ECONOMY

Brussels in a tight spot after Poland’s bombshell ruling

Good morning and welcome to Europe Express. It has been an eventful 24 hours.

Poland’s top court yesterday went where no other court had gone before in ruling that parts of EU law are not compatible with the Polish constitution. Sure, some will point out Germany’s constitutional court last year also challenged the supremacy of EU law (and so did Romania’s this summer).

But no court has said that two articles of the EU treaty (including the first one) are incompatible with a nation’s constitution. We’ll explore the likely consequences for Poland and what this precedent means for the EU as a whole.

In Germany, the chancellor candidate of Angela Merkel’s Christian Democrats, Armin Laschet, has signalled he’s willing to step down — another sign that the next government will probably be run by the country’s current finance minister, Olaf Scholz.

The fate of Kristalina Georgieva, the embattled managing director of the IMF, could be decided as soon as today as its board meets in Washington. France has given its backing, but it is unclear how many will support her.

In global taxation news, a final deal is expected to emerge today at a meeting of the OECD in Paris — after Ireland yesterday gave its blessing to the accord.

And with home affairs ministers meeting in Luxembourg today, we got our hands on a letter signed by 12 EU governments asking for the commission to sponsor border walls — until recently a taboo topic for Brussels.

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Renegade Poland

Yesterday’s tribunal ruling in Poland is a verdict Brussels had long feared, write Sam Fleming and Henry Foy in Brussels. For half a decade Warsaw’s conservative-nationalist government has been in a pitched battle with the European Commission, as it takes greater power over its judiciary and calls into question the writ of EU law.

Legal experts viewed the decision by Poland’s constitutional tribunal, which has been repeatedly delayed in what appeared to be a high-stakes game of chicken with Brussels, to be the most serious of a number of challenges to the EU’s legal order.

The supremacy of EU law has also been called into question in member states including France and Germany, but Warsaw’s determination that parts of EU law are not compatible with the Polish constitution constitutes a more fundamental threat — in a case brought by the country’s prime minister himself.

In June Didier Reynders, the justice commissioner, told the Financial Times that he feared these proliferating challenges could have a “spillover effect” to other member states that destroys the EU itself.

The Polish tribunal’s decision immediately prompted predictions that Warsaw is embarking on a long path towards EU exit. A more urgent question for the EU is how it responds to a country that is challenging the basic tenets of the union’s legal order.

This puts the spotlight very firmly on Ursula von der Leyen, the European Commission president. She has at her disposal legal weaponry aimed at defending the rule of law, including the potential for infringement actions on top of existing Article 7 proceedings against Poland that have failed to alter the country’s behaviour.

At the same time the commission is considering Poland’s €36bn bid for EU recovery cash that has been hanging in limbo since May 3. Brussels plans to impose conditions in the plan regarding reforms of the disciplinary regime and compliance with the European court on the matter, but Warsaw’s tribunal has just given Brussels another reason to hold back approval.

Among the further questions facing Brussels is when and whether to use a brand new rule of law conditionality mechanism that allows it to withhold funds when rule of law breaches put the EU budget at risk. That new tool was hard-won by member states last year that stared down Warsaw which had threatened to torpedo the EU’s entire seven-year budget in an attempt to block it.

As such, many in the bloc may think it would be odd if the commission chose not to use it.

Thrust into a scheduled, unrelated press conference shortly after the verdict was announced yesterday evening, Reynders said “all instruments” were indeed under discussion.

“In the context of the rule of law, we have instruments at our disposal to ensure that these constitutional principles are respected,” he said. “We have some possibilities to move on this . . . and it will be the case in the next days or weeks.”

“We will react, of course, in a short period of time,” he added. “We are guardians of the treaties . . . and we will do what is necessary.”

Other EU member states will be watching very closely to see whether Brussels lives up to its tough rhetoric.

What do you think about Poland’s future membership of the EU? Click here to take the poll.

White smoke in Paris

Today’s OECD meetings in Paris promise to be a landmark moment in the long journey towards a global agreement aiming to extract more tax out of big international companies, writes Sam Fleming.

Whereas nine countries out of 140 in total rejected the proposed common position on a new tax framework in July, those close to the discussions expect fewer holdouts today. Among those falling in line are Ireland, whose finance minister Paschal Donohoe yesterday confirmed Dublin’s agreement to the new minimum tax rate in an interview with the Financial Times.

In addition, Estonia, which had serious concerns about the compatibility of the deal with its corporate tax rulebook, announced last night that it would be going along with the rules having satisfied itself that they would not hurt its business model.

The position of Hungary, the other key holdout among EU member states, is less clear as Budapest continued this week to seek concessions in return for shifting on its 9 per cent corporate tax rate.

The deal would impose a minimum 15 per cent global tax rate to end what was seen as harmful competition between countries. The deal also seeks to force the largest multinationals to pay more tax where they operate rather than where they are located.

If countries agree the updated text to the agreement today, it will move to be finalised by G20 finance ministers next week. However, that is by no means the end of the story. Among the key questions in the coming months is that of implementation into national law — including critically in the US and the EU.

The Biden administration faces an uphill struggle obtaining approval for the new laws on Capitol Hill. In addition, the EU is planning to impose elements of the new framework via a directive, to be enacted relatively rapidly. Given it concerns tax, this legislation will need unanimous consent of member states. Obtaining that agreement will not be straightforward.

Today’s meeting in Paris promises to be a key milestone in global tax reform — but it is by no means the end of the battle.

Chart du jour: Scottish rerun

Chart showing results from a Scottish independence referendum poll

In an interview with the FT, Scotland’s first minister Nicola Sturgeon said she hoped the Covid-19 pandemic would have receded sufficiently by early spring next year for “concrete decisions” on the timing of a rerun of the 2014 referendum. Opinion polls suggest support for independence has fallen, but also that substantial majorities of younger Scots back independence. (More here)

Trending walls

Border walls are back in fashion. Four years after Brussels condemned then US president Donald Trump’s effort to build a wall along the country’s border with Mexico, 12 member states have written to the European Commission calling for the EU to fund a barrier along the bloc’s external borders, writes Henry Foy.

The group of countries — including the Baltic states, Poland, Denmark, Austria and Greece — write that a “physical barrier appears to be an effective border protection measure that serves the interest of whole EU, not just member states of first arrival”.

“This legitimate measure should be additionally and adequately funded from the EU budget as a matter of priority,” they write in the letter, sent to commission vice-president Margaritis Schinas and home affairs commissioner Ylva Johansson and seen by Europe Express.

The demand comes in response to a migration crisis on the EU’s eastern border over the past four months caused by what Brussels says is a co-ordinated campaign by Belarus to transport migrants from Middle Eastern countries via Minsk to the frontiers of Lithuania, Latvia and Poland.

That campaign, which the commission has described as a “hybrid attack” on the EU, means the bloc’s external border “must be protected with maximum level of security”, the 12 countries write in the letter. While the commission has pledged additional resources to help the countries affected, its current rules do not permit the use of EU funding for building barriers or fences.

Spokespeople for commissioners Schinas and Johansson did not respond to requests for comment last night. But the demand will undoubtedly be discussed today in a meeting of EU home affairs ministers in Luxembourg, with migration and border security top of the agenda.

What to watch today

  1. EU home affairs ministers meet in Luxembourg

  2. IMF board to discuss the fate of its managing director, Kristalina Georgieva

  3. Czech voters go to ballot boxes in parliamentary elections

  4. OECD tax talks to be held in Paris

Smart reads

  • Joint gas purchases: Spain and other countries badly hit by the gas price crisis have proposed that the EU be given joint purchasing powers — like it did for Covid-19 vaccines. The Centre for European Policy Studies examines why a looser mechanism would make more sense at this point.

  • Transatlantic blues: The withdrawal from Afghanistan and US’s surprise defence deal with Australia and the UK show that the tensions in transatlantic relations raised during the Trump presidency essentially remain the same under Joe Biden, writes the Centre for European Reform. Biden may have visited Europe and said “America is back”, but Washington is becoming increasingly disengaged from Europe.

  • Tax the robots: A robot tax on companies that replace employees with automated systems should be considered in the context of managing the next industrial revolution, writes Bruegel in this policy paper. Policymakers should consider overall employment, specific job losses and how to assess companies that make lay-offs in specific areas of their workforces.

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Today’s Europe Express team: [email protected], [email protected], [email protected]. Follow us on Twitter: @henryjfoy, @Sam1Fleming, @valentinapop.



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