Brexit commissioner develops thick skin in bruising talks with London

Good morning and welcome to Europe Express.

Overnight, the Biden administration threatened tariffs on goods worth $2bn on the UK, Spain, Austria, Italy, Turkey, and India as part of a spat about go-it-alone digital taxes that could target US tech giants. A reminder that Brussels is planning to unveil its plan for an EU digital tax later this month.

This week’s Thursday profile is on EU Brexit commissioner Maros Sefcovic, who’s facing high-stakes talks in London next week. The fact that Sefcovic and UK Brexit minister David Frost go way back has by no means made things plain sailing.

With eurozone inflation projected to reach two per cent in May, calls for a return to ‘fiscal normality’ are picking up steam. Budget hawks will be pleased to hear the European Commission is also wary of encouraging freewheeling spending in high-debt economies.

We’ll also hear from Mecklenburg-Vorpommern, the north-east German state that has no qualms about showing its appreciation for Russia.

Under pressure

Maros Sefcovic remembers being “glued to the TV screen” during negotiations on the Good Friday Agreement in 1998. He could hardly have imagined back then that he would one day find himself drawn into Northern Ireland’s complex political landscape, writes Jim Brunsden in Brussels.

Crucial days now lie ahead for Sefcovic, in his mission as the EU’s Brexit commissioner.

The self-described “optimist” and longest-standing member of the European Commission is facing pressure from all sides: Northern Ireland’s Unionist politicians claim that trading arrangements in the EU-UK Brexit divorce deal are unworkable; Britain is also calling on the EU to show more flexibility; and EU leaders such as France’s Emmanuel Macron are growing increasingly restive about problems bedding down agreements reached with Boris Johnson. 

Now when I see how broad and at the same time complex our relationship is, it’s really a full-time job

All of that is now in Sefcovic’s in-tray. While Michel Barnier was the EU’s lead negotiator on Brexit, it falls to Slovakia’s EU commissioner to supervise the implementation of all that work, ranging from trade to fishing rights.

He is expected to hold meetings next week with his UK counterpart David Frost. Sefcovic told the FT in a recent interview that the talks — pencilled in for Wednesday June 9 in London — would be a litmus test of whether the two sides could overcome persistent differences and reignite hopes of “a more positive agenda”.

Barnier’s own recently published Brexit memoirs record Sefcovic taking a tough line with the UK in September 2020 over British threats to breach the two sides’ deal on Northern Ireland: “Peace on the island of Ireland must never be used as a bargaining chip,” he told UK Cabinet Office minister Michael Gove. (Barnier and Sefcovic overlapped last year during talks on the bloc’s future relationship with the UK.)

Sefcovic says these repeated clashes have been an unfortunate and unexpected part of a job that he had hoped, especially by now, would be about “building a strategic partnership with our UK friends”.

A career diplomat, Sefcovic has proved to be a Brussels survivor. He became his country’s ambassador to the EU when Slovakia joined the bloc in 2004’s “big bang” enlargement, having previously served as Bratislava’s top diplomat in Israel. 

One of the officials who crossed his path during those early days in Brussels was none other than Frost, who was then a civil servant involved in the day-to-day running of the UK presidency of the EU in 2005, when Tony Blair was prime minister. Sefcovic remembers talks with Frost at the time about the EU’s first post-enlargement budget. It was a time when Brexit was close to unimaginable. 

The end of the noughties brought a rise to prominence: Slovakia’s then prime minister Robert Fico selected Sefcovic to be his country’s commissioner in 2009, beginning a stint in the EU executive’s ruling college that continues to this day, with repeated reappointments by successive centre-left administrations.

Sefcovic notes that he is no stranger to tough negotiations: his time as the EU’s energy commissioner from 2014-2019 included tortuous trilateral talks with Ukraine and Russia on gas supply. He was handed responsibility for UK relations in February 2020. 

Despite his diplomatic roots, Sefcovic has in recent years sought high political office. He made an unsuccessful bid to be the Party of European Socialists’ lead candidate in the 2019 European elections. Most noticeably, he sought to become president of Slovakia in 2019, as an independent candidate backed by the centre-left, but he was soundly beaten by Zuzana Caputova in a run-off vote.

For now, he says, Brexit is “really a full-time job”.

Chart du jour: ETFs are trendy again

Exchange traded funds, long lacking popularity in Europe, have been on the rise in the past few years. But private banks and wealth managers seem to be hoarding most of the ETFs in the region, depriving many retail investors of what some see as the ideal product for them. (Find out more)

Back to the fiscal future

The slow drumbeat of politicians calling for a return to fiscal “normality” is accelerating around Europe, writes Mehreen Khan in Brussels.

This week’s record-busting eurozone inflation figures are the proximate trigger for demands for governments to begin thinking about how to wind down the emergency spending measures that have defined the first phases of the pandemic.

One of the loudest warnings comes from former German finance minister Wolfgang Schäuble, who in an op-ed for the FT says it’s time for the “return to monetary and fiscal normality”:

“The burden of public debt must be reduced. Otherwise, there is a danger that the Covid-19 pandemic will be followed by a ‘debt pandemic’, with dire economic consequences for Europe”.

The intervention of Europe’s former hawk-in-chief is hardly surprising. But Schäuble has some notable and unsuspecting allies, including former IMF chief economist Olivier Blanchard. 

In Brussels, the messaging on fiscal firepower is also starting to shift — albeit at a much more measured pace. Yesterday, the European Commission used its latest semester outlook to introduce a buzzword that we’re likely to be hearing more of as Europe’s economies continue their post-pandemic healing: “differentiation”. 

Paolo Gentiloni, economics commissioner, laid out how highly indebted countries (including his native Italy) should opt for “differentiated” fiscal paths from those with more secure public finances. That’s a subtle but clear hint at the need for Europe’s most vulnerable economies to get to grips with their debt burdens and deficits as soon as they can. 

The commission also thinks member states with “high debt should limit the growth of current expenditure” — another explicit warning to the likes of Italy, Spain, and Greece that the pandemic isn’t an excuse for prolonged trigger-happy spending. 

These warnings will begin to carry more weight next year when Brussels provides “quantified” guidance on how it will reapply the fiscal rule book it has suspended since last year. Brussels’ “general escape clause” from the Stability and Growth Pact will remain active for all of 2022.

But governments would be wise to take heed of the warnings as the period of fiscal forbearance on budget rules may not be around for much longer.

For Russia, with love

It’s been a tough year for EU-Russian relations, to say the least, and Berlin’s ties with Moscow are no walk in the park either, writes our correspondent in the German capital, Erika Solomon.

In less than a year, Germany has had to grapple with everything from the poisoning of Russia’s opposition leader Alexei Navalny — nursed back to health in Berlin — to tensions over Belarus and new reports of Russian hacking of German officials. 

None of this has deterred one north-eastern German state from celebrating its very own “Russia Day.”

The coastal state of Mecklenburg-Vorpommern that hosts this event is also the end point of the much contested Nord Stream 2 pipeline. At more than 90 per cent completed despite US, Polish and Baltic opposition, Nord Stream 2 is being built to bring more gas from Russia to Europe (at the expense of Ukraine — an ally in need, critics point out).

The “Russia Day” festivities received €10,000 in funding from Nord Stream 2, a “platinum sponsor” of the event. That, perhaps more than anything else, is why Russia Day has raised eyebrows — and some scorn.

Nor is it the first time the event looked out of sync. The first edition was held in 2014, the same year Russian forces occupied eastern Ukraine.

This year’s timing looks equally awkward.

Just last week, Russia effectively banned as “undesirables” three German non-governmental organisations. On Tuesday, German officials flew to Washington to assuage concerns about the pipeline and rekindle transatlantic ties. Yesterday, Mecklenburg-Vorpommern’s state prime minister, Manuela Schwesig, promoted “bridges of dialogue” with Russia.

“Yes, there are fundamental differences of opinion between Germany and Russia when it comes to dealing with the opposition, for example. But it is still better to talk to each other than to slam doors,” she said.

While Russia’s ambassador spoke, arguing that “we don’t persecute people for political motives”, German media noted that it wasn’t just Navalny, but also other Russian opposition figures who were placed in pre-trial detention as recently as yesterday.

Some critics blame the business interests linked to Angela Merkel’s Christian Democrats and the centre-left Social Democrats (whose former leader and former chancellor, Gerhard Schröder, has business ties with Putin and is chair of the shareholders board of Nord Stream). Merkel’s own home constituency when elected to the Bundestag was Mecklenburg-Vorpommern.

But the north-eastern sympathies may reflect a broader German sentiment. A new Forsa poll said 62 per cent of its German respondents wanted stronger ties with Russia.

The study was commissioned by the German Committee on Eastern European Economic Relations (OA), an interest group promoting German business with Russia, and partly funded by Wintershall, one of the original investors in Nord Stream 2.

“If the German population had their way, the EU and Russia could significantly expand their relations in many areas,” said OA chair Oliver Hermes. 

Two things to watch today

1. G7 health ministers meet in Oxford, UK where the AstraZeneca vaccine was developed

2. Lithuania’s prime minister Ingrida Simonyte arrives in Brussels for her first visit abroad

Notable, Quotable

As they [the Greens] have put morals first in politics, now they are being measured by this standard

• Germany’s Greens have made several blunders in recent weeks that risk alienating the centrist voters Annalena Baerbock is trying to win over in the September election. (Read more here)

• Denmark’s parliament is poised to vote on new asylum rules today which would allow the country to process asylum seekers outside Europe, the first EU state to do so.

• Two months after elections, the Netherlands is yet to form a cabinet. Longtime Dutch prime minister Mark Rutte described the negotiations as “complex, but not stuck”. (Volkskrant)

FT Event: Made in Italy, Setting a new course

On June 8, the Financial Times, Il Sole 24 Ore and Sky TG24 are partnering for a digital event that will explore key measures planned for relaunching the Italian economy in the post-pandemic landscape. Register here today.