Brunswick Group 22 October 2014

Talking Politics

Novel European Commission set to tackle ambitious agenda

With a 423 to 209 vote the European Parliament consented on 22 October 2014 to the new European Commission and removed the last hurdle before the new Commission President Jean-Claude Juncker and his College of Commissioners can begin their new mandate. All that remains now is a final rubber-stamping by EU Member States and then the new Commission will take office on 1 November 2014.

This note analyses the Commission’s new ‘modus operandi’ and what policy priorities to expect over the next five years in financial services, energy, and digital affairs, which we believe are the three key sectors for delivering on the ten priorities spelled out in Juncker’s Political Guidelines. A short and focused overview of key new Commissioners and their working relations follows.

The Commission’s role and tasks

The Commission is the ‘guardian’ of EU Treaties – it represents and upholds the interests of the EU as a whole.

Most importantly, it is the initiator of new European legislation, which will then be amended and adopted by EU Member States in the Council and by the European Parliament.

Moreover, it manages the day-to-day business of implementing EU policies and spending EU funds.

Early deliverables for the Juncker Commission

Flesh out the €300 billion investment package intended to jumpstart the European economy. The plan needs serious commitment and concrete smart proposals to leverage sufficient private money through additional public investments, notably in infrastructure. President-elect Juncker wants to present the package before Christmas.

Publish the Recovery and Resolution package for non-bank institutions. The proposal is one of the few ‘new’ pieces of financial services primary legislation to be brought forward in the near future. It will address risks to financial stability arising from non-banking institutions such as central counterparties (CCPs) and potentially insurance companies.

Only if the security situation in Eastern Ukraine improves, address the current sanctions regime aimed at specific sectors of Russia’s economy amidst the continued efforts to solve the gas dispute between Ukraine and Russia and diversify Europe’s energy supplies.

Help the Italian and Latvian Presidencies navigate the Data Protection Regulation through the Council and ensure an agreement with the Parliament in 2015, while keeping close working relations with the U.S. on questions surrounding the Safe Harbour agreement, the mechanism enabling transfers of personal data from the EU to the U.S.

The Commission in Numbers

Former Ministers

Men Women Former MEPs

Current Commissioners

Former Deputy Prime

Ministers

Former Prime Ministers

The Commission’s Political Guidelines The Commission’s ten policy priorities, as formulated by President-elect Juncker

1. A New Boost for Jobs, Growth and Investment

2. A Connected Digital Single Market

3. A Resilient Energy Union with a Forward-Looking Climate Change Policy

4. A Deeper and Fairer Internal Market with a Strengthened Industrial Base

5. A Deeper and Fairer Economic and Monetary Union

6. A Reasonable and Balanced Free Trade Agreement with the US

7. An Area of Justice and Fundamental Rights Based on Mutual Trust

8. A New Policy on Migration

9. A Stronger Global Actor

10. A Union of Democratic Change

The Commission’s new ‘project teams’

Previous Commissions have been criticized for their inefficient working style and lack of cooperation. Overcoming this so-called ‘silo mentality’ has been one of Juncker’s key objectives so far. As a result, five out of the Commission’s seven Vice Presidents will be in charge of ‘project teams’, overseeing and coordinating the work of several Commissioners.

This new working structure is a bold move and remains a bit of an unknown. It will only pay off if ‘ordinary’ Commissioners and VPs have a sound working relationship based on trust. People and coordination skills will matter a great deal in the new College to make sure that the Commission’s administrative staff in the Directorates General (DGs) do not receive conflicting political signals.

The College will need to demonstrate quickly the added benefits of the new structure to win over sceptics; a considerable amount of Juncker’s political capital is invested in this new approach.

While individual legislative proposals will still originate from within the Commission’s bureaucracy and be the main responsibility of an individual Commissioner, the new Vice President structure means that top level long-term engagement plans need to take into consideration more targets than before.

20 19 9 8 7 5 4

Financial Services Over the next five years Financial Services Regulation at EU level will be a

question of implementation, implementation, and implementation.

After probably the most intense period of new legislation ever seen

in response to the 2008 crisis, financial services will no longer be the

‘it’ topic – with the focus likely shifting to Energy, Climate Change

and Digital. That said, quite a lot remains on the table from the last

Commission and Parliament (e.g. proposals on benchmarks, a

financial transaction tax, payments and credit card fees, money

market funds and splitting out wholesale from retail banking) – and

the Council and Parliament will shortly be inundated with secondary

legislation flowing from the frenetic re-regulation period. It will be

interesting to see how the European Supervisory Agencies and the

Commission perform here – and whether they will push the

boundaries of what the primary legislation allows, which could

provoke a backlash from the other institutions.

Besides a proposal on the recovery and resolution of non-bank

financial institutions – which will most probably be restricted to

CCPs and possibly some other infrastructure providers –

Commission officials will be itching to open their top left hand

drawers and dust off their proposals for reviews of existing

legislation which has been put on hold to provide bandwidth for the

re-regulation package. Some of the earlier re-regulation proposals,

such as EMIR on the authorisation and operations of CCPs are

already due for review in 2015 – and a number of commentators are

convinced that once the re-regulation package is fully implemented

the combined effect of all the measures will need further calibration

– and possibly revised legislation – to ensure that the optimum

balance is achieved between ensuring financial stability and making

finance available to fuel growth and jobs.

Key in this debate will be the much vaunted Capital Markets Union –

on which Jonathan Hill, the new UK Commissioner for financial

stability, received so many questions from the Parliament. Whilst

this is a snappy new title it does little more than try to breathe new

life into an issue which has taxed the EU for the last 20 years: how to

make the EU’s financial markets look more like the US – and shift

the dependence on bank based financing to the capital markets.

Revitalising high quality securitisation and extending the technique to

the SME markets will figure large.

Completion of the Banking Union will also be a key priority – and in

their questioning of Hill MEPs made it clear that they were impatient

to see a common deposit guarantee scheme proposal to back-up the

legislation already in place. However, Hill countered this clearly by

saying that in view of the lack of progress on the existing proposal for

harmonised national schemes he thought it unlikely that the political

conditions for a common scheme were likely to exist any time soon.

Politically it will be interesting to see how a Conservative British

Commissioner for Financial Services fairs working in a matrix

management scheme with Commissioners from the Eurozone on

issues which will go to the core of greater European integration

through the single currency.

A new administrative structure for financial services

A new Commission Directorate General (DG) Financial Stability, Financial Services and Capital Markets Union, which will be responsible for relations with the EBA, ESMA, EIOPA, ESRB, and the Single Resolution Board (SRB) will report to Commissioner Hill.

The new DG ‘Financial Stability’ will include:

Directorates F (Capital and Companies), G (Financial Markets), and H (Financial Institutions) from DG MARKT, except Unit F2 (Corporate Governance, Social Responsibility), which moves to DG JUST (and Commissioner Jourová, who is also responsible for remuneration).

The task force for the establishment of the SRB.

Unit MARKT 02 from DG MARKT (Financial services policy)

Unit E1 (Financial Markets and Infrastructures) and E2 (National Financial Systems) from DG ECFIN.

The part of Unit E3 (Financial Institutions and Stability Mechanisms) dealing with Financial Integration and Regulatory Policy, from DG ECFIN, with the exception of the part covering the European Stability Mechanism firewall.

Selected key Commission Members for Financial Services

Jyrki Katainen Vice President for Jobs, Growth, Investment and Competitiveness Leads ‘A New Boost for Jobs, Growth and Investment’ project team

“Public investment should not crowd out private investment. Money from the public side should be used as a catalyst for private investment.”

Valdis Dombrovskis

Vice President for the Euro and Social Dialogue Leads ‘A Deeper and Fairer Economic and Monetary Union’ project team

“If we want to return to economic growth we need to facilitate investments and stimulate demand. We need to concentrate on the demand side of economy, including increasing wages by moving taxation from labour to capital, property and other areas.”

Jonathan Hill Financial Stability, Financial Services and Capital Markets Union In charge of DG Financial Stability, Financial Services and Capital Markets Union

“The EU should not try to impose the exact same financial services rules globally, but any decision on equivalence must be supported by a rigorous technical assessment of third country rules.”

Pierre Moscovici Economic and Financial Affairs, Taxation and Customs Union In charge of DG Economic and Financial Affairs and DG Taxation and Customs Union

“I'm not here to change EU fiscal rules. I'm here to enforce them, while using all the margins they offer. One principle of vital importance is equal treatment. It would not be acceptable to give privileged treatment to some countries and not others.”

Věra Jourová Justice, Consumers and Gender Equality In charge of DG Justice (includes remuneration policies)

“I am comfortable supervising the topic of bankers’ bonuses. I think we’re going the right way on remunerations because we should set rules to prevent moral hazard.”

Margrethe Vestager Competition In charge of DG Competition

“We have to come back to the usual application of State aid control in the banking sector. I am ready to do so as soon as the market conditions permit.”

Energy The ‘Energy Union’ project team under the supervision of Vice President

Maroš Šefčovič must not only deliver one of the key objectives of President-

elect Juncker’s Political Guidelines, it will have to do so from the very first

day and in a challenging international environment.

The conflict in Eastern Ukraine has amplified the issue of energy

security, but also introduced new political momentum into the

process of addressing it. The prospect of a genuine Energy Union

may now be a plausible one. The completion of the internal energy

market remains the key objective in this regard and will require a

measured approach to balance the EU’s and Member States’ myriad

interests.

High energy prices continue to hamper the competitiveness of

Europe’s industries. At the same time, the new Commission will

want to make sure that the various proposals aimed at increasing

energy efficiency and the use of renewables, as well as measures to

diversify Europe’s energy sources, routes, and suppliers are

employed in a way that ensures the EU’s ambitious greenhouse

emission targets are taken into due consideration ahead of next year’s

international climate change conference in Paris.

The complementary nature of future initiatives in the areas of

energy, environment and competitiveness has been emphasized by a

number of Commissioners and Juncker himself, and the distribution

of responsibilities and portfolios reflect this understanding, with the

Commission’s energy and climate DGs now both reporting to the

same Commissioner (Miguel Arias Cañete) and the Vice President

for Energy Union Šefčovič overseeing the work not only of

Commissioner Canete, but also Environment Commissioner

Karmenu Vella.

Still, Juncker’s heavy focus on jumpstarting the European economy

and combating high unemployment has generated some criticism that

he is neglecting the environment. The new Commission will have to

demonstrate how it intends to turn these ambitious aims into

tangible policies that deliver.

Šefčovič will find a number of ongoing initiatives on his desk. Last

week the Commission published a report on the progress achieved in

establishing an internal energy market (IEM) and the results of stress

tests to assess the vulnerabilities of Member States if gas supplies

from Russia were to be disrupted over the winter. The IEM report

identified a number of outstanding issues, such as incomplete

implementation of the EU’s Third Energy Package, missing

interconnectors and the need for additional and urgent investment in

infrastructure. Expect the second iteration of the List of Projects of

Common Interests (PCIs) in energy infrastructure in 2015 to provide

a better picture of how the Energy Union will materialize into

concrete projects.

In competition matters, the ongoing anti-trust investigation into

Gazprom will be assessed and completed by Competition

Commissioner Margrethe Vestager. Although she pledged a technical

and legal approach to competition cases, the Gazprom case will

inevitably be assessed in the wider political context of the Ukrainian

crisis and the implementation of an EU energy strategy.

Grand ambitions and declarations regarding a genuine single

European energy policy will nevertheless be difficult to implement in

full. In the foreseeable future, there is little the EU can do to

significantly reduce dependence on Russian energy. The realisation

of the Southern Corridor is going to take some time, and alternatives

such as shale gas exploration are politically contested. The EU’s push

to include an energy chapter in the Transatlantic Trade and

Investment Partnership (TTIP) agreement has not yet borne fruit,

and in light of the uncertainties surrounding this particular free trade

agreement, might never do so.

The EU seems to be, at least in the short term, largely stuck with

their traditional energy suppliers.

One umbrella for energy, climate and environment

The Commission’s DGs for Climate Action (CLIMA) and Energy (ENER) will both report to and work for the same Commissioner from now on.

This reflects President-elect Juncker’s aim to bring these two policy streams under the same roof, and aligns with the Commission’s 2030 framework for climate action and energy policies, which Member States are expected to agree on during the European Council Summit on 23-24 October.

Selected key Commission Members for Energy

Maroš Šefčovič Vice President for Energy Union Leads ‘A Resilient Energy Union with a Forward Looking Climate Change Policy’ project team

“It is ‘our solemn duty’ to make sure citizens do not face energy shortages. In case of a cut-off from Russia, we are much better prepared than ever before. Russia is using gas supply as an instrument of pressure and a political measure. This is unacceptable.”

Miguel Arias Cañete Climate Action and Energy In charge of DG Climate Action and DG Energy

“The South Stream pipeline cannot be developed unless we secure its compliance with existing EU laws.”

Karmenu Vella Environment, Maritime Affairs and Fisheries In charge of DG Environment and DG Maritime Affairs and Fisheries

“The issue of sustainability will be at the core of all my future actions. The economy and the environment need to go together to bring sustainable growth.”

Elżbieta Bieńkowska Internal Market, Industry, Entrepreneurship and SMEs In charge of merged DG Internal Market and Services / DG Enterprise and Industry

“High energy prices are holding back Europe’s industry. Energy efficiency measures are not disturbing industries, they are supporting them.”

Margrethe Vestager Competition In charge of DG Competition

“A sustainable energy market is a key priority of President-elect Juncker. A competitive energy market is in the interest of consumers.”

Digital President-elect Juncker has identified the digital economy as a key driver for

economic growth and job creation.

Creating a digital single market where content and services flow

freely across borders is central to Juncker’s policy agenda. His

commitment to this aim, which he championed throughout his

electoral campaign, was evident in the appointment of a Vice-

President for the Digital Single Market (Andrus Ansip) above the

Digital Economy & Society Commissioner (former Energy

Commissioner Günther Oettinger), and in his setting of ambitious

objectives for progress on the Digital Single Market. These include

introducing measures within six months to modernise rules on

copyright rules and online/digital purchases, as well as to conclude

negotiations on the General Data Protection Regulation and the EU-

U.S. Safe Harbour Agreement in 2015.

Reflecting the horizontal nature of digital issues, Ansip will “steer

and coordinate” the work of several relevant Commissioners who

will bring forward concrete legislative initiatives. His first addressee

will be Oettinger, who will lead on breaking down national silos in

telecoms regulation and copyright. He will also oversee the

Commission’s work on key issues such as net neutrality, cyber

security, internet governance, cloud computing, big data and

audiovisual policies. In addition, Ansip (and Oettinger) will work

with new Justice Commissioner Věra Jourová, who has competence

over data protection; and with Financial Stability Commissioner

Jonathan Hill, who is charged with the modernisation of the

regulatory framework on digital/electronic payments. Other Vice

Presidents will be involved in the cross-cutting work, notably Jyrki

Katainen, Vice President for Jobs, Growth, Investment and

Competitiveness. Katainen’s first priority will be delivering a

package to secure €300 billion in private and public investment

focused in large part on broadband infrastructure and research.

The digital industry will also be the focus of the new Competition

Commissioner Margrethe Vestager, who will continue the work on

the Google search anti-trust case, but also increasingly on big data,

what she calls the ‘new currency of the Internet.’ The relationship

between tax practices, competition and the digital industry has also

emerged as one of the clear priorities of the new Commission. The

digital economy and foreign multinationals have been singled out by

Vestager, Ansip and tax Commissioner Pierre Moscovici for their

aggressive practices. We therefore expect this Commission to

continue focusing on tax avoidance and aggressive tax planning in the

digital sector, and pursuing ongoing state-aid investigations related to

national tax rulings granted to U.S. (primarily tech) multinationals.

Confidence in data protection and security on both sides of the

Atlantic has been recognized as a cornerstone of the digital single

market. Moving forward, much emphasis will be placed on

concluding negotiations on the EU’s comprehensive data protection

reform, a process that has been slowed by disagreements between

Member States on countless aspects of the proposals. During the

confirmation hearings, the future fate of the EU-U.S. Safe Harbour

Agreement, a framework that streamlines the process for U.S.

companies to comply with EU data protection rules, was thrown into

question by numerous MEPs. Jourová expressed doubts on Safe

Harbour, but rejected the idea of putting a stop to it right away,

while Ansip said it was clear that the existing agreement must

change. For both, figuring out the next steps on Safe Harbour in

conversation with the U.S. will be a near-term priority. Critical to

the Commission’s work will be finding the right balance between

ensuring confidence and trust in the digital market and creating an

environment where digital services can continue to thrive. According

to Juncker, European growth, jobs and competitiveness will depend

on it.

Oettinger to oversee copyright developments

The Commission’s units dealing with copyright, copyright enforcement and online services will be moved from DG MARKT to DG CONNECT, which will report to Commissioner Oettinger, a sign of the increased focus on making rules fit for the digital era.

Selected key Commission Members for Digital Affairs

Andrus Ansip Vice President for the Digital Single Market Leads ‘A Digital Single Market’ project team

“The priority is to complete the Digital Single Market. If completed this market will enhance the economy and create new jobs. To this end, we need to build robust and strong cyber-security and data protection rules and remove remaining obstacles.”

Günther Oettinger Digital Economy and Society In charge of DG Communications Networks, Content & Technology

“A copyright law that is fit for the digital world doesn’t mean everything is going to be available for free - we must make sure that we have a market for cultural goods but also make sure authors receive remunerations.”

Věra Jourová Justice, Consumers and Gender Equality In charge of DG Justice

“I share the Parliament’s strong doubts about Safe Harbour, but it would be irresponsible to stop it without a further assessment. We will investigate whether the system is fair, and what other tools we could use to replace it.”

Margrethe Vestager Competition In charge of DG Competition

“Our competition rules need to be as sharp as the companies: we must find new tools that are suitable for this ever-changing digital environment.”

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Spotlight on the New European Commission

President Jean-Claude Juncker

Head of Cabinet: Martin Selmayr

Jonathan Hill Pierre Moscovici Miguel Arias Cañete Karmenu Vella Cecilia Malmström

Financial Stability, Financial Services and Capital Markets Union

Economic and Financial Affairs, Taxation and Customs Union

Climate Action and Energy

Environment, Maritime Affairs and Fisheries

Trade

Günther Oettinger Věra Jourová Elżbieta Bieńkowska Margrethe Vestager Violeta Bulc

Digital Economy and Society

Justice, Consumers and Gender Equality

Internal Market, Industry, Entrepreneurship and SMEs

Competition Transport

Carlos Moedas Vytenis Andriukaitis Tibor Navracsics Marianne Thyssen Neven Mimica

Research, Science and Innovation

Health and Food Safety

Education, Culture, Youth and Sport

Employment, Social Affairs, Skills and Labour Mobility

International Cooperation and Development

Dimitris Avramopoulos Christos Stylianides Johannes Hahn Phil Hogan Corina Crețu

Migration and Home Affairs

Humanitarian Aid and Crisis Management

European Neighbourhood Policy and Enlargement Negotiations

Agriculture and Rural Development

Regional Policy