DSA before final trilogue + Problem case • Table.Briefings

Dear reader,

Next Thursday, the Digital Services Act (DSA), the second major project under the French Council Presidency after the Digital Markets Act (DMA), is to be discussed in the final trilogue. Two topics, in particular, are still occupying the negotiators – with an uncertain outcome. Falk Steiner analyzes the two stumbling blocks.

Following the dispute over the climate taxonomy, a conflict is now brewing over the “social” taxonomy. The issue at stake is whether the EU Commission can classify the manufacture of weapons as a socially sustainable investment. Ella Joyner has investigated the question of what a classification as socially harmful would mean in concrete terms.

Yesterday, the ambassadors of the EU member states approved the Council’s positioning on the creation of green government bonds. With so-called green bonds, the EU can finance sustainable investments.

Oliver Süme finds the fundamental regulatory course that is currently being set in the digital world “simply insane”. As Chairman of the Board of the Internet Industry Association ECO, Süme has been dealing with legal issues relating to the Internet since 1998, as you can read in the Profile.

Your
Lisa-Martina Klein

Not child’s play: DSA is on the home stretch

By

Falk Steiner

The main sticking points before the trilogue are two issues that have not yet been finally resolved: first, the issue of dark patterns, for which the French Council Presidency has firmly promised a solution in the DSA in the course of the negotiations on the Digital Markets Act. And secondly, the Parliament’s express wish for better protection of minors from behavioral advertising – so-called tracking.

The same problem is inherent in both situations: There are actually already regulations that should sanction the behavior of providers. For example, Article 8 of the General Data Protection Regulation (GDPR) and Article 6 already prohibit the data processing of minors as a rule, as long as their legal guardians do not give their consent. And the method known as Dark Patterns, which uses visual nudging to extract consent from users in line with the provider’s interests, is already covered by the Unfair Commercial Practices Directive and the GDPR as a likely misleading practice.

However, there is a massive enforcement deficit in both areas: In the case of dark patterns, the current system of cease-and-desist orders and subsequent court action is too slow to allow providers to prohibit their use in a timely manner. In addition, slight changes to the challenged variant can lead to the need for another, new, and also often lengthy procedure.

Scope of the Dark Pattern ban still open

This could foreseeably be significantly mitigated by a general ban in DSA. However, it was still unclear how broadly a dark pattern ban should be defined: which providers should be directly affected by the DSA regulation? Either a blanket ban will be enacted for all services covered by the DSA – or one that is limited to certain areas, such as the particularly large platforms and search engines (VLOPS and VLOSE), for which legal enforcement should regularly be the responsibility of the Commission.

At the same time, however, consent administrations in particular are already standing on feet of clay at present anyway, even if providers of online advertising are currently still hoping to pull the teeth out of what they see as an unjustified decision by the Belgian data protection supervisory authority.

Protection of minors: targeting of the ban remains complicated

When it comes to protecting the data of minors, on the other hand, the data protection supervisory authorities would actually be responsible for enforcement – but they have not prioritized the issue so far, and the number of complaints on the subject is also very low, reports Hamburg’s data protection commissioner Thomas Fuchs. In his view, the two-stage “obligation of the responsible party to provide evidence” is particularly problematic, according to Fuchs, as it arises from Article 8 of the GDPR. Time and again, provider representatives object that the identification of minors would already require – possibly inadmissible – data collection. After all, it would not be possible to check who is sitting in front of the device without collecting data. In principle, the Hamburg data protection commissioner agrees with this – and advocates certified procedures for age verification as a solution.

A “cumbersome procedure” is the route via the GDPR, Claudio Teixeira of the European consumer organization umbrella organization BEUC also grumbles. “Banning techniques that process, provide or infer children’s personal data for behavioral advertising would remove the problem for minors at source.” In other words, today’s enforcement deficit would be addressed with a more rigid and easily enforceable ban.

French compromise proposal would hardly be effective

The French Council Presidency’s latest proposal for a compromise bill stipulates that providers may not collect behavior-related data “if they perceive that the user is a minor.” The providers should like this, as it would allow them to summarily avoid any positive knowledge as far as possible – but the parliamentary position would take this completely ad absurdum. The Federal Ministry for Digital Affairs and Transport, which coordinates the federal position, explained in response to a Europe.Table inquiry that the federal government welcomes a ban on advertising processing of minors’ data and has positioned itself in this sense in the Council. It is doubtful whether this position fits with the current French proposal.

What is undisputed, however, is that advertising for offerings made especially for children should no longer be tracking-based in the future. This would tie in with the regulations of the Audiovisual Media Directive. However, in many cases minors also use services that are formally aimed at adults – such as YouTube, Google, Twitch, Discord, Instagram or TikTok. The authority of Hamburg’s data protection commissioner, Thomas Fuchs, has also encountered problems with media offers: “It is noticeable here that those responsible do not differentiate sufficiently according to whether their offers are directed at children or adults or whether the use of the service is at least also open to children and young people, so-called dual use offers.” The authority now wants to review the online services that have come to light and are aimed directly at children in terms of data protection law.

But the problem goes beyond offers for children and those that also contain content for children: behavior-based advertising or at least its tracking technologies are embedded in very many other offers. In order to effectively protect children from tracking, this issue would also have to be covered by regulation.

Problem probably only solvable with maximum effect

The problem of the practice, which is already barely permissible under the GDPR, thus remains almost impossible to resolve without creating entirely new problems. The cleanest regulatory way out of this problem would therefore be a complete ban until effective consent is obtained – this would protect minors, but the politically set goal would be clearly exceeded. For BEUC, however, that would be a welcome solution, says consumer advocate Claudio Teixeira: “Ultimately, we believe that commercial monitoring should be stopped and a complete ban on behavioral advertising enforced.” Applause from the digital economy is likely to be absent in this case, however – but other solutions remain in short supply a week before the final scheduled trilogue between the Commission, Parliament and Council.

Sustainable investment: the problem of the arms industry

Could the Commission possibly classify arms manufacturing as a socially sustainable investment? The political debate and the process around the social taxonomy are moving forward, even if the time for decisions is still some way off.

The Platform for Sustainable Finance, an advisory group commissioned by the Commission, said in February that the production of defense equipment – at least of certain types – is most likely not an acceptable option for would-be social investors. It is an example, it said, of “significantly harmful activities … that are fundamentally and in all circumstances inconsistent with social objectives.” The basis for this, he said, is numerous international agreements outlawing certain types of weapons.

Unsurprisingly, this meets with approval from activists. Industry lobbyists, on the other hand, consider a blanket classification to be harmful and misguided – especially in the current situation. No security means no sustainability, argues Hans Christoph Atzpodien of the German Security and Defense Industry Association (BDSV): “We have to invest in our security to protect our freedom and our democracy.”

MEP Markus Ferber (CSU/EPP) reacted indignantly to the advisory panel’s report: “In the current situation, the top priority is to strengthen the performance of European industry,” Ferber said. “Under no circumstances must we now jeopardize the performance of European industry through misunderstood overzealousness in the area of sustainability.”

Exclusion of certain military equipment as a possible way out

But the report is open to different interpretations. According to Jan Pie, secretary-general of the European Aerospace and Defense Industries Association (ASD), the industry could live with a classification for controversial weapons as long as they were clearly defined.

He said the report turned out differently than the ASD would have expected. “The defense industry as such – as an essential element to build military capabilities of democracies – is not questioned by the platform’s report,” Pie said. He stressed, “The ball is really in the EU Commission‘s court. It has only partially followed the platform’s advice on climate taxonomy. Its decision will now be taken in an extremely tense security situation.

The platform published its report a few days after Russia’s invasion of Ukraine, a pure coincidence in terms of timing. Within days, several member states announced plans to spend hundreds of billions of euros more on defense. Across Europe, national budgets are being adjusted to accommodate the costly investments.

Private capital a prerequisite for defense projects

One way to keep the cost of tanks, ships, and weapons down for taxpayers, according to the defense industry, is to provide favorable access to the capital market for defense companies. The industry often complains about difficulties in raising capital because financial houses that follow so-called ESG criteria do not allow their money to flow into the defense industry.

The “misperception” that defense production is ethically reprehensible “could seriously undermine the industry’s ability to secure funding and thus its ability to support European forces with state-of-the-art equipment,” ASD 2021 wrote in a report.

But what would a classification as socially harmful mean in concrete terms? First, it would be a final rejection from the climate taxonomy. What is not socially acceptable should not be considered a “green” investment. The Commission excluded defense production from the climate taxonomy because it wanted to focus on the activities with the largest environmental footprint.

This will not change despite the war in Ukraine. There are currently no plans to adjust the scheme, a Commission spokesman said in response to a Europe.Table query: “Defense companies will continue to have access to capital markets and bank loans, like all industries not yet included in the taxonomy.”

ESG criteria too sharp?

However, more importantly for the industry would be the signal that would be sent to investors. In the industry, the exclusion of armaments from investment portfolios is one of the most important and common ESG criteria. According to Bloomberg, some major players have announced plans to adjust their post-war policies, such as Commerzbank. A more positive taxonomy rating could encourage others to follow suit.

ASD’s Jan Pie says it’s difficult to express in numbers what being classified as socially harmful might mean for his industry. Banks are under pressure from activists scrutinizing their investments anyway.

For activists at the European Network Against Arms Trade (ENAAT), it is already clear that it would be a shame if arms were not classified as harmful. “Regardless of the root causes of conflict, weapons contribute to violence and exacerbate conflicts by diverting human and financial resources from peaceful solutions.”

Finnish MEP Alviina Alametsä (Greens/EFA) says she understands that “we need to invest more in defense in these terrible times.” However, she said that is not the same as including it in the taxonomy: “However, I find it hard to justify that the defense industry is included in the taxonomy, as it is meant for social, green, and environmental investments. I don’t support that,” she said.

Alternatives to the taxonomy are being examined

Yet, the Social Taxonomy is not the only way to get more money flowing into the industry. In their new Strategic Compass, the 27 member states have committed to increased defense spending and more support for the industry.

Commission President Ursula von der Leyen, her Vice President for Foreign Policy Josep Borrell, and Internal Market Commissioner Thierry Breton have repeatedly called for preferential treatment of the defense industry in Europe. The fact that industry in Europe is often structured along national interests and thus relatively small in size in each case has long been seen as an obstacle to the Union’s development into a coherent military and foreign policy actor.

Poland has proposed an initiative for special treatment of defense spending under EU financial rules. Warsaw’s proposal goes “beyond” the taxonomy, a Polish government official told Europe.Table.

The question now is who the Commission will listen to. At the moment, they do not want to comment on the next steps in the internal decision-making process. There is not even a possible timetable yet. The internal debate could become heated, similar to what has already happened with the climate taxonomy. Ella Joyner

Green bonds: Council adopts position

The ambassadors of the EU member states have approved the Council’s positioning on the creation of green government bonds – also known as green bonds. This was announced by the Council on Wednesday. Green bonds are an EU instrument to finance investments in sustainable technologies in the energy, raw materials, transport, and research sectors.

The regulation includes uniform requirements for bond issuers and creates a registration system and supervisory framework for external assessors of green bonds, the release says. This means that bonds can only be classified as “green” under with the so-called European Green Bonds Standard (EUGBS). To do so, the bonds must be taxonomy-compliant, which an external review must confirm. These external verifiers, in turn, must be registered with ESMA.

With the agreement in the Council, negotiations with the EU Parliament will begin soon. luk

Ireland: new measures against high energy prices

Ireland announced a fresh round of measures on Wednesday to ease the burden of soaring energy and gasoline prices and also offset an increase in carbon tax next month that some opposition parties said should be deferred.

The government cut the value-added tax (VAT) rate on electricity and gas bills to 9% from 13.5% for six months, announced an additional €100 ($108.30) payment to poorer households and extended an excise duty cut on petrol and diesel by two months until the end of October. rtr

Study: government targets for e-car market a long way off

The German government’s targets for electric cars on German roads are not achievable with current sales figures, according to a study. “The electric car market is likely to develop more dynamically on its own in the future, but further strengthening of climate policy measures to promote electromobility is necessary,” industry expert Peter Haan of the German Institute for Economic Research (DIW) said on Wednesday.

The SPD, Green, and FDP coalition government has set a target of at least 15 million fully electric cars on German roads by 2030. According to the DIW study, this would require an average of 130,000 new e-cars every month. In 2021, however, there were only about 30,000 per month.

The researchers recommend that policymakers accelerate the expansion of the charging infrastructure, reduce environmentally harmful subsidies in the transport sector and, in the long term, provide purchase incentives for e-cars by increasing CO2 pricing.

An attractive public transport system should also make the purchase of cars obsolete, at least to a certain extent. The tax and levy system should be geared more closely to environmental and climate targets in the transport sector. “Our analysis shows that purchase premiums for electric cars have an effect. However, a variety of other measures are needed to achieve the goals of faster market penetration,” DIW said. rtr

Protection for whistleblowers: traffic light coalition implements EU directive

Federal Justice Minister Marco Buschmann wants to provide better protection for whistleblowers so that it is easier to uncover wrongdoing in companies and government agencies. The FDP politician presented a draft bill for this purpose on Wednesday, which is intended to implement an EU directive. “By setting up internal reporting systems, whistleblowers are given the opportunity to report violations without fear of reprisals where they can be investigated and remedied most quickly,” Buschmann said.

The planned amendment to the law is intended to ensure greater legal clarity. Germany would actually have had to implement the EU directive by December 2021. However, the grand coalition – as predecessor of the current traffic light government consisting of SPD, Greens, and FDP – had not been able to agree on details. The states and associations now have until May 11 to comment on the current draft.

Existing systems remain

Whistleblowers should be able to use internal or external reporting systems in the future. Existing systems could still be used to avoid too much bureaucracy, Buschmann said. Companies and authorities with at least 50 employees will be obliged to offer such a system. With up to 249 employees, companies can operate a joint reporting office with other companies. There will be an external office at the Federal Office of Justice, in addition to the existing options at the financial regulator BaFin and the Federal Cartel Office.

The identity of the whistleblower or of a person about whom a complaint has been made shall be known only to the case handlers. Only in exceptional cases should the identity be disclosed, for example in criminal proceedings at the request of the prosecutors. The draft bill also provides for a ban on reprisals for whistleblowers, such as dismissals, warnings, or mobbing. The burden of proof is to be reversed to make it easier for whistleblowers. rtr

Oliver Süme guides companies through the regulatory jungle

**Oliver Süme** is Chairman of the Board of the Internet Industry Association ECO.

The times are “crazy exciting,” says Oliver Süme. For 25 years, the 52-year-old lawyer and Chairman of the Board of the Internet Industry Association ECO has been involved with IT law, the Internet and digitization. But the fundamental regulatory course that is currently being set in the digital world is “madness”. Whether it’s the Digital Services Act, the Digital Markets Act or the AI Regulation, the regulatory density at the EU level and the high legal challenges are currently keeping IT lawyers like him intensely busy. “We are now trying to classify the interrelationships of the multi-layered draft regulations in order to find out what the digital legal framework will look like in the future.”

The EU’s intention is nothing less than to set a global digital regulatory standard that will probably have consequences for the global economy. But if every economic area claims this for itself, there will be a huge problem, says Süme: “Then there is a danger that the Internet will fragment and companies will have to submit to different rules in every market.

The EU would therefore be well advised to think more globally and set minimum standards that come down to a lowest common denominator. This is one of the major challenges in the digital economy anyway: ensuring that the legal framework remains efficient and innovation-friendly at a time when regulations in the digital space are increasing exponentially.

Fascinated by the legal issues on the Internet

Clearing the regulatory jungle in the digital space is one of Sume’s core tasks. After all, the Internet and the digital economy continue to offer a great deal of legal room for maneuver: “It is still the case that technical developments or new business models create situations where there are still no clear rulings or laws to answer legal questions,” he says.

It was precisely this legal ambiguity on the Internet that prompted Süme to specialize in IT law. When companies began to launch their first websites in the mid-1990s, the first legal questions arose that interested Süme. For example: Who has the rights to a domain? His attention was drawn to this development by friends who had founded a web agency.

And so, after studying law at the University of Augsburg, Süme set up his own law firm in his hometown of Hamburg at an early stage: “All of a sudden, something economically, technically and legally new emerged,” he says, “that fascinated me. Later on, one of the topics close to his heart became the fight for local domain endings such as “hamburg”, which he successfully led with the foundation of the Hamburg-Top-Level-Domain GmbH.

“Digitization is not an end in itself”

He joined the Eco association in 1998 and has been its chairman since 2017. In this role, he primarily wants to ensure that policymakers create optimal framework conditions for digitization. “Because digitization is not an end in itself, but holds enormous potential for a better, simpler, climate-friendly life.”

The new German government’s digital strategy is a positive sign. It looks, he says, as if things are finally moving and the failures of recent years are being remedied – especially in the expansion of the digital infrastructure. “I have the feeling that Volker Wissing has understood that this is the basic prerequisite for everything else,” says Süme. Eco has been promoting this for years. Another major challenge is the digitization of administration and education. “We are considerably behind in this respect in Germany.” The COVID-19 pandemic has ruthlessly exposed these deficits. “I am very glad that this realization seems to have arrived everywhere by now.” Adrian Meyer

EUROPE.TABLE EDITORS

Till
Hoppe

Charlotte
Wirth

Falk
Steiner

Timo
Landenberger

Corinna
Visser

Lukas
Knigge

Eric
Bonse

Sarah
Schaefer

Manuel
Berkel

Lisa-Martina
Klein

Markus
Grabitz

Stephan
Israel

Claire
Stam

Dear reader,

Next Thursday, the Digital Services Act (DSA), the second major project under the French Council Presidency after the Digital Markets Act (DMA), is to be discussed in the final trilogue. Two topics, in particular, are still occupying the negotiators – with an uncertain outcome. Falk Steiner analyzes the two stumbling blocks.

Following the dispute over the climate taxonomy, a conflict is now brewing over the “social” taxonomy. The issue at stake is whether the EU Commission can classify the manufacture of weapons as a socially sustainable investment. Ella Joyner has investigated the question of what a classification as socially harmful would mean in concrete terms.

Yesterday, the ambassadors of the EU member states approved the Council’s positioning on the creation of green government bonds. With so-called green bonds, the EU can finance sustainable investments.

Oliver Süme finds the fundamental regulatory course that is currently being set in the digital world “simply insane”. As Chairman of the Board of the Internet Industry Association ECO, Süme has been dealing with legal issues relating to the Internet since 1998, as you can read in the Profile.

Your
Lisa-Martina Klein

Not child’s play: DSA is on the home stretch

By

Falk Steiner

The main sticking points before the trilogue are two issues that have not yet been finally resolved: first, the issue of dark patterns, for which the French Council Presidency has firmly promised a solution in the DSA in the course of the negotiations on the Digital Markets Act. And secondly, the Parliament’s express wish for better protection of minors from behavioral advertising – so-called tracking.

The same problem is inherent in both situations: There are actually already regulations that should sanction the behavior of providers. For example, Article 8 of the General Data Protection Regulation (GDPR) and Article 6 already prohibit the data processing of minors as a rule, as long as their legal guardians do not give their consent. And the method known as Dark Patterns, which uses visual nudging to extract consent from users in line with the provider’s interests, is already covered by the Unfair Commercial Practices Directive and the GDPR as a likely misleading practice.

However, there is a massive enforcement deficit in both areas: In the case of dark patterns, the current system of cease-and-desist orders and subsequent court action is too slow to allow providers to prohibit their use in a timely manner. In addition, slight changes to the challenged variant can lead to the need for another, new, and also often lengthy procedure.

Scope of the Dark Pattern ban still open

This could foreseeably be significantly mitigated by a general ban in DSA. However, it was still unclear how broadly a dark pattern ban should be defined: which providers should be directly affected by the DSA regulation? Either a blanket ban will be enacted for all services covered by the DSA – or one that is limited to certain areas, such as the particularly large platforms and search engines (VLOPS and VLOSE), for which legal enforcement should regularly be the responsibility of the Commission.

At the same time, however, consent administrations in particular are already standing on feet of clay at present anyway, even if providers of online advertising are currently still hoping to pull the teeth out of what they see as an unjustified decision by the Belgian data protection supervisory authority.

Protection of minors: targeting of the ban remains complicated

When it comes to protecting the data of minors, on the other hand, the data protection supervisory authorities would actually be responsible for enforcement – but they have not prioritized the issue so far, and the number of complaints on the subject is also very low, reports Hamburg’s data protection commissioner Thomas Fuchs. In his view, the two-stage “obligation of the responsible party to provide evidence” is particularly problematic, according to Fuchs, as it arises from Article 8 of the GDPR. Time and again, provider representatives object that the identification of minors would already require – possibly inadmissible – data collection. After all, it would not be possible to check who is sitting in front of the device without collecting data. In principle, the Hamburg data protection commissioner agrees with this – and advocates certified procedures for age verification as a solution.

A “cumbersome procedure” is the route via the GDPR, Claudio Teixeira of the European consumer organization umbrella organization BEUC also grumbles. “Banning techniques that process, provide or infer children’s personal data for behavioral advertising would remove the problem for minors at source.” In other words, today’s enforcement deficit would be addressed with a more rigid and easily enforceable ban.

French compromise proposal would hardly be effective

The French Council Presidency’s latest proposal for a compromise bill stipulates that providers may not collect behavior-related data “if they perceive that the user is a minor.” The providers should like this, as it would allow them to summarily avoid any positive knowledge as far as possible – but the parliamentary position would take this completely ad absurdum. The Federal Ministry for Digital Affairs and Transport, which coordinates the federal position, explained in response to a Europe.Table inquiry that the federal government welcomes a ban on advertising processing of minors’ data and has positioned itself in this sense in the Council. It is doubtful whether this position fits with the current French proposal.

What is undisputed, however, is that advertising for offerings made especially for children should no longer be tracking-based in the future. This would tie in with the regulations of the Audiovisual Media Directive. However, in many cases minors also use services that are formally aimed at adults – such as YouTube, Google, Twitch, Discord, Instagram or TikTok. The authority of Hamburg’s data protection commissioner, Thomas Fuchs, has also encountered problems with media offers: “It is noticeable here that those responsible do not differentiate sufficiently according to whether their offers are directed at children or adults or whether the use of the service is at least also open to children and young people, so-called dual use offers.” The authority now wants to review the online services that have come to light and are aimed directly at children in terms of data protection law.

But the problem goes beyond offers for children and those that also contain content for children: behavior-based advertising or at least its tracking technologies are embedded in very many other offers. In order to effectively protect children from tracking, this issue would also have to be covered by regulation.

Problem probably only solvable with maximum effect

The problem of the practice, which is already barely permissible under the GDPR, thus remains almost impossible to resolve without creating entirely new problems. The cleanest regulatory way out of this problem would therefore be a complete ban until effective consent is obtained – this would protect minors, but the politically set goal would be clearly exceeded. For BEUC, however, that would be a welcome solution, says consumer advocate Claudio Teixeira: “Ultimately, we believe that commercial monitoring should be stopped and a complete ban on behavioral advertising enforced.” Applause from the digital economy is likely to be absent in this case, however – but other solutions remain in short supply a week before the final scheduled trilogue between the Commission, Parliament and Council.

Sustainable investment: the problem of the arms industry

Could the Commission possibly classify arms manufacturing as a socially sustainable investment? The political debate and the process around the social taxonomy are moving forward, even if the time for decisions is still some way off.

The Platform for Sustainable Finance, an advisory group commissioned by the Commission, said in February that the production of defense equipment – at least of certain types – is most likely not an acceptable option for would-be social investors. It is an example, it said, of “significantly harmful activities … that are fundamentally and in all circumstances inconsistent with social objectives.” The basis for this, he said, is numerous international agreements outlawing certain types of weapons.

Unsurprisingly, this meets with approval from activists. Industry lobbyists, on the other hand, consider a blanket classification to be harmful and misguided – especially in the current situation. No security means no sustainability, argues Hans Christoph Atzpodien of the German Security and Defense Industry Association (BDSV): “We have to invest in our security to protect our freedom and our democracy.”

MEP Markus Ferber (CSU/EPP) reacted indignantly to the advisory panel’s report: “In the current situation, the top priority is to strengthen the performance of European industry,” Ferber said. “Under no circumstances must we now jeopardize the performance of European industry through misunderstood overzealousness in the area of sustainability.”

Exclusion of certain military equipment as a possible way out

But the report is open to different interpretations. According to Jan Pie, secretary-general of the European Aerospace and Defense Industries Association (ASD), the industry could live with a classification for controversial weapons as long as they were clearly defined.

He said the report turned out differently than the ASD would have expected. “The defense industry as such – as an essential element to build military capabilities of democracies – is not questioned by the platform’s report,” Pie said. He stressed, “The ball is really in the EU Commission‘s court. It has only partially followed the platform’s advice on climate taxonomy. Its decision will now be taken in an extremely tense security situation.

The platform published its report a few days after Russia’s invasion of Ukraine, a pure coincidence in terms of timing. Within days, several member states announced plans to spend hundreds of billions of euros more on defense. Across Europe, national budgets are being adjusted to accommodate the costly investments.

Private capital a prerequisite for defense projects

One way to keep the cost of tanks, ships, and weapons down for taxpayers, according to the defense industry, is to provide favorable access to the capital market for defense companies. The industry often complains about difficulties in raising capital because financial houses that follow so-called ESG criteria do not allow their money to flow into the defense industry.

The “misperception” that defense production is ethically reprehensible “could seriously undermine the industry’s ability to secure funding and thus its ability to support European forces with state-of-the-art equipment,” ASD 2021 wrote in a report.

But what would a classification as socially harmful mean in concrete terms? First, it would be a final rejection from the climate taxonomy. What is not socially acceptable should not be considered a “green” investment. The Commission excluded defense production from the climate taxonomy because it wanted to focus on the activities with the largest environmental footprint.

This will not change despite the war in Ukraine. There are currently no plans to adjust the scheme, a Commission spokesman said in response to a Europe.Table query: “Defense companies will continue to have access to capital markets and bank loans, like all industries not yet included in the taxonomy.”

ESG criteria too sharp?

However, more importantly for the industry would be the signal that would be sent to investors. In the industry, the exclusion of armaments from investment portfolios is one of the most important and common ESG criteria. According to Bloomberg, some major players have announced plans to adjust their post-war policies, such as Commerzbank. A more positive taxonomy rating could encourage others to follow suit.

ASD’s Jan Pie says it’s difficult to express in numbers what being classified as socially harmful might mean for his industry. Banks are under pressure from activists scrutinizing their investments anyway.

For activists at the European Network Against Arms Trade (ENAAT), it is already clear that it would be a shame if arms were not classified as harmful. “Regardless of the root causes of conflict, weapons contribute to violence and exacerbate conflicts by diverting human and financial resources from peaceful solutions.”

Finnish MEP Alviina Alametsä (Greens/EFA) says she understands that “we need to invest more in defense in these terrible times.” However, she said that is not the same as including it in the taxonomy: “However, I find it hard to justify that the defense industry is included in the taxonomy, as it is meant for social, green, and environmental investments. I don’t support that,” she said.

Alternatives to the taxonomy are being examined

Yet, the Social Taxonomy is not the only way to get more money flowing into the industry. In their new Strategic Compass, the 27 member states have committed to increased defense spending and more support for the industry.

Commission President Ursula von der Leyen, her Vice President for Foreign Policy Josep Borrell, and Internal Market Commissioner Thierry Breton have repeatedly called for preferential treatment of the defense industry in Europe. The fact that industry in Europe is often structured along national interests and thus relatively small in size in each case has long been seen as an obstacle to the Union’s development into a coherent military and foreign policy actor.

Poland has proposed an initiative for special treatment of defense spending under EU financial rules. Warsaw’s proposal goes “beyond” the taxonomy, a Polish government official told Europe.Table.

The question now is who the Commission will listen to. At the moment, they do not want to comment on the next steps in the internal decision-making process. There is not even a possible timetable yet. The internal debate could become heated, similar to what has already happened with the climate taxonomy. Ella Joyner

Green bonds: Council adopts position

The ambassadors of the EU member states have approved the Council’s positioning on the creation of green government bonds – also known as green bonds. This was announced by the Council on Wednesday. Green bonds are an EU instrument to finance investments in sustainable technologies in the energy, raw materials, transport, and research sectors.

The regulation includes uniform requirements for bond issuers and creates a registration system and supervisory framework for external assessors of green bonds, the release says. This means that bonds can only be classified as “green” under with the so-called European Green Bonds Standard (EUGBS). To do so, the bonds must be taxonomy-compliant, which an external review must confirm. These external verifiers, in turn, must be registered with ESMA.

With the agreement in the Council, negotiations with the EU Parliament will begin soon. luk

Ireland: new measures against high energy prices

Ireland announced a fresh round of measures on Wednesday to ease the burden of soaring energy and gasoline prices and also offset an increase in carbon tax next month that some opposition parties said should be deferred.

The government cut the value-added tax (VAT) rate on electricity and gas bills to 9% from 13.5% for six months, announced an additional €100 ($108.30) payment to poorer households and extended an excise duty cut on petrol and diesel by two months until the end of October. rtr

Study: government targets for e-car market a long way off

The German government’s targets for electric cars on German roads are not achievable with current sales figures, according to a study. “The electric car market is likely to develop more dynamically on its own in the future, but further strengthening of climate policy measures to promote electromobility is necessary,” industry expert Peter Haan of the German Institute for Economic Research (DIW) said on Wednesday.

The SPD, Green, and FDP coalition government has set a target of at least 15 million fully electric cars on German roads by 2030. According to the DIW study, this would require an average of 130,000 new e-cars every month. In 2021, however, there were only about 30,000 per month.

The researchers recommend that policymakers accelerate the expansion of the charging infrastructure, reduce environmentally harmful subsidies in the transport sector and, in the long term, provide purchase incentives for e-cars by increasing CO2 pricing.

An attractive public transport system should also make the purchase of cars obsolete, at least to a certain extent. The tax and levy system should be geared more closely to environmental and climate targets in the transport sector. “Our analysis shows that purchase premiums for electric cars have an effect. However, a variety of other measures are needed to achieve the goals of faster market penetration,” DIW said. rtr

Protection for whistleblowers: traffic light coalition implements EU directive

Federal Justice Minister Marco Buschmann wants to provide better protection for whistleblowers so that it is easier to uncover wrongdoing in companies and government agencies. The FDP politician presented a draft bill for this purpose on Wednesday, which is intended to implement an EU directive. “By setting up internal reporting systems, whistleblowers are given the opportunity to report violations without fear of reprisals where they can be investigated and remedied most quickly,” Buschmann said.

The planned amendment to the law is intended to ensure greater legal clarity. Germany would actually have had to implement the EU directive by December 2021. However, the grand coalition – as predecessor of the current traffic light government consisting of SPD, Greens, and FDP – had not been able to agree on details. The states and associations now have until May 11 to comment on the current draft.

Existing systems remain

Whistleblowers should be able to use internal or external reporting systems in the future. Existing systems could still be used to avoid too much bureaucracy, Buschmann said. Companies and authorities with at least 50 employees will be obliged to offer such a system. With up to 249 employees, companies can operate a joint reporting office with other companies. There will be an external office at the Federal Office of Justice, in addition to the existing options at the financial regulator BaFin and the Federal Cartel Office.

The identity of the whistleblower or of a person about whom a complaint has been made shall be known only to the case handlers. Only in exceptional cases should the identity be disclosed, for example in criminal proceedings at the request of the prosecutors. The draft bill also provides for a ban on reprisals for whistleblowers, such as dismissals, warnings, or mobbing. The burden of proof is to be reversed to make it easier for whistleblowers. rtr

Oliver Süme guides companies through the regulatory jungle

The times are “crazy exciting,” says Oliver Süme. For 25 years, the 52-year-old lawyer and Chairman of the Board of the Internet Industry Association ECO has been involved with IT law, the Internet and digitization. But the fundamental regulatory course that is currently being set in the digital world is “madness”. Whether it’s the Digital Services Act, the Digital Markets Act or the AI Regulation, the regulatory density at the EU level and the high legal challenges are currently keeping IT lawyers like him intensely busy. “We are now trying to classify the interrelationships of the multi-layered draft regulations in order to find out what the digital legal framework will look like in the future.”

The EU’s intention is nothing less than to set a global digital regulatory standard that will probably have consequences for the global economy. But if every economic area claims this for itself, there will be a huge problem, says Süme: “Then there is a danger that the Internet will fragment and companies will have to submit to different rules in every market.

The EU would therefore be well advised to think more globally and set minimum standards that come down to a lowest common denominator. This is one of the major challenges in the digital economy anyway: ensuring that the legal framework remains efficient and innovation-friendly at a time when regulations in the digital space are increasing exponentially.

Fascinated by the legal issues on the Internet

Clearing the regulatory jungle in the digital space is one of Sume’s core tasks. After all, the Internet and the digital economy continue to offer a great deal of legal room for maneuver: “It is still the case that technical developments or new business models create situations where there are still no clear rulings or laws to answer legal questions,” he says.

It was precisely this legal ambiguity on the Internet that prompted Süme to specialize in IT law. When companies began to launch their first websites in the mid-1990s, the first legal questions arose that interested Süme. For example: Who has the rights to a domain? His attention was drawn to this development by friends who had founded a web agency.

And so, after studying law at the University of Augsburg, Süme set up his own law firm in his hometown of Hamburg at an early stage: “All of a sudden, something economically, technically and legally new emerged,” he says, “that fascinated me. Later on, one of the topics close to his heart became the fight for local domain endings such as “hamburg”, which he successfully led with the foundation of the Hamburg-Top-Level-Domain GmbH.

“Digitization is not an end in itself”

He joined the Eco association in 1998 and has been its chairman since 2017. In this role, he primarily wants to ensure that policymakers create optimal framework conditions for digitization. “Because digitization is not an end in itself, but holds enormous potential for a better, simpler, climate-friendly life.”

The new German government’s digital strategy is a positive sign. It looks, he says, as if things are finally moving and the failures of recent years are being remedied – especially in the expansion of the digital infrastructure. “I have the feeling that Volker Wissing has understood that this is the basic prerequisite for everything else,” says Süme. Eco has been promoting this for years. Another major challenge is the digitization of administration and education. “We are considerably behind in this respect in Germany.” The COVID-19 pandemic has ruthlessly exposed these deficits. “I am very glad that this realization seems to have arrived everywhere by now.” Adrian Meyer