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Dear Readers,
Hungary's head of government Victor Orbán is seen as the enfant terrible of the European Union. By 2016, he had already merited a chapter in Jürgen Roth’s book "Schmutzige Demokratie" (Dirty Democracy). Over 45 pages, the then Spiegel journalist depicts an "authoritarian dictatorship" run by a power-conscious Budapest autocrat who undermines liberal democracy and stirs up hatred against refugees, seeking to deny them any human dignity. The critique goes on to describe a system run by stooges and oligarchs that is contaminating the Hungarian economy and syphoning off EU financial aid into the bank accounts of favourites, friends and family members. There is also reference to possible links between Interior Minister Sandor Pinter and the Russian mafia.
The European Union has let the Budapest kleptocrats have their way for far too long simply because it needed the denigrator of constitutional principles for votes requiring unanimity. This misplaced deference, which ran counter to Europe's fundamental values, has now come to an end. Commission President Ursula von der Leyen has frozen more than € 13 billion in financial aid which will not be released if Orbán continues to act and agitate in an anti-democratic manner. In November, the European Parliament declared Hungary to be in "dereliction of democracy, the rule of law and fundamental rights".
Brussels' about-turn is essential and overdue, not only in view of Russia's attack on Ukraine, which violates international law, but also because the EU was in danger of being subject to blackmail on a permanent basis. Hungary's economy has been on the verge of collapse for months with soaring inflation and high unemployment. An opportune moment, perhaps, to present the financial instruments of torture and bring about Orbán’s compliance.
More EU sanctions against Russia are on their way, as is the planned northern expansion of NATO. Orbán has already announced his intention to vote against the admission of Finland and Sweden. High time, then, to apply some financial pressure.
This new toughness, though, is only the first step. The next must be to make Brussels faster and more efficient by bringing an end to the unanimity principle. A difficult process, as Hungary would also have to agree to an amendment of the Lisbon Treaties.
This Newsletter also devotes its attention to other weighty matters including the EU derivatives trade after Brexit, changes in European insolvency law, digital fundamental rights and antibiotic resistance.
We wish you an enjoyable read. Stay tuned!
Yours
Dr. Jörg Köpke
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Viktor Orbán has been head of the Hungarian government for over ten years. Since the early 2010s he has been criticised for limiting Hungary's media freedom as well as the ongoing weakening of democracy and the rule of law.
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Latest EU proposals in focus
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Stock exchange listing: Easier access to capital for SMEs
On 7 December, the Commission will submit legislation to make access to capital markets easier for small and medium-sized enterprises (SMEs) ("Listing Act"). Currently, according to the Commission, SMEs are often dependent on bank financing and shy away from accessing public markets due to the high administrative burden, high listing costs and complex listing rules. The Commission wants to change this and is planning to ease and simplify initial and ongoing listing requirements to reduce costs for SMEs. It also wants to introduce measures to increase SMEs’ visibility to investors on the public markets as investors are often deterred from investing in SME securities due to a lack of company information and the limited liquidity of these securities.
Derivatives: Reducing dependence on UK clearing houses
On 7 December, the Commission will submit a proposal to revise the Regulation on central securities depositories [(EU) No. 648/2012, see cepAdhoc]. The Regulation stipulates that over-the-counter transactions with derivatives must be cleared via so-called central counterparties (CCPs). However, many of these CCPs are based in the UK and therefore, following Brexit, a large proportion of derivatives transactions are no longer being cleared in the EU. CCPs have become very important for the stability of the financial markets. At the same time, there is no guarantee that EU market participants will have access to clearing houses in the UK. The Commission therefore wants to introduce measures to reduce dependency on UK CCPs. These will aim to expand capacity in the EU and increase liquidity in EU clearing houses. According to media reports, the Commission even wants to go so far as to force certain market participants to clear at least some of their derivatives transactions in the EU. Shifting business to the EU will also strengthen EU supervision so that the resulting increase in risks can be dealt with.
Insolvency law: Reducing barriers to cross-border investment
On 7 December, the Commission will submit a proposal aimed at removing barriers to cross-border investment caused by discrepancies in national substantive insolvency rules. According to the Commission, the various insolvency regimes are a major obstacle to the creation of a Capital Markets Union. Inefficient insolvency procedures, in particular, deter investors when deciding whether to make a cross-border investment. The Commission is therefore considering targeted harmonisation measures, such as aligning rules on the conditions for initiating insolvency proceedings; on the conditions for determining avoidance actions; and on the duties of directors when it comes to handling impending insolvency proceedings.
Crypto-assets: Strengthening tax transparency
On 7 December, the Commission will submit a proposal to strengthen tax transparency for crypto-assets. Submission was originally scheduled for 16 November. Digitalisation has also made advances in the financial sector in recent years, and new digital assets have emerged in the form of crypto-assets (e.g. Bitcoin). According to the Commission, crypto-assets not only offer opportunities but also pose numerous risks, such as with regard to consumer and investor protection, money laundering and tax evasion. While the protection of consumers and investors, and the safeguarding of financial market stability have already been addressed under the Regulation on markets in crypto assets (see cepPolicyBrief 7/2021), the issue of taxation has not yet been adequately dealt with. According to the Commission, national tax administrations regularly have difficulty obtaining information on the use of crypto-assets, which can lead to tax losses. The fact that crypto assets are used for both payment and investment purposes and are therefore difficult to classify, also makes them difficult to tax, as does the fact that there is often no central authority controlling the issuance of crypto assets. Information deficits also stem from the fact that crypto-assets and participating intermediaries are not subject to reporting obligations vis-à-vis the tax authorities and so far no exchange of information has been prescribed between the Member States. The forthcoming proposal for a revision of Council Directive 2011/16/EU on administrative cooperation in the field of taxation will therefore contain measures to improve tax transparency in order to ensure appropriate taxation and prevent tax evasion.
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Consultation on the Participation of Tech Companies on Network Deployment Costs
The Commission wants to launch a consultation on a possible financial participation of tech companies in network expansion costs before the end of December. For months, there has been a discussion about whether those network giants, for example Netflix and Youtube, which are responsible for a large part of the traffic on the internet should pay a larger share of the costs than before for the deployment of the telecommunications infrastructure. Calls for this have been heard from the telecommunications industry for some time. The tech companies, however, are firmly opposed to such a levy. Within the framework of the consultation, the Commission now wants to find out whether and, if so, which legislative measures would be necessary or desirable. Based on the results of the consultation, the Commission will probably submit proposals next year.
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Antibiotic resistance: Action to combat "silent pandemic" is back on Commission's agenda
Currently, more than 35,000 people die each year in the EU, Iceland and Norway from antibiotic-resistant infections, and the trend is rising. There is already talk of a "silent pandemic." Antibiotic resistance can arise e.g. due to the excessive use of antibiotics in animal husbandry as well as through the inappropriate prescription, administration and disposal of human medicines containing antibiotics. This is jeopardising the successful control of infectious diseases in humans (see cepPolicyBrief 1/2018 and cepPolicyBrief 2/2020). The Commission is currently working on further measures to combat antimicrobial resistance. One of the major challenges in this regard will be to support investment in the research and development of new antibiotics in the EU. A closer look at international trade flows will also be important, as Member States are heavily dependent on countries such as India and China for the production of medicines. The current crises are highlighting the importance of reliable supply chains. Shortages of important medicines are already being felt.
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The Commission, the Council and the European Parliament regularly negotiate in the so-called trilogue on EU legislative proposals in order to find a common position. We have put together a summary of the most important trilogue decisions since the last Newsletter.
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Trilogue agreement on the Product Safety Regulation
On 29 November, a preliminary political agreement was reached on the Product Safety Regulation. It replaces the Product Liability Directive [2001/95/EC] of 2001 and brings with it, among other things, adjustments relating to digitalisation. For example, online marketplaces must ensure that they know which traders are operating on their platforms and what products they offer. If they discover a dangerous product on their platform, they must cooperate with the competent national authorities. In addition, manufacturers selling their products in the EU must have a legal representative in the EU. If a product is recalled, consumers will be entitled to repair, replacement or a refund and, if possible, be able to choose between at least two of these options.
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Trilogue agreement on the interinstitutional declaration on digital rights and principles for the digital decade
On 14 November, a preliminary political agreement was reached on the interinstitutional declaration on digital rights and principles for the digital decade. This declaration, a draft of which was submitted by the Commission on 26 January 2022 [COM(2022) 28, cepAdhoc No. 1/2022), contains, among other things, the obligation to guarantee a network connection as well as the right to digital education, and emphasises the importance of freedom of choice in interactions with algorithms and artificial intelligence. The Commission, the European Parliament and the Council now intend to sign the declaration in December.
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Trilogue agreement on the Effort Sharing Regulation
On 8 November 2022, a provisional political agreement was reached on the so-called Effort Sharing Regulation as part of the "Fit for 55" climate package (see cepPolicyBrief 9/2022). This regulates "effort sharing" between the Member States on carbon reduction in the road transport, heating of buildings, agriculture and waste management sectors, which are currently not covered by the EU Emissions Trading System (see cepPolicyBrief 5/2022). In order for the EU as a whole to achieve a 40% reduction in carbon emissions in these sectors by 2030, as compared with 2005, the amended Effort Sharing Regulation sets higher national climate targets for EU Member States. These range from a 10% carbon reduction for Bulgaria to a 50% reduction for Germany by 2030, as compared with 2005.
Trilogue agreement on the LULUCF Regulation
On 10 November 2022, as part of the "Fit for 55" climate package, a provisional political agreement was reached regarding the Regulation on higher national carbon removal targets for 2030 in the "Land Use, Land Use Change and Forestry" (LULUCF) sector (see cepPolicyBrief 9/2022). In the LULUCF sector, the way soils, forests and plants are managed not only causes CO2 to be emitted but also allows it to be absorbed from the atmosphere. A binding national carbon removal target will be established for each Member State for the period 2026-2030. In order to achieve the national carbon removal target for 2030, Member States can continue to trade credits from carbon removal with each other.
Trilogue agreement on the Regulation on Deforestation-Free Products
On 6 December 2022, a preliminary political agreement was reached on the regulation on “deforestation-free products”. The new regulation requires that from the cut-off date of 31 December 2020, the production of certain products must not lead to forest degradation or even deforestation. It includes various commodities and products, such as palm oil, beef, timber, coffee, cocoa, rubber and soy, which are placed on the EU internal market or exported from the EU. It also regulates derived products such as chocolate, furniture, printed paper and certain palm oil-based products, for example in cosmetics. The term “deforestation” is based on the definition of the Food and Agriculture Organisation of the United Nations (FAO).
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IRIS2: EU agrees to build a satellite constellation for secure connectivity
On 17 November, representatives of the European Parliament and the Council agreed on the establishment of a satellite constellation (Infrastructure for Resilience, Interconnection and Security by Satellites, IRIS2). IRIS2 was already announced at the beginning of the year. Alongside the Galileo and Copernicus satellite navigation systems, it will form a third pillar of European space infrastructure and will enable secure communications by 2027. Development is due to begin as early as 2023. In particular, the system aims to reduce the extent to which the EU is dependent on third countries, and on private companies from third countries, for its satellite communications (for example SpaceX with its Starlink system), and will strengthen the EU's "strategic autonomy" in this area. IRIS2 will help to accelerate the introduction of a nationwide broadband internet in the EU and, since coverage includes the African continent and the Arctic, it will provide an alternative to systems in other countries in those regions as well. It also aims to strengthen the EU's resilience to cyber-attacks and natural disasters, and contribute to better protection of critical infrastructure that relies on stable and secure communication networks. IRIS2 will be open to both government agencies and the private sector, so there is also room for the development of commercial services. The private sector is expected to contribute € 3.6 billion towards financing the new satellite constellation. The EU wants to invest € 2.4 billion in the project.
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Financial Markets |Consumer
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Consumer Credit: Agreement on the reform of the 14-year-old Directive
In the night from 1 to 2 December, representatives of the European Parliament and the Council reached a preliminary agreement on a revision of the 14-year-old Consumer Credit Directive [2008/48/EC]. The Commission had already presented a proposal for this in June 2021 [COM(2021) 347, see cepPolicyBrief 4/2022]. The reform was initiated against the background that the consumer credit market has changed noticeably in recent years due to digitalisation. The agreement now provides in particular that credits of less than 200 euros are also covered by the Directive. In addition, certain buy-now-pay-later products, where no interest is charged and repayment takes place at a later date, are to fall within the scope. There are also adjustments to the regulations on creditworthiness checks. For example, the principle is anchored that a creditor may not make a credit available to a consumer if the creditworthiness check is negative. This is intended to strengthen consumer protection. The negotiators were unable to agree on uniform cost ceilings for credits. The agreement is only provisional so far. Further technical consultations will now take place. Afterwards, the European Parliament and the Council must formally adopt the compromise before the new Consumer Credit Directive can enter into force.
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The EU Commission asks decision-makers and interested parties from civil society for their opinion on European policy proposals. Here is our short-list of the most important consultations:
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Corporate taxation: Calculation and distribution of profits
The Commission wants to create a uniform framework for business taxation in the EU. Firstly, it plans to propose a common set of rules for calculating the tax base of EU companies. Secondly, it wants to create rules on allocating the taxable profit between the EU States. Factors to be included in the allocation formula will be employees, turnover and tangible assets, possibly also intangible assets. How these factors will be weighted and which companies will actually be covered is still open.
The submission period for opinions ends on 26 January 2023.
Go to Consultation
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State aid law: Adjustment of the threshold
The Commission wants to adjust the threshold for the application of EU State aid law. Currently, under the so-called de minimis Regulation [(EU) No 1407/2013], State aid is deemed to be permissible where a company receives aid amounting to a maximum of € 200,000 over a period of three years. The Commission wants to raise this threshold to € 275,000.
The submission period for opinions ends on 10 January 2023.
Go to Consultation
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6 December 2022
Brussels
Meeting of the Telecommunications Council. This will concern the adoption of general approaches on the Artificial Intelligence Act (see cepPolicyBrief 27/2021) and on the Regulation establishing a framework for a European digital identity (see cepPolicyBrief 25/2021). In addition, progress reports on the Data Act (see cepPolicyBrief 11/2022) and the Cyber Resilience Act will be adopted and the state of play in the negotiations on the ePrivacy Regulation (see cepPolicyBrief 16/2017) will be discussed.
6 December 2022
Brussels
Meeting of the Economic and Financial Affairs Council (ECOFIN). This will concern, among other things, the introduction of a minimum tax for certain multinational groups of companies as well as measures to protect the EU budget due to violations of the rule of law in Hungary.
8 December 2022
Brussels
Meeting of the Employment and social policy Council. This will concern, among other things, the European Care Strategy (see cepInput 12/2022).
9 December 2022
Brussels
Meeting of the Health Council. This will concern the EU Health Data Space (s. cepPolicyBrief 13/2022) and the regulation on substances of human origin (see cepPolicyBrief 15/2022).
12-15 December 2022
Strasbourg
Session of the European Parliament. This will concern, among other things, Renewable Energy and Energy Performance of Buildings (see cepPolicyBrief 14/2022).
13 December 2022
Brussels
Meeting of the General Affairs Council (GAC). This will concern, among other things, Electoral rights and democratic participation and exchange of views on the Conference on the Future of Europe.
15-16 December 2022
Brussels
Meeting of the European Council. This will concern the war in Ukraine, energy, security and defence, the EU's southern neighbourhood and external relations.
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cepPolicyBrief: Substances of Human Origin
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Blood, plasma and other Substances of Human Origin (SoHOs) are becoming increasingly important, especially in the fight against rare diseases. Since essential products are not sufficiently available in the EU, dependence on imports, especially from the USA, is growing. The cep believes that the Commission's goal of providing better care for EU citizens in the future is right - but that some of the planned measures are questionable.
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cepPolicyBrief: Fit for 55: Climate and Buildings
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The European Union wants to reduce carbon emissions by at least 55 percent by 2030, as compared with 1990. To this end, a separate emissions trading system for buildings and road transport is to be introduced. cep opposes demands from Member States and the European Parliament to suspend or soften the introduction in view of sky-rocketing energy prices.
Go to cepPolicyBrief 14/2022
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cepPolicyBrief: EU Health Data Space
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Medical findings, x-rays, prescriptions: The Commission wants to utilise the Health Data Space (EHDS) for storing and making use of sensitive patient data throughout the EU. In essence, it provides for national electronic health records that can be used across borders. The cep calls for better control rights for EU citizens, especially regarding the so-called secondary use of health data.
Go to cepPolicyBrief 13/2022
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Dear Readers,
The US actor Jack Lemmon hit the nail on the head when he said, "Dictatorship is a country where keeping parrots can be deadly." There is nothing more to add to that.
Yours
Dr. Jörg Köpke
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