EU Top Appointments Mirror Europe’s Fragmentation

On Tuesday 16 July, Ursula von der Leyen was elected President of the European Commission with a close score, illustrating the European Union’s internal divisions. In times of crisis for the EU, what challenges will she face? An interview with Rémi Bourgeot, economist and associate research fellow at IRIS. 

What does the election of Ursula von der Leyen as President of the Commission reveal on the functioning of European institutions?

The appointment/election of Ursula von der Leyen indicates that political life in the EU continues to follow a logic marked by the balance of power among member states. The Spitzenkandidaten (lead candidates) system, recently introduced in 2014, gradually broke down as the result of negotiations between heads of state. Many MEPs have tried to defend this system, presenting it as an innovation in terms of democratic representativeness. Nevertheless, Manfred Weber, the candidate of the conservatives, did not really meet generally required conditions, particularly with regard to his lack of executive experience, and was often seen as a representative of the « Brussels bubble ».

The Weber candidacy sought to combine the German government’s desire to have an even greater influence on the EU’s orientation (by adding the presidency to the important posts that have been granted to the country in recent years in the Commission’s administration) and the aspiration for a greater role for the European Parliament in the choice of the Commission’s President. Only the first aspect finally came to fruition. As his candidacy was rejected, Liberals and Social Democrats also sought to promote their own candidate. Finally, once Weber was dismissed in favour of a more established Berlin politician, the actions of the other two groups led mainly to the search for concessions on the part of the Conservatives, particularly in the distribution of the titles of vice-presidents within the commission.

The difficulty in reaching an agreement between conservatives, social democrats and liberals has shown the political fragmentation of the EU. For a long time, conservatives and social democrats represented an apparently unshakeable coalition bloc, similar to the situation in the Bundestag. Like German politics, this bloc has also receded sharply, and its political agenda is now suffering from a certain precariousness in terms of its capacity for parliamentary ratification. The opposition of many SPD MEPs to Von der Leyen’s appointment also provided a further illustration of the fragility of the « small Great Coalition » in Berlin.

Despite Angela Merkel’s reduced leadership and the increasing fragility of the coalition system in place since 2005 in Berlin, Ursula von der Leyen has remained a close supporter of the Chancellor. Although her record as defence minister over the past six years has been criticized for failing to reform the Bundeswehr, and for losing her status as the Chancellor’s potential successor several years ago, she remains a heavyweight on the Conservative side. Her appointment as head of the Commission by European leaders reflects Germany’s growing political influence. It also confirms that Angela Merkel, although politically weakened in Berlin, retains a true genius for political manoeuvring.

In terms of relations among member states, the appointment of Christine Lagarde as President of the ECB enabled Paris and Berlin to present the overall outcome as the result of a major Franco-German deal. While this agreement shows the leaders’ responsiveness on both sides, it is nevertheless necessary to measure the difference between the political weight reflected in the appointment of Ursula von der Leyen in Brussels for Germany and of Christine Lagarde in Frankfurt for France. Although the diplomatic competence of the latter is internationally recognised with regard to the political management of a leading financial administration such as the IMF, her profile as a politician rather than an economist positions her approach mainly in the continuity of the status quo currently in force at the ECB, rather than in the development of a new monetary direction in the event of a crisis, in addition to the probable guarantees towards German critics of Mario Draghi’s monetary policy. Her appointment confirms the political nature of monetary management in the euro area and has removed the risk of neutralising the ECB’s monetary tools, but does not indicate a Franco-German political balance more generally.

What is Ursula von der Leyen’s programme? What kind of change can we expect, especially in economic terms?

Due to the political fragmentation of the European Parliament, the confirmation of her appointment was more complicated than for her predecessors. Although she was accused of not having sufficiently prepared her interventions in front of the different groups, her general orientation quite clearly illustrated her attempt to convince the various sensitivities. In essence, however, her personal approach remains generally close to that of Angela Merkel.

Her idea of an “green new deal” was aimed at winning the support of social democrats who demanded an investment policy to reverse the years of austerity and convince the Liberals and some Greens, promising more ambitious emission reduction objectives than those in force today. For the time being, she has also sought to find a certain modus vivendi with the populist leaders of Central Europe, who had also affirmed their opposition to Frans Timmermans, her social-democratic competitor in the race for the presidency of the Commission.

Her statements on Brexit were naturally followed very closely in London. Her position is in line with that of the German elite, wishing to avoid a no deal outcome, by means of extensions and the search for a technical compromise on the Irish border. The mention of an additional delay is naturally in contradiction with the French government’s approach in this matter. The differences on this issue have contributed in particular to the deterioration of relations between Angela Merkel and Emmanuel Macron, in addition to the rejection of the substance of his plans to reform the euro zone. On this economic issue, Ursula von der Leyen is likely to give some signals of progress of a symbolic nature, which she might sent back to a distant time horizon, while confirming the current impasse. On energy issues, German political discussions focus on many issues, including the Nord Stream 2 gas pipeline with Russia, in which Germany’s increased political weight in the Commission has been seen as having a potential impact.

More generally, Ursula von der Leyen will have to face both the political division of the continent and the clouds hovering over its economy and in particular over the integrity of the euro zone. On the issue of political fragmentation, it can be expected that she will not take a frontal approach towards populist governments, but will maintain pressure on budgetary issues, particularly towards the Italian coalition. Finally, she also supported an attempt to control digital giants, promising the Liberals a leading role for Danish Commissioner Margrethe Vestager.

In the absence of an agreement at the level of the 28 EU Member States, the French Parliament adopted a tax on digital giants on 11 July. To avoid this kind of impasse, Finance Minister Bruno Le Maire and Emmanuel Macron would like to propose that EU tax decisions be taken by qualified majority and no longer by unanimity. Is this a workable reform?

The European tax had indeed been rejected because of opposition from only four countries, while the vast majority of countries, and in particular the largest ones, supported the text. The question of unanimity is thus raised in order to exert a certain amount of pressure on these member states, and in particular Ireland, whose economic model is based at least in part on its low corporate tax rate. Nevertheless, it should be noted that Germany, which had participated in this initiative, was also concerned about the repercussions on its relations with the United States, and in particular on the threat of tariffs on its automotive exports.

In the end, the main aim is to find some form of agreement on the distribution of tax revenues from digital technology between states within the EU and beyond. The problem with the Irish model is that it consists in particular in attracting the headquarters of large global companies for their European activities and in collecting, at a lower rate, the tax revenues from a significant part of their profits.

The so-called GAFA tax is in fact a mechanism designed to be temporary, as it was developed to have an impact on these substantive negotiations, as witnessed in some ways by Donald Trump’s virulent reaction to the French vote. As this tax became a political symbol aimed to send a social signal, it was gradually forgotten that this tax on turnover (and not on profits), whose revenues are expected to be modest (400 to 600 million), was not conceived as a long-term measure but as a step in a monumental bargaining on the issue of international tax reform. The Trump administration is engaged in this negotiation, which must take place within the framework of the OECD, and wants to extend the scope of the negotiation beyond the digital sector, in order to somehow hold major exporting countries to account, while criticising the GAFAs on issues that are not always far from those concerning European governments.