms. As Financial Markets Commissioner, she will no longer have this leverage at her disposal. János Allenbach-Ammann
Is it a suitable trick to override Viktor Orbán’s veto power? At today’s meeting of EU foreign ministers, Josep Borrell plans to present a proposal on how Hungary’s blockade of the European Peace Facility could be circumvented.
The trick goes like this: The member states’ contributions to the common pool would no longer be obligatory, but would be formally declared voluntary. Hungary would therefore not have to pay, but would also no longer be able to block the common instrument to support Ukraine.
The Peace Facility instrument is intended to help member states finance military aid for Ukraine. However, Orbán has been blocking the disbursement of €6.6 billion for over a year now, a constant source of annoyance. A decision is not expected today, but the foreign ministers could give the EU chief diplomat the green light to concretize his proposal.
However, the trick is not without risks. For example, the parliaments in most member states would have to approve the voluntary contribution again, which is anything but certain in view of tight budgets and difficult majorities, such as in France. And once the course has been set for voluntary contributions, it will be difficult to return to compulsory payments.
Also on today’s agenda are new sanctions against Iran for supplying ballistic missiles to Russia, although the regime in Tehran denies this. The punitive measures are intended to affect companies and individuals involved in the supply of Iranian armaments.
In addition to the situation in Ukraine, the escalation in the Middle East will be the main topic. Israel’s government must expect clear criticism following the shelling of positions of the UN peacekeeping mission in Lebanon. The heads of state and government will then take over the summit in Brussels on Thursday and Friday, focusing on migration, Ukraine and the Middle East.
The dispute over the Heating Act in Germany has shown what can happen when plans for the energy transition are not coordinated. The Ministry of Economic Affairs had to withdraw an initial draft because it had not sufficiently considered how the phase-out of gas heating is linked to the expansion of district heating networks.
There are similar challenges regarding coordinating the various grids for electricity, natural gas, hydrogen, district heating and cooling and, in future, carbon dioxide for the production of e-fuels. Ultimately, neither too much nor too little of the expensive infrastructure should be built, and nothing in the wrong locations. A new proposal from a working group set up by the EU Commission with representatives from science and the energy industry should now provide a solution.
The first steps towards coordinated energy infrastructure planning (CEI) in the EU should emerge as early as next year. A European pilot model for joint planning of electricity and gas grids is to apply new methods for integrated planning for the first time, according to the report by the group of experts on the EU Strategic Energy Technology Plan (SET Plan).
The first attempts have already been made. The mandate for joint planning of electricity and gas grids, including storage facilities and LNG terminals, was issued by the European legislator back in 2013. It was only in April that the ENTSO-E and ENTSO-G associations presented the latest report on the topic to also take into account the planning of the future hydrogen network.
In Germany, Dena presented considerations for a system development plan in its Grid Study III in 2022. However, the latest Electricity Network Development Plan (NEP) for a climate-neutral grid 2045 from March did not yet comprehensively apply such system-wide planning.
In any case, practitioners in Germany doubt whether comprehensive planning for all grids up to distribution in every residential area is really feasible. In the run-up to the current NDP, the electricity grid operators wrote that no study could provide a conclusive and comprehensive view of all relevant interrelationships. Dena sees a system development plan more as an additional step that precedes the planning for the individual grids in order to improve coordination.
Coordination is also in the name of the new European proposal. The experts also see a need for coordination with the telecommunications, transport and water networks. For example, the wastewater network is a possible source of heat for the heat supply. A concrete improvement would therefore be joint cost-benefit analyses that not only examine the effects of an individual expansion project on its own sector.
At the same time, however, the authors also propose a research program to spell out the details of coordinated infrastructure planning. The new method would then have to be in use by 2030 in order to have an impact on Europe’s climate neutrality by 2050.
In its latest position paper, the EU Chamber of Commerce spoke of a “tipping point” for European companies. Can you tell us what the current situation looks like?
Many European companies have done well in China over the years despite many challenges and hurdles they face in developing and foreign economies. However, more recently, the rewards and returns on investment here simply do not keep up with the increasing challenges that companies face.
We see several major challenges. First, the economic slowdown is affecting nearly everyone. Profitability and revenue outlook are at record lows. Second, although market access has improved on paper, the regulatory environment for our members has become increasingly difficult. Third, we face a much more politicized environment, which adds to general business uncertainty. National security has become a real focus of the economy here in China. A lot of the initiatives focus on self-reliance, dual circulation, autonomous innovation.
Is there still some optimism?
We still see the potential in the market. But the risks and the uncertainty have just reached a level right now where, frankly, some companies can look elsewhere in other markets around the world and can get the same marginal return or more. Diversification also brings some additional layer of security that some companies are looking for in a more politicized business environment. We believe that these are some of the key reasons that have resulted in a decrease in foreign direct investment that we have seen over the last few years. It is a real lost opportunity because we think the market still has significant potential. It just does not have the supporting framework for it right now to give the confidence to the companies to make those investments.
The Chinese government recently announced a major economic stimulus. Does that change your view?
I personally don’t think a stimulus is the answer. I think some of the regulatory reforms we are asking for would be much cheaper and more efficient. There is sufficient liquidity already in the market, but Chinese consumers are also not spending as much as they used to. There is a lack of confidence, causing consumers to save for rainy days, particularly in the absence of strong social safety nets. On the supply side, investors need to see a positive return on their investment. Lowering interest rates may not be enough. Many sectors suffer from overcapacity: coal, cement, steel, apparel, electric vehicles, textiles, solar and panels, etc. It is a very challenging market right now. And so, the question for many companies is: Is the reward still worth the risk?
What are the biggest hurdles currently?
The number one challenge, first and foremost, is the economy. People are concerned about the trajectory of the economy. We think it needs a full-out effort to address all the different ways to let market forces play a more dominating role in the economy. Two areas where we have been most active in the last year are procurement and cross-border data transfer. Many companies that used to do very well in terms of procurement as a part of their business have seen a decline. And despite the comments about equal access to procurement, that’s not the reality. That’s not the message that I hear from our members. The other area is cross-border data transfer. These were issues that were very painful for us last year. The cross-border data restrictions (CBDT) really put a chokehold on companies’ ability to innovate.
Do you see any positive developments?
Yes, we have seen several improvements. This summer, we got a number of CBDT approvals in many sectors, from pharma to medical devices to IT. The negative list has been reduced, and China has eliminated some remaining joint venture requirements. China has also announced many goals. It aims to attract more foreign investment, create new quality productive forces and open up further. The Ministry of Commerce, at all levels, is doing a lot to get that message out and encourage companies to expand and invest in here. However, they are not the sole decision-makers when it comes to investment approvals and the additional regulatory concerns our members face.
The EU has approved the tariffs on Chinese electric vehicles. Are European companies in China afraid of reprisals?
Yes, European industries in other sectors are worried that they could be subject to investigations as well. This is already a reality for some. It is exactly the sort of lack of predictability that really discourages companies from investing. You think that this is only an auto industry issue, and not related to your sector, and then ‘bam’ you are reading about your sector in the news the next days as possible subject of investigations.
My advice is to keep calm. China has invested so much into the e-vehicle industry, and it has reaped a number of real technological advances. China’s e-vehicle prowess is here for the long-term. So likewise, China needs to think long-term. I strongly believe it is in its interest to ensure a degree of market stability. Further, by identifying win-win-relationships with its partners, I believe it can help it maintain access to those markets accordingly. This is actually very similar to what foreign companies have experienced in China.
Adam Dunnett is the Secretary General of the European Chamber of Commerce in China, having previously served as Chairman of EBO Worldwide Network and worked at APCO and the Canadian Embassy in Beijing.
Her political career seemed to be over – now she is making the big leap to Brussels. Nine years after her term as Finance Minister, five years after leaving the national parliament and three years after leaving the regional parliament of Almeida, 57-year-old economist Maria Luís Albuquerque is making another start at the European level. Ursula von der Leyen wants to make her Commissioner for Financial Services and for the Savings and Investment Union.
She began her professional career in the Portuguese Ministry of Finance. Between 1991 and 2011, she worked her way up the career ladder in government-related financial jobs. In 2011, the mother of three managed to enter the Portuguese parliament with the center-right PSD party (EPP). As Secretary of State for Finance, she immediately became part of the government.
These were turbulent times, marked by the euro crisis and the austerity policy demanded by the troika of international lenders, of which Albuquerque was sometimes perceived as the enforcer. When the then Finance Minister Vítor Gaspar resigned in 2013 due to increasing public pressure, Albuquerque succeeded him. Her nomination almost led to a rift in the center-right coalition at the time, as the coalition partner wanted to deviate from the austerity policy.
After the 2014 EU elections, she was already considered the favorite for a commissioner position – but ultimately, Carlos Moedas was nominated. Albuquerque remained Finance Minister until her party was ousted from the government after the 2015 elections.
Although the former finance minister remained in the national parliament for another four years, she increasingly turned her attention to the private sector. She took on mandates in the financial sector, first at European fund manager Arrow Global Group, then at Horizon Equity Group and, since September 2022, at the European branch of Morgan Stanley.
Maria Luís Albuquerque will soon be facing her former employers as a regulator. For Markus Ferber (CSU), who will question Albuquerque as a member of the economic committee in the parliamentary hearing in November, this experience from the private sector is not a bad thing. “She has to prove that she thinks for herself and that Morgan Stanley does not think for her,” he told Table.Briefings.
During the hearings, Ferber wants to know from Albuquerque what exactly she means by the “savings and investment union” that she is supposed to promote according to the mission letter. The Savings and Investment Union, or the Capital Markets Union as it was called until recently, has been making very slow progress for years. “We need to breathe some life into it now,” demands Ferber.
This will not be an easy task, even though Albuquerque was a member of an EU expert group on the Capital Markets Union in 2019 and 2020 and is therefore very familiar with the topic. Member states are reluctant to agree to harmonization efforts if they could jeopardize the competitive position of national financial market players. Olaf Scholz’s criticism of the takeover of Commerzbank is just the most recent example.
Albuquerque’s party colleague on the Economic Affairs Committee, Lídia Pereira (EPP), hopes that the new Financial Markets Commissioner will complete the “Banking Union including a European Deposit Insurance Scheme.” However, the European Deposit Insurance Scheme (EDIS) has already failed several times due to resistance from some member states, particularly Germany.
The mission letter for Maria Luís Albuquerque probably also remains very vague in many places due to this experience with the strong resistance from the member states. It should “work to improve market surveillance at EU level,” for example. This year too, finance ministers and heads of government have cut their teeth on the issue of harmonized market supervision.
One of the few clearly formulated mandates is to revive the securitization market. The Commission has already launched a consultation on this this week. A first legislative proposal from Albuquerque should therefore be available soon after she takes office.
However, if she wants to achieve more and actually make major progress towards a capital markets union, Albuquerque will have to demonstrate extraordinary political skill. As Finance Minister, it was pressure from international lenders that helped her to push through reforms. As Financial Markets Commissioner, she will no longer have this leverage at her disposal. János Allenbach-Ammann