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World

Europe shows a united front against Biden’s Inflation Reduction Act

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German Federal Minister of Finance Christian Lindner (L) and French Minister of the Economy, Finance and Recovery Bruno Le Maire (R) both criticized the U.S. inflation reduction act for discriminating against European companies.

Thierry Monasse | Getty Images News | Getty Images

EU member states are standing resolutely firm against President Joe Biden’s Inflation Reduction Act amid fears it will harm their domestic companies and economies.

The sweeping U.S. legislation, which was approved by U.S. lawmakers in August and includes a record $369 billion in spending on climate and energy policies, was discussed by the 27 European Union finance ministers on Tuesday. This came after the European Commission, the executive arm of the EU, said there are “serious concerns” about the design of the financial incentives in the package.

“Each minister agreed that this is a subject of concern at the European level and that we need to see what is the best response,” an EU official, who followed the ministers’ discussions but preferred to remain anonymous due to the sensitive nature of the issue, told CNBC.

The same official added that “there is a political consensus (among the 27 ministers) that this plan threatens the European industry.”

The EU has listed at least nine points in the U.S. Inflation Reduction Act that could be in breach of international trade rules. One of the biggest sticking points for the Europeans is the tax credits granted for electric cars made in North America. This could bring challenges to European carmakers that are focusing on EVs, such as Volkswagen.

“That’s what we’re eventually seeking: that the EU should be, as a close ally of the U.S., in a position which is more similar to that of Mexico and Canada,” Valdis Dombrovskis, the EU’s trade chief, said at a news conference Tuesday.

We don’t want to see any kind of decision that could harm this level playing field.

Bruno Le Maire

France Finance Minister

South Korean officials have also raised similar concerns to Europe, given the set of measures in the U.S. could also restrict Hyundai and others from doing business in America.

A second EU official, who also followed the ministers’ discussions but preferred to remain anonymous due to the sensitive nature of the issue, said the conversations were “not very deep” — highlighting unity among the ministers on a broader level.

The same official said that France’s finance minister, Bruno Le Maire, told his counterparts that he was not asking for a strong negative decision against the EU’s American friends, but rather asking for a “wake-up call” for his European counterparts who need to protect the interests of European businesses.

Earlier on Monday, Le Maire told CNBC, “We need to be very clear, very united, and very strong from the very beginning explaining [to] our U.S. partners [that] what’s at stake behind this Inflation Reduction Act is the possibility to preserve the level playing field between the United States and Europe.”

“The level playing field is at the core of the trade relationship between the two continents and we don’t want to see any kind of decision that could harm this level playing field,” he said.

French officials have for a long time advocated for strategic independence — the idea that the EU needs to be more independent from China and the U.S., for instance, by supporting its own industry. Last month, French President Emmanuel Macron suggested that the EU should also look at a “Buy European Act” to protect European carmakers.

“We need a Buy European Act like the Americans, we need to reserve [our subsidies] for our European manufacturers,” Macron said in an interview with broadcaster France 2, adding, “You have China that is protecting its industry, the U.S. that is protecting its industry and Europe that is an open house.”

A taskforce between European and American officials, which had its first meeting on this subject last week, will now meet every week to discuss how to address Europe’s concerns over the Inflation Reduction Act.

The idea is “to continue promoting deeper understanding of the law’s meaningful progress on lowering costs for families, our shared climate goals, and opportunities and concerns for EU producers,” the White House said in a statement.

Despite the regular contact, U.S. officials are dealing with the midterm elections and the Inflation Reduction Act has already been legislated, meaning that any changes would have to come during the implementation phase.

Fredrik Erixon, director of the European Centre for International Political Economy, told CNBC that “it is obvious that the EU has legitimate concerns about the Inflation Reduction Act and direct and indirect discrimination in it.”

“Many of IRA policies that take a ‘America first’ attitude will hurt competition and EU firms, and especially so in sectors where the EU is competitive, not least green industries and cleantech. The EU may go to the WTO [World Trade Organization] to sort these issues out but it is far more interested to get them addressed bilaterally,” he added.

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Business

How hackers and geopolitics could derail the planned energy transition

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This image shows an onshore wind turbine in the Netherlands.

Mischa Keijser | Image Source | Getty Images

Discussions about the energy transition, what it means and whether it’s actually underway at all, have become major talking points in recent years.  

How the transition — which can be seen as a shift away from fossil fuels to a system dominated by renewables — pans out remains to be seen.

It depends on a multitude of factors, from technology and finance to international cooperation. While crucial, all are bedeviled by a great deal of uncertainty and risk.

The above topics were considered in detail during a panel moderated by CNBC’s Dan Murphy at the Atlantic Council’s Global Energy Forum in Dubai on Tuesday.

“At the heart of the energy transition is digitalization,” Leo Simonovich, who is vice president and global head of industrial cyber and digital security at Siemens Energy, said.

“In the energy sector, 2 billion devices are going to be added over the next couple of years,” he said.

“Every one of those devices could be a potential source of vulnerability that could be exploited by bad actors.”

Read more about clean energy from CNBC Pro

Expanding on his point, Simonovich explained the potential consequences of the above happening. “In a system that is increasingly connected and digitized, that includes legacy assets in need of digital assets, this could have cascading effects,” he said.

“And what we’re talking about is not just loss of data, what we’re really talking about is a safety issue, one that could bring down major parts of the grid or, as we saw with the Colonial Pipeline attack in the United States, parts of [the] gas network.”

Cybersecurity, Simonovich argued, was important both as “an opportunity to accelerate the energy transition if we can get it right because it builds trust, but also as a major source of risk that we need to address pretty urgently.”

Geopolitics

Alongside cybersecurity, geopolitics will also have a role to play if the planet is to shift to a low-carbon energy system, a point forcefully made by Abdurrahman Khalidi, chief technology officer of GE Gas Power, EMEA.

“It took the world several decades, until 2015, to arrive at almost a consensus in Paris, that global warming is happening and it’s due to greenhouse gases and the commitments started flowing,” Khalidi said. “It took us a lot of debate.”

Khalidi’s mention of Paris refers to the Paris Agreement, which aims to limit global warming “to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels” and was adopted in Dec. 2015.

“For decarbonization to happen — as we saw in COP26 — you need … cooperative and collaborative world governments,” he said. “The risk I see right now [is that] the world is sharply polarized and the world is being divided along ‘with’ and ‘against’.”

Khalidi’s comments come at a time when Russia’s invasion of Ukraine has highlighted just how reliant some economies are on Russian oil and gas.

While the war in Ukraine has created geopolitical tension and division, it has also resulted in a number of initiatives defined by cooperation and shared aims.  

Last week, for example, the U.S. and European Commission issued a statement on energy security in which they announced the creation of a joint task force on the subject.

The parties said the U.S. would “strive to ensure” at least 15 billion cubic meters of extra liquefied natural gas volumes for the EU this year. They added this would be expected to increase in the future.

President Joe Biden said the U.S. and EU would also “work together to take concrete measures to reduce dependence on natural gas — period — and to maximize … the availability and use of renewable energy.”

Investing wisely

Given that fossil fuels play such a major role in modern life, any transition to an energy system and economy centered around renewables and low-carbon technologies will require a vast amount of money.

During Tuesday’s panel, the question of where this cash should be invested was tackled by Kara Mangone, who is global head of climate strategy at Goldman Sachs. Among other things, she stressed the importance of integration and commercial viability.

“Our research estimates that it’s going to take anywhere from 100 to 150 trillion [dollars] in capital, about 3 to 5 trillion a year — just an astronomical amount, we’re nowhere near that today — to deliver on the goals that were set forth in the Paris Agreement,” she said.

Around half of this capital would need to be focused on renewables and technologies that were already at a commercial scale, Mangone explained.

“But the other half, very importantly, will need to go into carbon capture, into hydrogen, into direct air capture, into sustainable aviation fuel, e-fuels — technologies that are not yet being adopted at commercial scale because they have not hit the price point where that can happen for a lot of companies.”

The trillion-dollar figures Mangone refers to are found within a report entitled “Climate Finance Markets and the Real Economy” which was published in late 2020. Goldman Sachs says it joined the Global Financial Markets Association Climate Finance Working Group to help inform the report.

Mangone went on to lay out how goals could be achieved in a commercially viable way.

“We cannot pull out financing from … the oil and gas sector, metals and mining, real estate, agriculture — these sectors that are really crucial to transition, that actually need the capital, that need the support to be able to execute on that.”

The above viewpoint follows on from comments made Monday by Anna Shpitsberg, deputy assistant secretary for energy transformation at the U.S. Department of State.

“We have always come out and said [the] oil and gas industry is critical to the transition,” Shpitsberg, who was speaking during a panel moderated by CNBC’s Hadley Gamble, said.  

“They are players in the energy system, they are key players,” she said. “They are the ones that will be pushing abatement options, they’re the ones that will be pushing hydrogen options.”

“And to be quite honest, they’re some of the ones that are putting significant investment into clean energy, including renewables.”

If these “critical stakeholders” were not engaged, Shpitsberg argued that goals relating to methane reduction and efficiency would not be reached.

“The messaging has been oil and gas companies have to be a part of the conversation. But we want them also to be a part of the conversation on the transition.”

Work to be done

Securing a successful energy transition represents a huge task, especially when one considers the current state of play. Fossil fuels are ingrained in the global energy mix, and companies continue to discover and develop oil and gas fields at locations around the world.

Earlier this month, the International Energy Agency reported that 2021 saw energy-related carbon dioxide emissions rise to their highest level in history. The IEA found energy-related global CO2 emissions increased by 6% in 2021 to reach a record high of 36.3 billion metric tons.

In its analysis, the world’s leading energy authority pinpointed coal use as being the main driver behind the growth. It said coal was responsible for more than 40% of overall growth in worldwide CO2 emissions last year, hitting a record of 15.3 billion metric tons.

“CO2 emissions from natural gas rebounded well above their 2019 levels to 7.5 billion tonnes,” the IEA said, adding that CO2 emissions from oil came in at 10.7 billion metric tons.

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World

EU shuts airspace to Russian airlines; will buy Ukraine arms

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BRUSSELS (AP) — The European Union’s chief executive says the 27-nation bloc will close its airspace to Russian airlines, fund supplies of weapons to Ukraine and ban some pro-Kremlin media outlets in response to Russia’s invasion.

European Commission President Ursula von der Leyen said Sunday that “for the first time ever, the European Union will finance the purchase and delivery of weapons and other equipment to a country that is under attack.”

Von der Leyen added that “we are shutting down the EU airspace for Russians. We are proposing a prohibition on all Russian-owned, Russian registered or Russian-controlled aircraft. These aircraft will no more be able to land in, take off or overfly the territory of the EU.”

She said also the EU will ban “the Kremlin’s media machine. The state-owned Russia Today and Sputnik, as well as their subsidiaries, will no longer be able to spread their lies to justify Putin’s war and to sow division in our union.”

Von der Leyen added that the EU will also target Belarus President Alexander Lukashenko for supporting Russia’s widespread military campaign in Ukraine.

“We will hit Lukashenko’s regime with a new package of sanctions,” she said.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

BRUSSELS (AP) — In one of the most significant shifts in European security policy in decades, Germany announced Sunday it was committing 100 billion euros ($113 billion) to a special armed forces fund and would keep its defense spending above 2% of GDP from now on, a move brought on by Russia’s invasion of Ukraine.

The announcement, which came hours before Russian President Vladimir Putin ordered Russian nuclear forces put on high alert, underscored how Russia’s war on Ukraine was rewriting Europe’s post-World War II security policy in ways that were unthinkable only a few weeks ago.

The German policy shift also came as Italy, France, Austria, Malta, Canada and Belgium joined other EU countries in closing their airspace to Russian aircraft, carving up the skies over Europe.

Anti-war protesters, meanwhile, took to the streets in Berlin, Rome, Prague, Istanbul and other cities — even Russian cities like Moscow and St. Petersburg — to demand an end to the war, the largest ground offensive on the continent since WWII.

Tens of thousands of people massed Sunday in front of Berlin’s Brandenburg Gate, with some carrying posters with slogans such as “Hands off Ukraine,” “Tanks to Windmills” and “Putin, go to therapy and leave Ukraine and the world in peace.”

German Chancellor Olaf Scholz’s announcement of new defense funding is significant for Germany, which has come under criticism from the United States and other NATO allies for not investing adequately in its defense budget. NATO member states committed to spending 2% of their GDP on defense, but Germany has consistently spent much less.

“It’s clear we need to invest significantly more in the security of our country, in order to protect our freedom and our democracy,” Scholz told a special session of the Bundestag in Berlin.

Scholz said the 100 billion euro fund was currently a one-time measure for 2022. It wasn’t immediately clear whether similar funding would be allocated in future years. But Scholz indicated Germany will exceed the 2% of GDP threshold going forward, signaling an overall future increase in defense spending.

A day earlier, Germany announced another major shift in policy, saying it will send weapons and other supplies directly to Ukraine, including 500 Stinger missiles, which are used to shoot down helicopters and warplanes, and 1,000 anti-tank weapons.

Israel, meanwhile, announced it was sending 100 tons of humanitarian aid — medical equipment and medicine, tents, sleeping bags and blankets — to help civilians caught up in the fighting in Ukraine.

Israel also offered itself as a potential mediator during a phone call between Israeli Prime Minister Naftali Bennett and Putin, the Kremlin and Israel said.Bennett spoke also Friday with Ukrainian President Volodymyr Zelenskyy, who is Jewish.

On the European front, European Union interior and foreign ministers were holding emergency talks Sunday to respond to the crisis.

Interior ministers were debating how to cope with an influx of refugees, as well as managing security challenges on EU borders with Ukraine and humanitarian aid to the country. The U.N. refugee agency said as of Sunday more than 368,000 people had fled Ukraine and estimated that 4 million could flee if the fighting spreads.

Later Sunday, EU foreign ministers were meeting via videoconference to discuss sending more military aid to the Ukrainian government in Kyiv. EU foreign policy chief Josep Borrell said he will urge the ministers to endorse “a package of emergency assistance for the Ukrainian armed forces, to support them in their heroic fight.”

To bolster its military training and support missions around the world, the 27-nation bloc has set up a European Peace Facility, a fund with a ceiling of around 5.7 billion euros ($6.4 billion). Some of the money can be used to train and equip partner countries, including with lethal weapons.

Providing weapons to Ukraine that were bought with EU money would be unprecedented.

Borrell says the EU ministers will also weigh “further measures in support of Ukraine, against aggression by Russia.” The meeting is informal, so no binding decisions can be taken, but their recommendations could be enacted in coming days.

As Greece sent more military aid and Italy weighed its own contributions, Turkish officials termed Russia’s invasion a “war,” a categorization that could lead Ankara to close down the Turkish straits to Russian warships, as Kyiv requested earlier this week. The 1936 Montreux Convention gives Turkey the right to bar “belligerent states” from using the Dardanelles and the Bosporus during wartime but provides an exception for Black Sea vessels to return to port.

On the sanctions front, Japan joined the United States and European nations in cutting key Russian banks from the SWIFT international financial banking system. Japan will also freeze assets of Putin and other top Russian officials, while sending $100 million in emergency humanitarian aid to Ukraine, Prime Minister Fumio Kishida told reporters.

Catholic and Orthodox religious leaders, meanwhile, prayed Sunday for peace, voiced solidarity with Ukrainians and denounced the Russian invasion.

At the Vatican, Ukrainian flags fluttered in St. Peter’s Square as Pope Francis delivered his weekly Sunday blessing and appealed for global solidarity for “the suffering people of Ukraine.”

“Those who make war forget humanity,” Francis said, adding that such a mentality “relies on the diabolical and perverse logic of weapons, which is the farthest thing from God’s will.”

Francis refrained from citing Russia by name, in apparent deference to his hopes to keep dialogue open with the Russian Orthodox Church.

Also Sunday, the Ecumenical Patriarch of Constantinople described Russia’s invasion as “beyond every sense of law and morality” and pleaded for an end to the war.

Patriarch Bartholomew is considered the spiritual leader and first among equals of Eastern Orthodox Christians worldwide. He granted the independence of the Orthodox Church of Ukraine, which severed it in 2019 from the Russian church to which it had been tied since 1686. The Russian Orthodox Church severed relations with him as result.

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Schultheis contributed from Vienna, Austria. Nicole Winfield in Rome, Josef Federman in Kyiv, Ukraine contributed.

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Follow all AP stories on Russia’s invasion of Ukraine at https://apnews.com/hub/russia-ukraine.

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World

Von der Leyen discusses energy sanctions

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EU Commission’s President Ursula von der Leyen holds a press conference ahead the G20 and the COP26 (Glasgow Conference) in the Berlaymont, the EU Commission headquarter on October 28, 2021 in Brussels, Belgium.

Thierry Monasse | Getty Images News | Getty Images

European Commission President Ursula von der Leyen has told CNBC that energy sanctions against Russia are still an option if the country invades Ukraine.

When asked about the possibility of imposing sanctions on Russian gas giant Gazprom, von der Leyen said Saturday, “everything is on the table.”

Europe imports around 40% of its gas supply from Gazprom, the EU chief told CNBC’s Hadley Gamble at the Munich Security Conference, which von der Leyen described as a “dependency that is not sustainable.”

She said she had been reaching out with success to alternative suppliers, such as the United States.

“We had now, in January, the highest amount of energy deliveries [from elsewhere], and we know by now that if there is a decoupling of Russian gas as a retaliation, we are able to make it through this winter without Russian gas but with supply from others and this is good,” von der Leyen said.

Italian Prime Minister Mario Draghi has argued that any potential sanctions against Russia should not include energy imports. Italy is among the largest importers of Russian gas in the European Union.

Von der Leyen maintained that it was important to not rule out any options, noting that two-thirds of Russia’s energy exports go to Europe and this accounts for a significant amount of Russia’s budget. She argued that it was, therefore, not a “smart move” for Russia to decouple Europe from its gas supply.

Von der Leyen added that she had reassured Draghi that Europe would source gas from elsewhere and that there was a pipeline network through the continent to “bring the necessary gas to Italy so that Italy is also on the safe side.”

Discussing the threat of a potential Russian invasion of Ukraine, von der Leyen said “we all want that diplomacy will have victory, but we prepare for the worst.”

President Joe Biden said on Friday that the U.S. believes Putin has decided to carry out an attack on Ukraine “in the coming days.”

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World

EU proposes a 9-month expiration date on vaccine pass

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QR code with EU COVID digital certificate displayed on a mobile phone.

NurPhoto | NurPhoto | Getty Images

The European Union is considering a nine-month expiration date on its Covid-19 vaccine certificates, which allow tourists certain freedoms to travel while the coronavirus pandemic still rages.

The European Commission, the executive arm of the EU, proposed Thursday that the EU Digital Covid Certificate should be updated. This document has allowed people to travel more easily amid the pandemic by outlining their vaccination status, whether they have recently recovered from the virus, or whether they have recently tested negative.

The idea now is that the document has a life span of nine months after the first set of vaccines are administered — so after the second dose for Pfizer-BioNTech shot, for example, or after one dose of the Johnson & Johnson vaccine. The idea is that as immunity wanes, then a vaccine passport will expire.

Thursday’s recommendation does not yet address booster shots. The commission said that “it can reasonably be expected that protection from booster vaccinations may last longer than that resulting from the primary vaccination series.”

As such, a new expiration date could be announced in a couple of week’s time to include the advice for booster shots. In a major policy shift, the European Centre for Disease Prevention and Control suggested Wednesday that all adults should receive vaccine boosters, with priority given to those over 40.

Pandemic is not yet over

“It is evident that the pandemic is not yet over,” European Commissioner Didier Reynders said Thursday. As such, he said, “the travel rules need to take into account this volatile situation.”

Various European nations are facing a high number of Covid infections, notably in the countries where the vaccination rate remains low.

The EU’s inoculation rate is at 67% — this masks differences between nations, like Portugal, where 88% of the population is fully vaccinated and others, where people are more reluctant in getting a coronavirus shot.

Thursday’s announcement comes as the World Health Organization warned earlier this week that the number of deaths from Covid in the region could exceed 2 million by March. The WHO also described the recent increase in cases as “very serious.”

Different European nations have announced measures in recent weeks to contain rising infections. Countries such as Austria and the Czech Republic have taken some of the strictest approaches.

Thursday’s proposal needs to be ratified by the 27 EU member states before being approved.

The proposal also suggests that children below six years of age should be exempt from any travel restrictions. Those aged between 6 and 12 should also be exempt unless they come from a nation with a very high level of contagion and kids above 12 years will have to follow the same rules as adults.

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World

After threats to rip up the Brexit deal, UK and EU hold crunch talks

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A European Union (EU) flies alongside a British Union flag, also known as a Union Jack in London.

Jason Alden | Bloomberg Creative Photos | Getty Images

LONDON — The United Kingdom and the European Union are due to enter new negotiations on Friday in an attempt to avoid a looming trade war.

The U.K. officially left the EU in January 2020 and since then a number of new trade arrangements have come into place. However, the agreements now look to be under threat as the U.K. complains about difficulties in implementing the required checks on goods moving from Great Britain to Northern Ireland.

The nature of this border post-Brexit has been a major sticking point in negotiations between the U.K. government and the European Union. Great Britain includes England, Scotland and Wales, but not Northern Ireland; Northern Ireland is, however, part of the U.K.

The European Commission, the executive arm of the EU, proposed last month to adapt certain parts of the trade deal in an effort to make it easier for these checks to take place. But EU officials have since complained that the government of U.K. Prime Minister Boris Johnson is not showing a willingness to negotiate.

Political analysts have warned that this standoff could drag on for several months.

A Commission official, who did not want to be named due to the sensitivity of the negotiations, said Thursday that its proposals mark “a significant difference” from the original trade deal.

“Northern Ireland deserves stability and certainty, and we are ready to work around the clock to achieve this,” the official said. “The U.K. must take a step towards us to make sure the talks are meaningful.”

There are, however, significant differences in how the EU and U.K. are looking to solve the problem.

U.K. Brexit Minister David Frost said that all checks on goods moving from Great Britain to Northern Ireland should come to an end. Instead, he thinks authorities should trust businesses to inform them if products will stay in Northern Ireland or continue to the Republic of Ireland — which is European territory.

Businesses have to fill different forms depending on whether goods will enter the European market or not.

However the European Commission says they cannot trust companies to keep them informed about trade flows. “What … doesn’t work is to wait for traders to tell us,” the unnamed Commission official said. “We believe we need data to track that.”

The Commission says it does want to significantly reduce the amount of paperwork that businesses need to fill when moving goods from Great Britain to Northern Ireland. Ultimately though, Brussels is worried that products that do not meet European standards could end up entering the EU’s single market via Northern Ireland.

Another issue is that the U.K. wants to end the jurisdiction of the European Court of Justice over how their trade deal works. But the EU is not budging on this one.

Tearing it all apart?

Amid this standoff, Frost has threatened to trigger so-called Article 16 — this would lead to the suspension of part of the current trade agreement on the basis that it is causing “economic, societal, or environmental difficulties.”

He said Wednesday that triggering this article would be the “only option” if negotiations with the EU fail.

The EU, for its part, has warned that it would retaliate in this scenario, which could lead to no trade deal — and a trade war.

“Senior EU officials in Brussels, but also across the continent’s 27 capitals, are extremely gloomy about the outlook and believe escalation in the form of a trade war — probably early in the new year — is now almost unavoidable,” analysts at consultancy group Eurasia said in a note Tuesday.

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Technology

EU Law That Could Force the iPhone to Switch to USB-C to Be Presented Next Month

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Apple may be forced to remove the Lightning port from the iPhone in favor of USB-C, according to legislation expected be presented by the European Commission next month, Reuters reports.

The legislation would establish a common charging port for all mobile phones and other relevant devices in all European Union countries. The move is expected to primarily affect Apple, since many popular Android devices already feature USB-C ports.

In 2018, the European Commission tried to reach a final resolution on the issue but it failed to come into law. At the time, Apple warned that forcing a common charging port on the industry would stifle innovation and create electronic waste as consumers were forced to switch to new cables.

A European Commission impact assessment study conducted in 2019 found that half of all charging cables sold with mobile phones had a USB micro-B connector, 29 percent had a USB-C connector, and 21 percent had a Lightning connector. The study suggested five options for a common charger, with various options that cover ports on devices and ports on power adapters.

Last year, the debate was reignited as the European Parliament overwhelmingly voted in favor of a common charger, citing less environmental waste and user convenience as the main benefits.

The executive branch of the European Union is currently drafting the legislation, according to sources speaking to Reuters, which is expected to be presented next month.

Note: Due to the political or social nature of the discussion regarding this topic, the discussion thread is located in our Political News forum. All forum members and site visitors are welcome to read and follow the thread, but posting is limited to forum members with at least 100 posts.

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World

Germany constitutional court puts EU covid funds on hold

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This photo taken on November 12, 2020, shows stocked up chairs inside a closed restaurant on the Champs-Elysees avenue in Paris.

STEPHANE DE SAKUTIN | AFP | Getty Images

 LONDON — The European Union’s much-needed coronavirus stimulus plan has hit a stumbling block after the German constitutional court raised questions about how the new debt is being taken on.

The EU’s 27 nations agreed in July to tap financial markets via the European Commission, the executive arm of the EU, and raise 750 billion euros ($883 billion) to tackle the economic crisis sparked by the coronavirus. It was described at the time as a “Hamiltonian moment” for the bloc, in reference to the deal struck by U.S. Founding Father Alexander Hamilton to convert previous debts into joint obligations of the federal union.

Though EU countries share many political decisions, each nation has full control over its fiscal arrangements. Agreeing to take on new debt proved controversial for more fiscally-conservative nations, who worry their taxpayers might face a higher bill as a result.

This was the case in the Netherlands, for example, but Prime Minister Mark Rutte stressed at the time the unique nature of the deal: it is meant to be a one-off event to deal with an unprecedented and severe economic shock across the region.

But this argument has not convinced every EU-sceptic.

A group in Germany, called the Citizens’ Will Alliance, complained to the country’s constitutional court that the European treaties do not allow the bloc to take on debt jointly. As a result, the German court on Friday stopped a law that would have paved the way for the European Commission to raise the funds. The German judges said they had to first rule on a motion for an interim injunction on the law.

“We are aware that the Recovery Fund is a political project already decided upon. However, given the considerable risks involved, the federal government should ensure that borrowing at the EU level and a circumvention of the fiscal rules does not become a permanent solution,” the German constitutional court said on Friday.

It comes despite 478 out of 645 German lawmakers giving the ratification of the law the greenlight last week.

Practical consequences

The European Commission cannot tap financial markets for the funds before all the member states have legislated in favour of the move. As many as 22 of the 27 EU nations have done so or are due to conclude the process next month. Austria, Poland, Hungary and the Netherlands have not yet confirmed when they will vote, and Germany is now under a cloud of uncertainty.

“Unless the issue is resolved fast and in favour of the law which both houses of the German parliament had approved with broad majorities beforehand, pay-outs from the fund could thus be delayed or even be at risk,” Holger Schmieding, chief European economist at Berenberg said in a note on Monday.

The European Commission wants to start raising funds this summer and make them available to member states in the second half of 2021 — a year after the initial agreement. 

Countries severely hit by the pandemic, such as Italy and Spain, are desperately waiting for the fresh cash so they can rebuild their economies faster. And the recovery funds have become even more important as nations across Europe battle against a third wave of infections and impose stricter lockdowns.

“Although the German Court case could generate some noise, we consider it unlikely that it will ultimately thwart the EU’s common fiscal response to the Covid-19 pandemic,” Schmieding said.

He believes that a delay in pay-outs “would be unfortunate,” but as long as markets expect the money to come through at some point, borrowing rates for EU nations should remain low.

A long-term headache

There is another issue at play, however.

This is not the first time that the German constitutional court has raised questions about what it perceives as risky EU integration. In May of last year, the same court ruled that parts of the European Central Bank’s government bond purchasing program were illegal under German law.

“The risk of a bigger battle looms because Friday’s motion reflects a bigger institutional problem for Germany and for Europe,” Erik Nielsen, chief economist at UniCredit, said in a note on Sunday.

He said the constitutional court could chose “a big fight with Germany’s other branches of the state” or with the ECB once again, this time over its Covid stimulus program.

 

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World

UK and EU covid vaccine export ban spat grows

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Ursula von der Leyen, European Commission president.

Bloomberg | Bloomberg | Getty Images

LONDON — Tensions are high between the U.K. and the European Union as the 27-member bloc considers restricting exports of Covid-19 vaccines across the English Channel.

The European Union is increasingly frustrated at AstraZeneca for not respecting its delivery targets to the bloc. The pharmaceutical firm reduced the number of vaccines it will deliver to the EU twice in the first quarter and once in the second quarter. As a result, European officials are worried that any future issues could undermine their vaccination targets.

AstraZeneca has met its delivery targets for the United Kingdom — where the vaccination rate is higher than in the EU — even though some of these vaccines are coming from plants in the European Union. The U.K. placed its order for the AstraZeneca shots earlier than the EU.

“The EU needs to secure deliveries of vaccines to Europeans in line with companies’ contractual obligations. We will review the different tools at our disposal for that end, including the use of the export authorization regime in its current or in adapted form,” a spokesperson for the European Commission told CNBC on Monday.

In late January, the EU approved restrictions on exports of Covid-19 vaccines, but they can only be implemented if a company is not respecting its contractual obligations with the region and if the vaccines are heading to a country considered not vulnerable.

We have the possibility to forbid planned exports. That is the message to AstraZeneca.

Ursula von der Leyen

European Commission president

This is what enabled Italy to stop a shipment of AstraZeneca vaccines to Australia a couple of weeks ago — the only instance of European authorities preventing Covid shots from leaving the region. However, the legislation is due to expire at the end of March.

“There is an ongoing reflection process in the EU, and we will be consulting Member States. All options are on the table,” the European Commission spokesperson added via email.  The issue is expected to be discussed by the 27 heads of state on Thursday during a European summit.

Speaking to a group of newspapers over the weekend, European Commission President Ursula von der Leyen said: “We have the possibility to forbid planned exports. That is the message to AstraZeneca, ‘you fulfil your contract with Europe before you start delivering to other countries’.”

Von der Leyen had already asked for tougher export restrictions last week.

“We will reflect on whether exports to countries who have higher vaccination rates than us are still proportionate,” she said on Wednesday.

As of last week, the European Union exported 41 million doses of Covid shots to 33 countries. The biggest recipient has been the U.K.

The U.K. government did not confirm when contacted by CNBC on Monday whether Prime Minister Boris Johnson was due to speak with European leaders about vaccine exports.

However, the U.K.’s defence secretary, Ben Wallace, told Sky News on Sunday that blocking vaccines would be “counterproductive” and hurt the EU’s reputation.

Pfizer weighs in

Pfizer, whose vaccine has been used the most across the EU so far, reportedly said the region should not block the export of Covid shots because the company needs raw materials from the U.K. Imposing restrictions on the vaccines could lead the U.K. to retaliate by preventing ingredients from getting to EU plants.

A spokesperson for Pfizer told CNBC on Monday that its position is aligned with the European Federation of Pharmaceutical Industries and Associations, which said in January that export bans risk retaliatory measures “given the global nature of vaccine supply lines.”

The U.K. aims to finish vaccinating its adult population with the first dose of Covid shots by July.

Despite a “tough” start to the rollout in the European Union, as described by von der Leyen last week, the bloc also intends to reach herd immunity by mid-July.

“By July 14, we have the opportunity to reach immunity,” Thierry Breton, European commissioner for internal market, told French TV channel TF1 on Sunday.

The EU’s objective will depend on the fulfillment of delivery contracts by four pharmaceutical firms and on the member states’ ability to vaccinate their populations.

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Russia ready to end ties with the European Union if hit with sanctions

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EU High Representative for Foreign Affairs and Security Policy, Josep Borrell (L) and Russian Foreign Minister Sergey Lavrov (R) hold a joint press conference following their meeting in Moscow, Russia on February 5, 2021. (Photo by Russian Foreign Ministry/Handout/Anadolu Agency via Getty Images)

Russian Foreign Ministry | Anadolu Agency | Anadolu Agency | Getty Images

LONDON — Russia has said it is ready to cut ties with the European Union, according to a fragment of an interview published on Russia’s foreign ministry website Friday morning. The comments mark yet another escalation in tensions between the two sides.

When asked if Russia was heading for a break with the European Union, Russia’s Foreign Affairs Minister Sergey Lavrov said: “We proceed from the fact that we are ready (for that). In the event that we again see sanctions imposed in some sectors that create risks for our economy, including in the most sensitive spheres,” according to a translation of the comments by Reuters.

“We don’t want to isolate ourselves from global life, but we have to be ready for that. If you want peace then prepare for war,” Lavrov added.

Neither the Russian foreign affairs ministry nor the European Commission, the executive arm of the EU, was immediately available for comment when contacted by CNBC on Friday.

The relationship between Russia and the EU hit a new low last week when the EU’s foreign policy chief, Josep Borrell, visited his counterpart in Moscow. It has since been described as a “humiliating” trip by analysts.

Borrell went to voice the EU’s opposition to the arrest of Alexei Navalny, a fierce critic of Russian President Vladimir Putin. However, he accused Russia of putting together “an aggressively-staged press conference” during his trip.

In remarks to the press, Lavrov said that, “the EU is not a reliable partner, at least at the current stage.” Borrell failed to address that comment, which sparked anger among some European lawmakers.

In addition, Borrell learned via Twitter during a meeting with Lavrov that Russia had expelled three EU diplomats for attending demonstrations in support of Navalny.

“An aggressively-staged press conference and the expulsion of three EU diplomats during my visit indicate that the Russian authorities did not want to seize this opportunity to have a more constructive dialogue with the EU,” Borrell said in a blog post two days after his trip.

As a result, he has suggested that the EU should impose fresh sanction on Russia — a decision that needs to be approved by European governments.

It would not be the first time that Russian companies and individuals have been sanctioned by the EU. Their relationship has deteriorated significantly since Russia’s annexation of Crimea in 2014, but ultimately their ties are hugely important to both given their shared economic, energy and strategic interests.

Analysts have told CNBC that the latest differences between Moscow and Russia could put pressure on the gas pipeline being built from Russia to Germany, Nord Stream 2.

The project has been sharply criticized, including by the United States, which has imposed sanctions on companies working on the pipeline — a stance that new U.S. President Joe Biden has shown no indication of changing.

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