CENTRE FOR

INTERNATIONAL

STUDIES

HENNADII UDOVENKO

DIPLOMATIC ACADEMY OF

UKRAINE

POLICY PAPER JULY 2018

Nadiia KOVAL, Borys ZAITSEV

CURRENT PROSPECTS OF REFORMING THE EU:

POTENTIAL IMPACT ON UKRAINE

This policy paper examines the main priorities of current EU reform in the key areas of

institutional arrangements, economic and monetary union, budget, migration policy,

enlargement and neighborhood policies, security and defense, and energy, while also

estimating the depth of those reforms, probability and potential impact on the development

of the EU, and the prospects for Ukraine’s European integration.

INTRODUCTION

The decade after the signing of the Treaty of Lisbon

in 2007 was probably the most challenging in EU’s

history. The 2008 financial crisis demonstrated the

dangers of conducting a common monetary policy

without a common fiscal policy, and austerity

policies contributed to the rapid development of

Eurosceptic movements. These were further

nourished by the migration crisis of 2015, which

ruined the Dublin consensus and fomented several

conflicts between the EU states. Russia’s armed

aggression in Ukraine and Syria and the

inconsistent policy of U.S. President D. Trump

compelled the EU to considerably revise its security

and defense policy. Finally, the process of Britain's

exit from the EU raised fundamental questions

about the future of the European idea itself.

1 White paper on the future of Europe: Five scenarios. https://ec.europa.eu/commission/white-paper-future-europe/white-paper-future-europe-five-scenarios_en 2 President Jean-Claude Juncker's State of the Union Address 2017 Brussels, 13 September 2017 http://europa.eu/rapid/press-release_SPEECH-17-3165_en.htm 3 Initiative pour l'Europe - Discours d'Emmanuel Macron pour une Europe souveraine, unie, démocratique.

The desire to use the deep crisis as an opportunity

to reach a new level of integration brought about

several reform proposals. In March 2017, the

European Commission (EC) published a report

presenting five scenarios for the development of the

EU by 2025 – ranging from the single market only

to federalization1. President of the EC J. C. Juncker

developed these ideas in his State of the Union

speech in autumn 2017 2 . French President E.

Macron ambitiously made EU reform a key element

of his presidency agenda3, structuring it around the

idea of multi-speed integration. The Franco-

German Meseberg Declaration of June 2018 4

reflects an agreement between two "engines" of

European integration on the desirable directions of

EU reform.

http://www.elysee.fr/declarations/article/initiative-pour-l-europe-discours-d-emmanuel-macron-pour-une-europe-souveraine-unie-democratique/ 4 Meseberg Declaration. Renewing Europe’s promises of security and prosperity. Tuesday, 19 June 2018 https://www.bundesregierung.de/Content/EN/Pressemitteilungen/BPA/2018/2018-06-19-meseberg-declaration.html

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The EU is discussing not only big projects but also

the necessary updates to common policies

regarding migration, finance, banking, agriculture,

energy, and many others.

The reformers not only try to circumvent the

complex and lengthy processes of revising the EU's

treaties, but also hope to launch key reforms before

the 2019 European Parliament (EP) election. This

election may substantially change the composition

of the EP, the EC, and the Executive Board of the

European Central Bank (ECB). An increased risk of

a triumph of populist parties may close the window

of opportunity and completely reverse the political

agenda of the EU. Conscious of this problem,

President of the European Council D. Tusk

scheduled the EU Leaders’ Agenda from October

2017 to June 2019 to address the key issues of EU

reforms5.

5 Leader’s Agenda. Building Our Future Together. October 2017. www.consilium.europa.eu/media/21594/leaders-agenda.pdf 6 The Address of the President of Ukraine to the Verkhovna Rada of Ukraine 'On the Internal and External Situation of

In 2017, with the full ratification of the Association

Agreement and visa liberalization, Ukraine

completed an important phase in its relations with

the EU. The Association Agreement defined the

scope and timing of the reforms, which are

necessary for maximal deepening of relations, and

provided broad opportunities for sectoral

integration. As to the prospects of Ukraine’s further

integration with the EU, President P. Poroshenko

set the following priorities in 2017: association with

the Schengen Area, joining the Customs Union,

Energy Union, Digital Single Market, and obtaining

full membership in the European Common

Aviation Area6. However, both implementing the

Association Agreement and striving for further

integration must take into account the context of

numerous dynamic changes in the EU – factors

which are analyzed in this paper.

Ukraine in 2017', », 7 September 2017 http://www.president.gov.ua/news/poslannya-prezidenta-ukrayini-do-verhovnoyi-radi-ukrayini-pr-43086 [in Ukrainian]

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INSTITUTIONAL REFORM

In recent years, the crises have made the EU’s

institutional malfunctions painfully visible: the

usage of ad hoc mechanisms, “manual control”

management, common unscheduled mini-

summits, intergovernmentalism, and the increased

influence of particular states. These mechanisms

offered quick-fix solutions but did not structurally

and systematically solve problems within the EU

legal framework. Indirect consequences such as

loss of trust, accusations of non-transparency, self-

willed actions, and democratic deficit have fostered

Euroscepticism and nationalist sentiments.

Even though a lot of attention is devoted to the

urgency of institutional reform 7 , the probability

that a breakthrough will be achieved by June 2019

is very low. The European Council meeting of 27

leaders on 23 February 2018 outlined numerous

ambitious ideas, all of which were contested for

various reasons. Some of those ideas included

reducing the number of European Commissioners,

expanding qualified majority voting on foreign

policy and fiscal policy matters, merging the

positions of the EC’s and the European Council’s

Presidents, and creating a pan-European list of

candidates for the 2019 EP election. Disagreements

were due largely to differences in the priorities of

member states and fears of losing sovereignty or

altering the balance of power between the EU

institutions.

For the 2019 EP election, the “lead candidate”

(Spitzenkandidat) process, established in 2014 and

which permits the victorious party’s leader to

become the EC’s President, will still be utilized.

However, Spitzenkandidat procedure remains a

half-hearted measure. On the one hand, any EP

candidate must be approved by the European

Council. On the other hand, the voting process

democratizes the selection of the EU leadership

only partially, because voters still do not have a

direct influence over this procedure. A meaningful

reform of the Spitzenkandidat procedure is

possible only with the introduction of transnational

lists and the inclusion of votes from constituents in

7 In addition to the above-mentioned documents, see also: Communication from the Commission to the European Parliament, the European Council and the Council. A Europe that delivers: Institutional options for making the European Union's work more efficient. The European Commission's

all member states. And yet, a reform of this kind

will not happen until 2024 at the earliest.

The Franco-German Meseberg Declaration only

proposes to work on reducing the number of

Commissioners and establishing the transnational

lists of candidates for the 2024 EP election. Further

institutional reforms were not discussed during the

European Council meetings on 28-29 June 2018.

Finding a solution to the problematic paragraphs of

the treaties, especially the almost impossible

application of Article 7 sanctions against infringing

states, was also postponed.

ECONOMIC AND MONETARY UNION

A reform of the Economic and Monetary Union

(EMU) has two key dimensions. On the one hand,

there is the urgent need for a reform of the EMU

institutional arrangements, which will correct

shortcomings that complicated the resolution of the

2008 eurozone crisis and prevent similar crises in

the future.

On the other hand, the creation of powerful

institutions of the euro area will contribute to the

formation of a nucleus of closely integrated

member states and will create the multi-speed EU

de facto. The reform of the EMU was already an

aspiration of French President E. Macron, whose

initial proposals included the creation of a separate

budget and parliament for the euro area as well as

creating the position of the EU Minister of

Economy and Finance. However, German

Chancellor A. Merkel was concerned about

Germany's eventual excessive financial

commitments to other countries' debts, which thus

led to support for smaller reform steps – a method

which is also supported in the Netherlands and

Northern European states.

It took eight months for France and Germany to

reach an agreement, which is outlined in the

Meseberg Declaration. Germany agreed that the

common eurozone budget will be launched in 2021,

with a vague structure outlining both national and

European funding, most probably via a

controversial tax on financial transactions. France

and Germany still have disproportionate ideas on

contribution to the Informal Leaders' meeting of 23 February 2018. https://ec.europa.eu/commission/sites/beta-political/files/communication-institutional-options-for-making-the-european-union-work-more-efficient_en.pdf

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the necessary funding contributions (France would

like to see a budget over 250 billion EUR, Germany

supports just a few dozen billion EUR). Further, the

establishment of the EU Minister of Economy and

Finance is still contested by Sweden, Denmark,

Finland, Estonia, Latvia, Lithuania, Ireland and the

Netherlands. Another set of 12 states (Northern

Europe, the Benelux Union, Malta, Ireland and

Austria) opposed even these general statements, so

the separate eurozone budget was not even

mentioned in the Statement of the Euro Summit on

29 June 2018.

Regardless, there is a stronger consensus about the

implementation of the priorities agreed upon in

December 2017 8 - strengthening of the banking

union and a reform of the European Stability

Mechanism (ESM).

Regarding the banking union, the EU managed to

introduce more effective control of the ECB over

national banking systems and ensure intervention

of the Single Resolution Board to prevent a member

state’s debt rising in case of a collapse of a certain

bank. The Single Resolution Fund, which is

financed by the banking sector of the euro area, was

established to provide funding for the restructuring

of important banks in case of crisis. To complete the

banking union, it is necessary to solve the problems

of risk sharing and non-performing loans. The

European Deposit Insurance Scheme, which was

proposed by the European Commission and

France, was faced with opposition from Germany,

the Netherlands, and the Nordic states. For them,

the main priority is to reduce the risks in the

banking systems of problem countries such as Italy

and Greece.

An accord on the incorporation of the ESM into the

EU legal framework, which was created in 2012 to

provide financial assistance to the eurozone

countries, was reached. It was a compromise

between the positions of France and the EC, on the

one hand, and Germany, on the other. In line with

the accord, the ESM will be transformed into the

European Monetary Fund with broadened

authority to supervise the national economies’

conditions and their fiscal efficiency. Moreover, the

8 Commission sets out Roadmap for deepening Europe's Economic and Monetary Union. Brussels, 6 December 2017. http://europa.eu/rapid/press-release_IP-17-5005_en.htm

ESM will be used as a financial backstop for failing

banks. The accord was approved by the European

Council on 28-29 June 2018, but the

transformation of the ESM will still be rather

gradual. The timing of the ESM reform should be

planned until December 2018, and the

transformation itself will begin no earlier than

2020.

Thus, a mutual understanding between France and

Germany of the euro area reform turned out to be

vague, and negotiations with other states threaten

to further erode its pace and scope. Opponents of

political reinforcement of the euro area are mainly

EU non-eurozone-members, especially those from

East and Central Europe, which are afraid of

finding themselves in lower echelons of multi-

speed Europe, and the eurozone countries that

want to concentrate their efforts on the agreed

priorities of the banking union and the ESM. The

profound reform and strengthening of the euro area

before the 2019 election are not expected while the

EU will focus on partial improvements.

EU BUDGET

The project of the Multiannual Financial

Framework (MFF) 2021 – 2027, proposed by the

EC9, aims to resolve the problems rising from the

loss of the British contributions to the EU and to

use this opportunity for reordering, restructuring,

and changing the priorities of EU funding.

First, there is a need to increase contributions from

the other states, since the UK, a net donor with an

annual contribution of approximately 13 billion

EUR, is leaving the Union. The EC proposes to

increase the overall size of the budget from 1% to

1.114% of the member states’ GNP. Currently,

eightcountries in East and Central Europe have

expressed their readiness to increase contributions

from 1% to 1.4% of GNP. The Netherlands, Austria,

Sweden, Denmark, and Finland are opposed to the

contributions increase and instead support a

reduced budget.

The EC proposes to create financial resources for

the EU that would be independent of the states’

contributions. The sources might include a 3%

9 A Modern Budget for a Union That Protects, Empowers and Defends. The Multiannual Financial Framework For 2021-2027. https://Eur-Lex.Europa.Eu/Legal-Content/En/Txt/Html/?Uri=Celex:52018dc0321&From=En

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corporate tax, 20% of the EU Emissions Trading

System revenues, and a tax on plastic packaging.

However, not every state is willing to allocate tax

collecting authority to the EC.

Second, an increase in contributions/budget

reduction is connected with the evolution of

funding priorities. In the current budget proposal,

the EC has taken a course towards strengthening

common defense, security, and migration policies.

In addition, the EC proposes a significant rise in

funding for education and applied research,

infrastructural projects in the energy sector,

transportation and telecommunications, and in the

digital sphere. The EC aspires to incorporate the

European Development Fund (EDF) into the

budget, shifting from functioning strictly via

intergovernmental agreements. Thus, the budget

for foreign policy related activities will be increased

by almost 30%, from 94 to 123 billion EUR.

The EC also proposes to reduce traditional

expenditures. Funds for the Common Agricultural

Policy (CAP) are to be reduced by 5% (CAP

currently accounts for 38% of the EU budget

spending), while financing conditions for Eastern

and Central European countries are to be

improved. Expenditures for the cohesion policy

(currently, one-third of the budget expenditures)

are proposed to be reduced by 7% with the

reduction of the Cohesion Fund by a total 45%.

Priority will be given, instead, to the European

Regional Development Fund (ERDF), which

already funds poorer regions of the EU.

As is the case with other reforms, the basic

principles of future budget reform should be

adopted before the 2019 EP election. However, the

absence of a mechanism for resolving financial

disagreements between states gravely complicates

reaching a consensus. In addition, the EC

developed a plan that will make the distribution of

funds in the cohesion policy framework dependent

on the states’ compliance with the rule of law.

Adoption of such a plan might trigger a vetoing the

whole budget by Poland or Hungary.

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EXTERNAL BORDERS, THE SCHENGEN

AREA, AND MIGRATION

The urgency of migration policy reform became

apparent during the 2015 crisis, when the Dublin

Regulation, which placed the burden dealing with

migrants on the state of their arrival, failed in the

face of the massive migration inflows. The open-

door policy of Chancellor A. Merkel reduced the

initial pressure, but gradually antagonized many

countries and a part of German society,

subsequently promoting the growth of anti-

migration political forces.

After the controversial mandatory migrant

relocation plan, which operated during 2015-2017

and ended with a mere 30% efficiency, the focus of

migration debate gradually shifted. The policy of

openness and solidarity, expressed in quota

resettlement of migrants in all member states, was

replaced by an emphasis on the need for stricter

protection of the EU external boundaries and

maximum restriction of the migrants’ “secondary

movements” between the EU member states.

In 2017-2018, in numerous EU member states

(Austria, Italy, or Hungary) politicians have

grasped power or maintained it mainly by adopting

an anti-migrant rhetoric, and otherwise moderate

governments have adopted stricter postures

(strengthening migration rules in France;

compromise within the German coalition).

Generally, as of 2018, the idea of the heavily

guarded EU external borders and more selective

migration policy has become the basis for mutual

understanding for countries as different as

Denmark, Italy, and the Visegrad Four states.

However, the overhaul of the Dublin regulation is

hampered due to the extremely diverging interests

of the individual states.

The European Council meetings on 28-29 June

2018 became a key event for the migration debate.

First, leaders have agreed on the concept of

‘regional platforms’ outside the EU (mostly in

Northern African countries), the main task of which

will become the separation of those who have legal

rights for asylum from economic migrants. The EU

leaders are now set to begin negotiations with

respective partners. However, there is no certainty

10 Migration Compact Contribution to an EU strategy for external action on migration. Italian Non-Paper

whether certain countries, such as Tunisia or Egypt,

will agree to create a “platform” because of the risk

of internal political destabilization. Furthermore,

such migration centers can be voluntarily created in

various EU states.

Second, EU states have agreed to counter migrants’

secondary movements within the EU through

bilateral agreements. In particular, France, Spain,

and Greece have already agreed to take back

migrants who registered in these countries but

moved to Germany later on. However, Italy

continues to oppose this approach and demands

that all Mediterranean ports to take in rescue ships

with refugees – a demand which France and Spain

disagree with.

Third, cooperation with external partners remains

a very important element of the migration policy.

The EC will provide Turkey with the second tranche

of 3 billion EUR to counter illegal migration, and it

will increase assistance to EU partner states in

Africa by 500 million EUR. The draft Migration

Compact proposed by Italy in April 2018 10

corresponds to the earlier ideas of Hungary and the

EU External Action Service, which links EU

development assistance to cooperation pertaining

to the issues of migration and which also predicts a

certain prioritization of relations with Africa.

The above-mentioned decisions cannot be

considered final, as the EU leaders have not

managed to agree on the future of the Dublin

regulation. The perspectives of the establishment of

the EU Agency for Asylum, which would deal with

the border issues on the basis of common European

asylum legislation, remain unclear. Preservation of

the freedom of movement within the Schengen

Area still presents a challenge. Austria has

scheduled an informal Summit on Migration in

Salzburg on 20 September, with the strengthening

of external borders as the main topic.

EUROPEAN NEIGHBOURHOOD POLICY

AND ENLARGEMENT NEGOTIATIONS

In 2018, the EU enlargement policy became a

victim of a gradual collapse in pro-European

optimism. Prior to that reduced focus, European

institutions considered the rapid integration of the

http://www.governo.it/sites/governo.it/files/immigrazione_0.pdf

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Western Balkans states as an integral part of EU

reform. The EC had to demonstrate the persistent

attractiveness of the European project, so

negotiations substantially intensified.

In February 2018, the EC published an

“enlargement strategy” 11 and in April 2018 it

recommended that negotiations begin pertaining to

EU membership for Macedonia and Albania.

However, with influence from France, the

Netherlands, and Denmark, the final declaration of

the EU-Western Balkans summit on 17 May 2018

stated only the overall European perspective for the

Western Balkans, not their future accession to the

EU. Finally, a compromise was reached by the end

of June: negotiations with Albania and Macedonia

will start no earlier than June 2019. Until that time,

these states should fulfill a number of obligations,

in particular regarding their fight against organized

crime and corruption. Negotiations with Serbia and

Montenegro in regards to their accession are

ongoing, although the scheduled membership date,

which is 2025 according to the EC, looks overtly

optimistic.

The terms of the March 2016 agreement on

cooperation with Turkey in resolving the migration

crisis included political decisions to open several

blocked negotiation chapters of the accession

process as well as visa liberalization. However, the

authoritarian tendencies of the Turkish

government, which intensified after the 2016

aborted military coup, led the EU states and

institutions to oppose the membership of Turkey

even more openly (namely, France, Germany, the

Netherlands, and the European Parliament).

Nevertheless, Turkey remains an important

economic and political partner (especially in the

context of migration) with no formal termination of

the accession process in sight.

The EU neighborhood policy maintains a course

towards stabilization of the external circle of the

neighboring states and promotion of their internal

resilience, as previewed in the 2016 EU Global

Strategy. Moreover, it is planned to structure the

next EU budget in line with this logic12. On 14 June,

the EC proposed a Neighborhood, Development

11 A credible enlargement perspective for and enhanced EU engagement with the Western Balkans. Strasbourg, 06.02.2018 https://ec.europa.eu/commission/sites/beta-political/files/communication-credible-enlargement-perspective-western-balkans_en.pdf

and International Cooperation Instrument

(NDICI), that should absorb several existing

instruments, including the European

Neighborhood Instrument, and the European

Development Fund, which previously operated as

an interstate mechanism. Development assistance

will become the focal point for this geographically

broad and flexible agreement, with more than 90%

spent in compliance with the official development

assistance rules.

Thus, in the enlargement policy, the principle of

“deepening first”, which makes internal reforms a

priority, gained popularity. In the neighborhood

policy, an emphasis on stabilization and

development assistance for the geographically

broad region is the main course. This trend, which

is partly explained by the consequences of the

migration crisis and the logic of the upcoming

election, may cause the growth of Euroscepticism in

neighboring countries and promote intensification

of the external players' influence in the EU’s

Neighborhood.

DEFENSE AND SECURITY COOPERATION

The reasons that induced the EU to strengthen

security and defense cooperation were the

uncertainty about US security guarantees, the

withdrawal of the militarily strong United

Kingdom, and a wide combination of security

challenges (ranging from Russian aggression in

Eastern Europe to international terrorism). Given

the fragmentation, inefficiency, and underfunding

of the defense industries, almost all member states

recognized the need for increased cooperation.

The disagreements concerned only the priorities of

such cooperation and its scope. Initially, the

German view of slow progress of the biggest

possible number of EU states prevailed over the

French concept of deeper cooperation of the

strongest EU states.

In December 2017, the European Council approved

Permanent Structured Cooperation (PESCO),

which involved 25 of the 28 EU member states

(except Denmark, Malta, and the United Kingdom).

The cooperation of the EU member states in

12 EU Budget for the Future. The Neighborhood and the World https://ec.europa.eu/commission/sites/beta-political/files/budget-proposals-neighbourhood-world-may2018_en.pdf

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defense and security-related projects allows each

state to use its specialization and comparative

advantages. In March 2018, 17 initial projects and

their participants were approved with even more

projects expected to be approved by November

2018.

Despite the fact that this cooperation is voluntary,

mandatory elements were also introduced. The EU

states have to adopt national plans with

commitments within PESCO, which will be

regularly evaluated by the European Defense

Agency

and the High Representative for Foreign Affairs

and Security. The countries of Eastern and Central

Europe were initially skeptical about PESCO,

underlining the risks of weakening NATO's role and

the potential threat to their own defense industries

from large Western European companies.

However, the risks of being excluded from a

common defense policy and not receiving relevant

funding from the EU budget have outweighed these

reservations.

By the end of 2018, the rules for third countries’

participation in PESCO projects should be

approved. First of all, they aim to involve the United

Kingdom (since the EU is losing this member,

which accounted for 23% of its total defense

expenditure), and to a lesser extent Norway.

In the fall of 2018, the Coordinated Annual Defense

Review (CARD), an analytical report from the

European Defense Agency containing

recommendations for joint research programs and

military cooperation, will be published. In addition,

the European Commission proposed to launch an

EU Defense Industrial Development Program to

intensify joint development and production of

high-tech defense equipment. The funding for this

Program will be progressively increased.

While PESCO is promoted as an initiative which is

compatible and complementary to NATO, it still

has the potential to further strengthen the EU's

strategic autonomy. In addition, more ambitious

cooperation returned to the agenda in June 2018,

after Germany supported President E. Macron’s

plan of creating a European rapid response force,

which also implies Great Britain's involvement.

Other potential participants include Germany,

Italy, Spain, the Netherlands, Belgium, Portugal,

Denmark, and Estonia.

Given the weak starting positions, the development

of defense and security cooperation within the EU

is quite dynamic. However, the scope of a

strengthening of European security and defense

still depends on the financing problem. Only Great

Britain, Estonia, Greece, Poland and France adhere

to the NATO standard for 2% GDP of defense

spending. By 2021, Germany has to increase its

defense budget to 42.4 billion EUR (1.2% of GDP).

ENERGY SECTOR AND ENVIRONMENTAL

PROTECTION

The EU's common energy policy and creation of the

Energy Union have been increasingly linked to

issues of climate change and environmental

protection. Relatively less attention has been paid

to the security dimensions, such as diversification

of supply sources and chains.

By 2020, the European Commission aims to

achieve a 10% increase in the interconnection of the

EU states’ power grids by stimulating joint energy

projects. Among those, projects to strengthen

connection of the electrical grids of the Iberian

Peninsula with France, of the Western Balkans’

grids with Central-European networks, and of the

Baltic states’ grids with the EU network. Currently,

the most isolated are the energy systems of Cyprus,

Poland, Spain, and the UK.

In line with the aims of decarbonization, the EC

works on projects to diversify economies of the

regions which depend on fossil fuels (namely, some

regions in Poland and Slovakia). However,

particular states, especially in Eastern and Central

Europe, continue to subsidize transport and other

industries that are dependent on fossil fuels,

complicating the decarbonizing process.

The EU has succeeded in achieving the goal of

reducing greenhouse gas emissions by 20% by

2020, but it seeks to accelerate decarbonization of

sensitive sectors such as transport and automotive

industry by introducing new emission standards or

by stimulating innovative production. In addition,

the Emissions Trading System (ETS), which

encompasses 11, 000 industrial sites in 31 states

(the EU + Liechtenstein, Iceland and Norway), are

required to buy credits for harmful gas emissions,

which they trade with other EU states in further

attempts to reduce emissions. The ETS increases

the price of fossil fuels usage and impels to states to

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increase efficiency and search for alternative energy

sources.

Decarbonization should be considered in the

context of the general perception that natural gas is

a more environmentally friendly fuel. This

indirectly supports the expansion of gas supplies

from the Russian Federation (currently 40%), and

partly explains the EU’s insufficient counteraction

to the construction of the Nord Stream 2 pipeline as

well as the relatively soft decision against

monopolization by Gazprom, the Russian state-

controlled energy entity. Such a policy contributes

chiefly to divisions among the EU states. The

development of Nord Stream 2 project contradicts

the aims of diversification and energy security and

increase the risk of energy monopolization. The

EC's decision on the legality of the Nord Stream 2

construction, which is expected this autumn, will be

one of the key markers not only for the future of the

Energy Union, but also for the EU itself.

COMMON DIGITAL POLICY, SCIENCE,

AND RESEARCH

The main priorities of digital integration are the

completion of the Digital Single Market and

increased cybersecurity. The fundamental principle

of the EU’s digital policy is to stimulate innovations

while also protecting citizens’ rights. In the EC’s

proposal for the next EU budget for 2021-2027, the

funding for Connecting Europe Facility is planned

to be increased in order to improve the access of

households and enterprises to information

technologies. Furthermore, the EC suggested

launching a separate Digital Europe Program to

coordinate joint initiatives in information

technologies. By the end of 2018, the priorities of

the EC will be the completion of the Digital Single

Market, protection of economic competition and

intellectual property, and establishment of digital

contracts. The European Commission and the

European Council have a consensus on the need to

strengthen cybersecurity. In the data protection

policy, the EU currently institutionalizes

specialized agencies and launches joint initiatives.

The EC proposed to create an EU certification

framework for information technology products

and services to standardize cybersecurity

requirements. The European Council meetings of

28-29 June postponed a decision to introduce

digital taxation, with EU member states agreeing to

further examine the EC’s proposals.

From 2014 to 2020, the “Horizon 2020” program

functions to support scientific research and

innovation with a budget of 79.4 billion EUR. The

program focuses on the development of

innovations in biotechnologies, information

technologies (including cybersecurity), and

alternative energy as well as technologies for the

implementation of a circular economy. The mid-

term evaluation of “Horizon 2020” by the expert

team and the European Commission points to the

need for deeper coordination between the EU’s

research funds and for a wider availability of

research results. For the 2021-2027 budgetary

period, the EC proposes to allocate 97.6 billion EUR

to “Horizon Europe” — the next research and

innovation framework program.

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CONCLUSIONS

The analysis of the progress in the EU reform

process shows that the leadership of the EU has not

taken advantage of favorable conditions, formed

due to the electoral success of pro-European forces

in 2017 and creative impulses of different reform

plans. In key areas, reforms that could dramatically

enhance the attractiveness of the European project

or correct the existing flaws have not been agreed

upon. Moderated ambition and a tendency to

postpone the tough decisions have severely slowed

the more ambitious initiatives.

In particular:

• A return to the discussion of the EU institutional

reform may be expected after the 2019 EP election,

perhaps in the form of a new treaty. The

introduction of transnational lists for the European

Parliament election or the reform of the

Spitzenkandidat procedure is also postponed until

at least 2024.

• The reform of the euro area’s institutions has

stalled halfway, because the eurozone states cannot

resolve the dilemma between the urgent need for

institutional reinforcement and the fears that EU

member states will divide into more and less

privileged. The forecast for completion of the

banking union and the transformation of the ESM

is more optimistic. Nevertheless, the process

remains quite slow.

• The draft EU budget contains a number of

reform proposals both in funding (increasing

individual states’ contributions, creation of

independent sources of income) and in shifting

priorities (reducing the funding for common

agricultural policy and cohesion policy, while

spending more on migration, defense policy,

digitalization, and research). The main threat to

successful negotiations over the budget are the

contradictory interests of states, which may directly

prevent reaching a necessary consensus before the

2019 EP election.

• EU member states could not come to final

decisions in migration policy, but the majority of

them reached a common perspective that includes

protection of the EU external borders and maximal

outsourcing to third countries of solution to the

refugee problem as priorities. At the same time,

controversial issues such as secondary movements

of migrants and asylum seekers within the EU were

postponed until autumn at the earliest. This may

indirectly influence overall functioning of the

Schengen Area.

• There are visible steps backward in the

enlargement policy in recent months, most vividly

in the attempts to further put off the accession of

the Western Balkans countries into the EU, despite

the prior agreement on this issue and the shaky

political and security situation in the region.

• The neighborhood policy is developing in line

with directions identified in 2015-2016, with an

emphasis on stabilization and development of

resilience. This priority was also highlighted this

year in the new budgetary instrument for financing

the EU foreign policy, which combined funding for

the neighborhood policy with several other

expenditure areas.

• The start of the enhanced military cooperation

of the EU states in the form of Permanent

Structured Cooperation (PESCO), the coordination

of national defense policies in the Coordinated

Annual Defense Review (CARD), the intensification

of military research in order to achieve strategic

autonomy as well as Germany's support for the

future European Intervention Force are examples

of relatively successful initiatives.

• The EU energy policy shifts attention away from

security to environmental issues. Therefore, most

initiatives are related to climate change and

interconnection of the member states' energy

systems. The result is a rather weak policy towards

the Nord Stream 2 pipeline, which continues to

threaten divisions within the EU.

Consequently, having missed the chance to swiftly

implement ambitious reforms, the EU

concentrated on the slow progress of a maximum

number of members. This model could be described

as “doing a little more together". The

understanding of the impossibility of significant

breakthroughs before the 2019 election is generally

accepted. Thus, in the coming months, we will

observe the transition from the logic of reform

agenda to the logic of election and political struggle.

Moreover, Ukraine is entering the turbulent pre-

election period almost simultaneously with the EU,

which only hinders the development and

implementation of long-term goals. There is no

POLICY PAPER

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expectation of a breakthrough solution within the

next year.

The 20th EU-Ukraine Summit, held in Brussels on

9 July 2018, demonstrated that the EU leaders are

not currently ready for the new organizational

forms of Ukraine’s European integration outside of

the Association Agreement, but are ready to deepen

cooperation in its existing form. Therefore, the

Association Agreement will remain the main

framework of cooperation and sectoral integration,

and the course to deepening integration in key

areas appears to be the best strategy for the years to

come. On the other hand, intensification of

domestic political discussions on further

integration can revitalize Ukraine's

implementation of the Agreement, increase public

support for the pro-European course, and stimulate

the development of areas and policies where

Ukraine is ready to do more.

Centre for International Studies •Hennadii Udovenko Diplomatic Academy of Ukraine at the Ministry of Foreign Affairs of Ukraine

2 Velyka Zhytomyrska St., Kyiv, 01001, Ukraine • http://da.mfa.gov.ua/cis/ • cis@da.mfa.gov.ua, cis.dau.mfa@gmail.com