ECONOMY

Dutch seek pragmatic approach on EU-UK security co-operation

Good morning and welcome to Europe Express.

As the dust (and French anger) starts to settle after the surprise submarine announcement by the US, UK and Australia, officials in Brussels are taking a leaf from the pragmatic approach embodied by Dutch prime minister Mark Rutte, who is visiting London today.

Instead of dramatic allegations of back-stabbing, why not look at all the aligned security and defence interests between the EU and the UK? Yes, the courtesy of a heads-up would have been expected among allies, but calling for Europe to go its own way on security and defence is the wrong conclusion to draw, some officials say.

On another front, France has been fighting to get its way on the EU transposition of the latest batch of internationally-agreed capital requirements for banks. We’ll unpack what the Basel III requirements are about and why Paris may struggle to win its fight for softer standards.

And we’ll hear from Greece, where a rare meeting of southern European nations on climate is starting today.

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Cooling tempers

What’s Dutch for: ‘If you can’t beat them, join them’?

Hot on the heels of London and Washington’s audacious coup to strike a security alliance with Australia and in the process cut the French out of a $90bn submarine supply deal, Dutch PM Mark Rutte travels to London today for talks with Britain’s prime minister Boris Johnson. During his meeting, Rutte will seek to test the potential for deeper defence and security co-operation between the EU and the UK, writes Henry Foy in Brussels.

Johnson will probably be insufferably smug. The Aukus deal is any Brexiter’s dream: an affirmation of London’s Global Britain pledge and a metaphorical middle finger across the channel, announced just hours before the EU, already consumed by angst over its defence policy in a post-Afghanistan world, was set to unveil its own Indo-Pacific strategy.

Yet Rutte, with a quintessentially Dutch eye for actionable outcomes over theatrical gesture, will assess the anglophone alliance not with the pathos of Paris (“betrayal”, “stab in the back”) but as a timely example of his key message: if our foreign and defence thinking lines up, then shouldn’t we be doing it together?

The visit will seek to assess whether there is “fertile soil to restart our co-operation” with the UK, said a Dutch official briefed on the visit.

“We have shared interests . . . and want better transatlantic co-operation,” the official added, describing the submarine deal as merely a “small hiccup” — for French businesses.

Both the Aukus pact and the EU’s Indo-Pacific strategy are officially not aimed at countering China, but the intent is obvious. And the EU’s doctrine makes clear that it wants to work in the region with partners (even ones that choose submarines made by the US over ones from the bloc.)

With support for Paris’s outrage conspicuous by its absence, it appears that most in Brussels are hewing to Rutte’s pragmatism. Even Josep Borrell, who as the EU’s diplomatic and security chief was tasked with outlining the bloc’s Indo-Pacific policy while the world was talking about someone else’s, urged everyone to look for the positives.

“Of course I do understand the extent to which the French government must be disappointed,” Borrell said. “I won’t say that I am happy that these two things have happened at the same time, but I think it does help to highlight the timeliness of this strategy. It is an opportune moment.”

It is clear that powers on both sides of the Atlantic are on the same page. The task now for Rutte, Borrell and the rest is to turn concurrence into collaboration.

Should Europe seek ‘strategic autonomy’ from the US and China? To take the poll, click here.

French vs Basel III

The Covid-19 pandemic is the first real-world test of the banking reforms implemented after the great financial crisis more than a decade ago. To date lenders have weathered it relatively well — thanks in part to regulators’ demands for higher capital and liquidity levels, writes Sam Fleming in Brussels.

The debate over bank capital is far from over, however.

One of the next big questions in the EU is over how the commission will handle the implementation of globally agreed Basel III capital requirements, and how it responds to intensive lobbying to water down the reforms.

France has been leading a push to soften the implementation of Basel III via a so-called parallel stack approach, which would help prevent a big uplift in capital requirements by subjecting two versions of a bank’s balance sheet to different rules.

Last week, a group of European central bankers strongly opposed this idea in a joint letter, which was not signed by the Banque de France. In it, they urged the commission to stick to the “letter and the spirit” of the rules, calling for full, timely and consistent implementation of all aspects of this framework.

Diplomats have become more optimistic that the signatories may get their way, and that the unloved parallel stack approach will fail to prevail. All eyes are now on the commission, as it prepares to unveil its proposed legislation.

Europe Express asked Mairead McGuinness, the financial services commissioner, about the bankers’ letter over the weekend in Slovenia during informal meetings of finance ministers. She said it was “fundamental” that Brussels delivers on its promises to its international partners.

“If we were to resile in any significant way from those commitments that would not be good for our banking system,” said McGuinness. “When Europe enters into international agreements we deliver, and we expect all our international partners to do that.”

McGuinness declined to comment in any detail on what the EU legislation would contain, but she added that the commission had taken account of letters submitted on the topic, including the recent communications from central bankers.

The EU rules, which are expected next month, will not provide for a “sudden or sharp” increase in capital levels, McGuinness said, as she pledged to achieve a “balanced outcome” that takes account of EU-level specificities.

She added: “We listen carefully about timelines, listen to the concerns. But the banks are aware that the biggest danger and the greatest harm would be if we didn’t implement, and there is absolutely no question of us not delivering.”

Chart du jour: Low-cost 2021

Line chart of Eurozone labour cost index (quarterly data - % annual change) showing Wage growth tumbles in Europe

Labour costs in the eurozone have fallen for the first time in a decade, slipping 0.1 per cent in the three months to June from a year ago. This trend runs contrary to fears that a recent acceleration in price growth and an improved labour market could feed into higher pay demands from workers. One caveat, however: the data should be considered in light of a sharp increase in labour costs shortly after the pandemic hit in the second quarter of 2020, when they rose 4.3 per cent from the previous year. (More here)

Club Hot Med

Just weeks after devastating fires raged across their region, the leaders of nine Mediterranean countries in the EU are convening in Athens today to discuss climate change, writes Eleni Varvitsioti in Greece’s capital.

The leaders of Croatia, Cyprus, France, Greece, Italy, Malta, Portugal, Slovenia and Spain are expected to issue a joint declaration reiterating their commitment to the Paris climate accord and underlining the need to adopt more ambitious targets, according to a draft seen by Europe Express. European Commission president Ursula von der Leyen will also take part in the meeting.

The summit — now at its eighth edition — was usually focused on migration, foreign and security policy in the Mediterranean basin. It is the first time leaders are discussing climate policies.

The statement acknowledges that the “Mediterranean is highly vulnerable to the impacts of climate change” because of more frequent and intensive heatwaves, droughts, floods, and forest fires.

But even as it calls for more ambitious targets in general terms, the statement stops short of setting any new goals that go beyond what has been agreed at the EU level.

“The declaration . . . shows that there is a shift in the Mediterranean nations, who are all seeing climate change and the environment as a priority,” a senior Greek diplomat said.

The Athens summit comes two months before the UN climate change conference in Glasgow, where the aim is to set more ambitious targets than those agreed in 2015, get countries to spell out concretely how they aim to lower emissions and work on a deal to phase out new coal power stations.

What to watch today

  1. Dutch Prime Minister Mark Rutte meets Britain’s PM Boris Johnson in London

  2. The first citizen panel takes place at the Conference on the Future of Europe in Strasbourg

Notable, Quotable

  • No cliffhanger: The outcome of Russia’s parliamentary election this weekend may be a foregone conclusion. The Kremlin’s United Russia party is expected to retain its constitutional majority in the 450-seat chamber, with the other seats going to a handful of pliant “systemic opposition” parties.

  • Clearing plea: US and European banks and asset managers have urged Brussels to extend the permit granting EU banks access to UK clearing houses to prevent a “major” market disruption when the licence expires next year.

  • No green wave: The floods that killed 181 people in Germany have had surprisingly little electoral impact. While most Germans name climate as a priority, just 15-17 per cent say they would vote for the Greens, for whom the issue is a raison d’être.

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



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