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The Olympic truce in French politics is ending. What happens next?

Joely Virzi — Wed, 14 Aug 2024 17:13:54 +0000

During the Ancient Olympics in Greece, messengers called spondophoroi were sent out far and wide to declare the Ekecheiria, or Olympic truce. According to the agreement, no war was permitted during the Games. A similar spirit has run through French politics, which had been in a state of tumult in the run-up to the Paris Games but paused the sparring during them. With the Olympics over, however, this temporary political calm is beginning to dissipate, and questions are reemerging about what’s next for the French Parliament and President Emmanuel Macron’s foreign policy agenda, as well as how changes in Paris could have broader implications for the European Union (EU).

What’s next for the parliament?

The second round of legislative elections on July 7 left France with three different blocs of competing agendas. With the Olympic “political truce” over, appointing a new prime minister has become the priority. Macron is under no legal pressure to name Prime Minister Gabriel Attal’s successor, which gives the president time to strategize how to form a stable government. Negotiations are already underway, but some speculate that Macron might seek to extend the political truce through the Paralympic Games, which run through September 8.

Typically, the president chooses a prime minister from the party with the most seats in the National Assembly—currently, the New Popular Front (NFP) coalition. However, the NFP, composed of five different political parties, faces internal challenges, particularly with the far-left France Unbowed party at the helm. The coalition has proposed Lucie Castets as their preferred candidate, yet Macron’s allies have labeled France Unbowed as too “extreme” to govern. This situation has increased the likelihood that Macron might attempt to lure some moderate Socialists and Greens from the NFP to his more centrist bloc.

Whoever is named prime minister is in for a rocky road ahead, starting on October 1, when the National Assembly reconvenes. France’s budget is under tight scrutiny after the European Council launched formal action against its high deficit-to-gross domestic product ratio. The Council has requested that France submit medium-term plans by September to get its deficit levels back on track. Managing these budget concerns while operating in an unprecedented hung parliament will be a daunting task for Macron’s choice.

What’s next for Macron?

Despite embracing gold medal–winning French swimmer Léon Marchand and capitalizing on the feel-good spirit evoked by the Olympics, Macron will soon find that sporting euphoria doesn’t last. Shortly after the French men’s soccer team won the World Cup in 2018, the “yellow vest” movement gripped the nation for fifty-two consecutive weeks. It’s too soon to tell whether 2024 will resemble 2018, but Macron will undoubtedly attempt to keep the spirit of the Olympics and Paralympics alive for as long as he can.

The division of labor in French politics grants Macron a near monopoly over foreign policy, but his agenda could be complicated by the French Parliament. Many of Macron’s plans—reducing the budget deficit through spending cuts or tax increases, transitioning to renewable energy, and maintaining a hard stance on Russia—could be upended by bureaucratic hurdles raised by the NFP or the National Rally (RN) party. Marine Le Pen of the RN, for example, already made it clear that Macron’s defense and foreign policy agenda will not go his way.

What does this mean for the EU?

As the next few weeks unfold in France, no one will be watching the French political scene more anxiously than policymakers in Brussels who rely on French support. European Commission President Ursula von der Leyen has outlined a strategic agenda for the EU with ambitious goals surrounding competitiveness, defense, and clean energy. Realizing these initiatives will require strong support from France.

Perhaps the most significant implication of the French political saga for the EU is its impact on support for Ukraine. Macron has been a staunch advocate for aiding Ukraine, saying in May that “if Russia wins in Ukraine, there will be no security in Europe.” Going forward, however, maintaining a high level of support hinges on his ability to navigate a hung parliament.

Another factor in the equation is Jordan Bardella, president of the RN party, who now leads the far-right Patriots for Europe (PfE) group in the European Parliament. The PfE has emerged as the third-largest bloc in the European Parliament and has the backing of Hungarian Prime Minister Viktor Orbán. The far right may have faltered in the second round of the French snap elections, but with the PfE’s increasing momentum in the European Parliament and Orbán as a powerful ally in the European Council, the RN still has the potential to complicate the pro-EU agenda.

Macron is basking in the success of a spectacular Olympics, but it’s unlikely that that success will translate into political gains for the president or lead to compromises in the French Parliament. The two biggest tests will be naming a prime minister and addressing the budget proposal for the European Council. French politics will certainly stay in the headlines for the foreseeable future, leading to profound implications for both Paris and Brussels.

Joely Virzi is a young global professional at the Atlantic Council’s Europe Center.

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Tech regulation requires balancing security, privacy, and usability

Karen Sowon, Giulia Fanti, JP Schnapper-Casteras — Mon, 12 Aug 2024 14:44:33 +0000

In the United States and across the globe, governments continue to grapple with how to regulate new and increasingly complex technologies, including in the realm of financial services. While they might be tempted to clamp down or impose strict centralized security requirements, recent history suggests that policymakers should jointly consider and balance usability and privacy—and approach their goals as if they were a product designer.

Kenya is a prime example: In 2007, a local telecommunications provider launched a form of mobile money called M-PESA, which enabled peer-to-peer money transfers between mobile phones and became wildly successful. Within five years, it grew to fifteen million users, with a deposit value approaching almost one billion dollars. To address rising security concerns, in 2013, the Kenyan government implemented a law requiring every citizen to officially register the SIM card (for their cell phone) using a government identification (ID). The measure was enforced swiftly, leading to the freezing of millions of SIM cards. Over ten years later, SIM card ID registration laws have become common across Africa, with over fifty countries adopting such regulations.

But that is not the end of the story. In parallel, a practice called third-party SIM registration has become rampant, in which cell phone users register their SIM cards using someone else’s ID, such as a friend’s or a family member’s.

Our recent research at Carnegie Mellon University, based on in-depth user studies in Kenya and Tanzania, found that this phenomenon of third-party SIM registration has both unexpected origins and unintended consequences. Many individuals in those countries face systemic challenges in obtaining a government ID. Moreover, some participants in our study reported having privacy concerns. They felt uncomfortable sharing their ID information with mobile money agents, who could repurpose that information for scams, harassment, or other unintended uses. Other participants felt “frustrated” by a process that was “cumbersome.” As a result, many users prefer to register a SIM card with another person’s ID rather than use or obtain their own ID.

Third-party SIM registration plainly undermines the effectiveness of the public policy and has additional, downstream effects. Telecommunications companies end up collecting “know your customer” information that is not reliable, which can impede law enforcement investigations in the case of misconduct. For example, one of our study subjects shared the story of a friend lending their ID for third-party registration, and later being arrested for the alleged crimes of the actual user of the SIM card.

A core implication of our research is that the Kenyan government’s goals did not fully take into account the realities of the target population—or the feasibility of the measures that Kenya and Tanzania proposed. In response, people invented their own workarounds, thus potentially introducing new vulnerabilities and avenues for fraud.

Good policy, bad consequences

Several other case studies demonstrate how even well-intentioned regulations can have unintended consequences and practical problems if they do not appropriately consider security, privacy and usability together.

Uganda: Much like our findings in Kenya and Tanzania, a biometric digital identity program in Uganda has considerable unintended consequences. Specifically, it risks excluding fifteen million Ugandans “from accessing essential public services and entitlements” because they do not have access to a national digital identity card there. While the digitization of IDs promises to offer certain security features, it also has potential downsides for data privacy and risks further marginalizing vulnerable groups who are most in need of government services.
Europe: Across the European Union (EU), a landmark privacy law called General Data Protection Regulation (GDPR) has been critical for advancing data protection and has become a benchmark for regulatory standards worldwide. But GDPR’s implementation has had unforeseen effects such as some websites blocking EU users. Recent studies have also highlighted various usability issues that may thwart the desired goals. For example, opting out of data collection through app permissions and setting cookie preferences is an option for users. But this option is often exclusionary and inconvenient, resulting in people categorically waiving their privacy for the sake of convenience.
United States (health law): Within the United States, the marquee federal health privacy law passed in 1996 (the Health Insurance Portability and Accountability Act, known as HIPAA) was designed to protect the privacy and security of individuals’ medical information. But it also serves as an example of laws that can present usability challenges for patients and healthcare providers alike. For example, to comply with HIPAA, many providers still require the use of ink signatures and fax machines. Not only are technologies somewhat antiquated and cumbersome (thereby slowing information sharing)—they also pose risks arising from unsecured fax machines and misdialed phone numbers, among other factors.
Jamaica: Both Jamaica and Kenya have had to halt national plans to launch a digital ID in light of privacy and security issues. Kenya already lost over $72 million from a prior project that was launched in 2019, which failed because of serious concerns related to privacy and security. In the meantime, fraud continues to be a considerable problem for everyday citizens: Jamaica has incurred losses of more than $620 million from fraud since 2018.
United States [tax system]: The situation in Kenya and Jamaica mirrors the difficulties encountered by other digital ID programs. In the United States, the Internal Revenue Service (IRS) has had to hold off plans for facial recognition based on concerns about the inadequate privacy measures, as well as usability concerns—like long verification wait times, low accuracy for certain groups, and the lack of offline options. The stalled program has resulted in missed opportunities for other technologies that could have allowed citizens greater convenience in accessing tax-related services and public benefits. Even after investing close to $187 million towards biometric identification, the IRS has not made much progress.

Collectively, a key takeaway from these international experiences is that when policymakers fail to simultaneously balance (or even consider) usability, privacy, and security, the progress of major government initiatives and the use of digitization to achieve important policy goals is hampered. In addition to regulatory and legislative challenges, delaying or canceling initiatives due to privacy and usability concerns can lead to erosion in public trust, increased costs and delays, and missed opportunities for other innovations.

Policy as product design

Going forward, one pivotal way for government decision makers to avoid pitfalls like the ones laid out above is to start thinking like product designers. Focusing on the most immediate policy goals is rarely enough to understand the practical and technological dimensions of how that policy will interact with the real world.

That does not mean, of course, that policymakers must all become experts in creating software products or designing user interfaces. But it does mean that some of the ways that product designers tend to think about big projects could inform effective public policy.

First, policymakers should embrace user studies to better understand the preferences and needs of citizens as they interact digitally with governmental programs and services. While there are multiple ways user studies can be executed, the first often includes upfront qualitative and quantitative research to understand the core behavioral drivers and systemic barriers to access. These could be complemented with focus groups, particularly with marginalized communities and populations who are likely to be disproportionately affected by any unintended outcomes of tech policy.

Second, like early-stage technology products that are initially rolled out to an early group of users (known as “beta-testing”), policymakers could benefit from pilot testing to encourage early-stage feedback.

Third, regulators—just like effective product designers—should consider an iterative process whereby they solicit feedback, implement changes to a policy or platform, and then repeat the process. This allows for validation of the regulation and makes room for adjustments and continuous improvements as part of an agency’s rulemaking process.

Lastly, legislators and regulators alike should conduct more regular tabletop exercises to see how new policies might play out in times of crisis. The executive branch regularly does such “tabletops” in the context of national security emergencies. But the same principles could apply to understanding cybersecurity vulnerabilities or user responses before implementing public policies or programs at scale.

In the end, a product design mindset will not completely eliminate the sorts of problems we have highlighted in Kenya, the United States, and beyond. However, it can help to identify the most pressing usability, security, and privacy problems before governments spend time and treasure to implement regulations or programs that may not fit the real world.

Karen Sowon is a user experience researcher and post doctoral research associate at Carnegie Mellon University.

JP Schnapper-Casteras is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and the founder and managing partner at Schnapper-Casteras, PLLC.

Giulia Fanti is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and an assistant professor of electrical and computer engineering at Carnegie Mellon University.

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#AtlanticDebrief – Where does Europe stand on the green agenda? | A debrief from Niels Redeker

nlawler — Thu, 01 Aug 2024 20:31:30 +0000

IN THIS EPISODE

Where does Europe stand on the green agenda? Are concerns over a wide spread “greenlash” in Europe exaggerated? Why did climate policy not play as much of a significant role in the last European Parliament elections compared to the elections in 2019? Under her next Commission mandate, will Commission President von der Leyen bring continuity on climate change policy in the EU?

On this episode of #AtlanticDebrief, Carol Schaeffer sits down with Nils Redeker, Deputy Director Jacques Delors Centre, to discuss European voter sentiment on climate policies and the future of the EU’s approach.

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Ukraine’s new F-16 jets won’t defeat Russia but will enhance air defenses

Mykola Bielieskov — Thu, 01 Aug 2024 19:46:07 +0000

The first batch of F-16 jets finally arrived in Ukraine at the end of July, officials in Kyiv and partner countries have confirmed. The news comes after months of anticipation over the delivery of the fighter jets, which have long been high on Ukraine’s wish list as the country seeks the tools to defeat Russia’s ongoing invasion.

US President Joe Biden confirmed his support for the supply of F-16s in August 2023, but subsequent progress was slow. Training for Ukrainian pilots and ground crews has taken up to nine months, with an already technically complex and demanding process reportedly further complicated by language barriers. There have also been significant obstacles to identifying and preparing Ukrainian airbases with suitable facilities and adequate defenses.

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The F-16 models that Ukraine has now begun to receive are a clear step up from the Soviet-era jets inherited from the USSR, boasting superior radar capabilities and longer range. At the same time, Ukraine’s F-16s should not be viewed as a game-changing weapon in the war with Russia.

One obvious issue is quantity. Ukraine has so far only received a handful of F-16s, with a total of 24 jets expected to arrive by the end of 2024. To put this number into context, Ukrainian President Volodymyr Zelenskyy has stated in recent weeks that in order to effectively counter Russian air power, his country would require a fleet of 128 F-16 jets. So far, Belgium, Denmark, Norway, and the Netherlands have committed to supply Ukraine with eighty F-16s, but there is no clear time frame for deliveries or for the training of additional pilots.

Ukraine’s fledgling F-16 fleet will likely have access to a limited selection of weapons, with partner countries currently pledging to provide a number of short-range munitions. It remains unclear whether Kyiv can count on longer range strike capabilities, despite recent reports that the US has agreed to arm Ukrainian F-16s with American-made missiles and other advanced weapons. The effectiveness of Ukraine’s new jets will also be constrained by restrictions on the use of Western weapons against targets inside Russia.

The limited number of F-16s in Ukraine means that these new arrivals will initially be deployed primarily to strengthen the country’s air defenses. The jets will considerably enhance Ukraine’s ability to prevent Russian pilots entering Ukrainian air space, and can also target Russian cruise missiles in flight. This is particularly important as Russia has recently demonstrated its growing ability to bypass existing surface-to-air defense systems and strike civilian infrastructure targets across Ukraine.

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Ukraine’s F-16s enter service in what is an extremely challenging operating environment, with Russia’s sophisticated battlefield air defenses likely to make any combat support roles extremely risky. Acknowledging these difficulties, Ukraine’s commander in chief Oleksandr Syrskiy recently stated that the country’s F-16s would operate at a distance of at least forty kilometers from the front.

Another key challenge will be protecting Ukrainian F-16s on the ground against Russian attempts to destroy them with ballistic missiles. The Kremlin has made no secret of the fact that the jets are priority targets that will be hunted with particular enthusiasm. The Ukrainian Air Force will have to adapt quickly in order to counter this threat, and must rely on a combination of Patriot air defenses, decoy F-16s, and frequent airfield changes.

While the long-awaited arrival of F-16s in Ukraine has sparked considerable excitement and provided Ukrainians with a welcome morale boost, these new jets are not a wonder weapon that can change the course of the war. Instead, Ukraine’s small fleet of F-16s will bolster the country’s air defenses, helping to protect Ukrainian cities and critical infrastructure from Russian bombardment.

Over the coming year, Ukraine will face the task of gradually integrating and expanding its F-16 fleet. Based on past experience of Western weapons deliveries, Kyiv can expect to receive additional munitions, and may also eventually be given the green light to strike some categories of military targets inside Russia. This would open up a range of offensive options that could change the battlefield dynamics of the war in Ukraine’s favor. For now, though, the biggest change is likely to be in terms of enhanced security for Ukraine’s civilian population.

Mykola Bielieskov is a research fellow at the National Institute for Strategic Studies and a senior analyst at Ukrainian NGO “Come Back Alive.” The views expressed in this article are the author’s personal position and do not reflect the opinions or views of NISS or Come Back Alive.

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The EU needs to adapt its fiscal framework to the threat of war

Piotr Arak — Mon, 29 Jul 2024 14:15:35 +0000

This year, the fiscal rules entrenched in the European Union (EU) treaties are coming back with force. Debt and deficit rules, which were frozen in 2020 to allow public spending to soften the economic blow of the COVID-19 pandemic, were reintroduced this year. Although the rules have been revised, they are still lacking in one crucial respect—they do not prioritize military expenditure over other types of spending. Without further revisions, the fiscal rules will constrain member states from increasing their defense budgets even as Russian aggression threatens European security.

With EU countries now facing greater fiscal constraints, the bloc needs to either further amend them or find a way to have more common European debt. Only then will EU member states be able to make the increases in defense spending that are necessary to bolster security on the continent and deter further aggression from Moscow.

The EU’s fiscal rules

The EU is a partial monetary union (not every state uses the euro) and is not a fiscal union. Twenty of its twenty-seven member states use the euro, but they maintain their own public accounts. The EU’s budget amounts to just 1 percent of the bloc’s entire gross domestic product (GDP). Brussels levies few taxes and spends little for the bloc, and that relatively small budget is the sum of the EU’s fiscal union. The real power of the EU resides in the supervision of the member states’ fiscal policies.

This is why some countries with high levels of debt or deficit—France, Italy, Poland (which spends 4.1 percent of its GDP on the military), and several others—might be under special supervision by the European Commission under the Excessive Debt Procedure (EDP). The EDP requires the country in question to provide a plan of fiscal consolidation that it will follow, as well as deadlines for its achievement. Countries that do not follow up on the recommendations may be fined. Of course, many EU countries are in debt, and most of them run a deficit even in good times; in bad times, they just run even bigger deficits. The European Commission will take into account additional military expenditures in the assessment, but only on military equipment, not on increasing the number of soldiers.

In 2023, the average debt-to-GDP ratio in the EU reached 82 percent, and it was even higher in the eurozone, at 89 percent (with France exceeding 110 percent and Italy going beyond 137 percent). The highest deficits were recorded in Italy (7.4 percent of GDP), Hungary (6.7 percent), and Romania (6.6 percent). Eleven EU member states had deficits higher than 3 percent of GDP. In comparison, the United States has a debt of around 123 percent of GDP and ran a deficit of 6.3 percent in 2023.

The original EU fiscal rules implemented thresholds for each country’s deficit and debt at 3 percent and 60 percent of GDP, respectively, and they required cutting national excess debt-to-GDP ratios by one-twentieth each year. These restrictive rules contributed to the eurozone’s prolonged recession from 2011 to 2013, and some rules have since been relaxed. In response to the COVID-19 pandemic, for example, the bloc activated its general escape clause, which allows for deviations from the EU’s Stability and Growth Pact in times of crisis. Moving forward, however, the rules will likely turn restrictive again, though less so than the old ones. In April 2024, EU institutions agreed on a consensual change to the fiscal framework, making the path back to a debt of 60 percent GDP and a deficit below 3 percent of GDP a matter of negotiations between each member state’s government and the European Commission.

Treat military spending differently

Some EU countries, such as France and Poland, argue for military expenditures to be treated differently, as some member states have different needs in the current geopolitical climate. Not all EU member states are in NATO; for example, Austria is neutral. But under the current EU rules, the fiscal space for military expenditures is one-size-fits-all. After Russia’s full-scale invasion of Ukraine in 2022, defense expenditures incurred that year were within the escape clause, but this does not address the underfunding of the military within the EU.

In 2024, the average military expenditures of NATO and EU members is expected to reach 2.2 percent of GDP, with a group of countries far below the threshold of 2 percent. More importantly, these are big economies with relatively large armies, such as Italy (1.49 percent of GDP), Belgium (1.3 percent), and Spain (1.28 percent). All of these countries have high levels of debt and issues with deficits. Germany is set to reach 2.12 percent of GDP on defense spending this year, but it is held back by its constitutional debt brake, which does not allow for an annual deficit higher than 0.35 percent of GDP. This has created tensions within Germany’s coalition government, since spending more on weapons might mean having to spend less on climate change mitigation and social services.

Meanwhile, the United States spends 3.38 percent of its GDP on defense. To put that into perspective, the total expenditure of all European NATO members is $380 billion, almost three times lower than that of the United States (nearly $968 billion). At the same time, Russian military spending this year is estimated to reach $140 billion, or 7.1 percent of its GDP.

Common debt

European capitals need to treat the need for a stronger military in Europe as urgent and serious, but their accountants in the finance departments are not going to make it easy. Unless Brussels changes its fiscal rules to allow for greater defense spending, common EU debt might be the only solution.

The bloc can issue EU debt outside of national fiscal rules, which it did for the first time in response to the COVID-19 pandemic. Some analysts argue for common debt for a European air defense system, which is a good starting point. EU debt funding could include spending on the further development of European defense industrial capacities. EU leaders such as former Estonian Prime Minister and future EU High Representative Kaja Kallas, French President Emmanuel Macron, and European Commissioner for Internal Market Thierry Breton have supported some version of common debt for defense purposes.

Utilizing common debt should not aim solely to expand the power of the European Commission, as some critics in various capitals fear. Instead, it should transform this measure from a temporary crisis-management tool into a standard policy instrument, enabling Europe to develop a meaningful defense industrial strategy, which has been lacking since the EU’s inception. After the failed attempt to establish a European Defence Community in the 1950s, the European project has primarily focused on economic issues. Unfortunately, it’s time to revisit that discussion.

Europeans must now prepare for a challenging geopolitical environment by investing in European defense, whether through changes in fiscal rules or by taking on more European debt.

Whichever path forward the EU chooses, it must do so quickly. There’s no time to waste.

Piotr Arak is the chief economist at VeloBank Poland.

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#AtlanticDebrief – What did the RNC mean for Europe? | A Debrief from Nico Lange

nlawler — Thu, 25 Jul 2024 20:39:57 +0000

IN THIS EPISODE

On July 18, former US President Donald Trump accepted his party’s nomination as the Republican presidential nominee for the November election together with his running mate, J.D. Vance. Both politicians share an isolationist vision for US foreign policy that could have serious implications for European security.

What might a potential Republican presidency mean for Europe, especially regarding support for Ukraine? Which lessons might China take from a weakened transatlantic security partnership? Should Europeans be more prepared for a potential second term of former president Trump?

On this episode of #AtlanticDebrief, Rachel Rizzo sits down with Nico Lange, Senior Fellow at the Munich Security Conference and the Center for European Policy Analysis, to discuss his impressions from the Republican National Convention and implications of a potential Trump presidency on European security.

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European energy security requires stronger power grids

Andrei Covatariu — Wed, 24 Jul 2024 20:47:50 +0000

In 2022, 63 percent of all energy consumed in the European Union (EU) was imported. Europe’s energy generation gap has come into focus amid the energy security challenges stemming from Russia’s full-scale invasion of Ukraine. But while Europe has weathered the storm, in part by deploying renewables and accelerating electrification, there is a pressing need to strengthen the backbone of a decarbonized energy system—Europe’s power grid.

A mismatch between supply security, climate ambition, and grid capacity

Upgrading electricity grids to enable decarbonization is a worldwide issue. The International Energy Agency (IEA) estimates that global grid investments must double to reach $600 billion per year by 2030 to meet nationally set climate objectives. In Europe, a recent study by Eurelectric suggests that the EU and Norway must invest €67 billion in grids per year to realize carbon neutrality by 2050.

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As the EU aims to reach a 42.5 percent—ideally 45 percent—share for renewables in its total energy mix by 2030, grid capacity must keep pace with rapidly growing clean energy generation.

Europe overall, including the UK, is making progress on renewable deployment, but a mismatch in grid capacity is already causing significant challenges. In Britain, for example, the connection queue for generation, storage, or energy-consuming projects waiting to be connected to the grid is projected to reach 800 gigawatts by the end of 2024. Grid congestion is also a major problem in the Netherlands, with industry and households asked to reduce demand at peak times to avoid blackouts. In Romania, a boom in state-backed prosumers without adequate storage facilities is placing significant stress on the grid.

Building the grid of the future

Currently, cross-border interconnections within the EU limit the amount of electricity that can be imported or exported, creating significant price discrepancies between neighboring states. Expected increases in electricity demand due to electrification will only exacerbate these distortions.

Enabling greater cross-border electricity trade is a must for solidifying energy security and solidarity across Europe. New high-voltage transmission lines could convert intermittent renewable generation into more baseload-like output by quickly moving excess clean electricity to regions in deficit.

To this end, debate continues in Brussels over creating an EU-wide supergrid that would enable high volumes of electricity to be transported across the continent. This would help level energy prices across borders, reduce equity concerns, and improve supply security over the short and long term.

Furthermore, the difficulties in predicting renewable energy generation and adapting consumption accordingly requires the digital transformation of energy grids. Digitalization can further integrate renewable generation through smart meters and smart appliances that can accurately forecast output and match it with flexible electricity consumption. This can help minimize grid congestion and enhance resilience in the face of intermittency.

Additionally, new sensor and software platforms can enable predictive maintenance that reduces the time infrastructure is out of service. Digital twins—virtual representations of physical power grids—use data analytics to model various scenarios, leading to higher operational efficiency, increased asset lifespan, and optimized energy flow. While a highly digitalized energy grid may also increase cyber threats, other sectors have demonstrated over decades that these threats can be mitigated through strategies that include rapid incident reporting to limit malware spreading and investment in threats monitoring systems.

The unavoidable but necessary cost

Upgrading and extending the grid would translate into higher tariffs paid by European end-users, who have already struggled with energy affordability. A spike in network tariffs could lead to negative social, economic, and—eventually—political consequences, as was seen during EU-wide protests in 2022, triggered by increasing energy bills.

Although these investments will impose direct and indirect costs on consumers in the short term, they will unlock over the medium and long term increased electrification and pass decreasing renewable generation costs onto rate payers. Today, onshore wind and solar photovoltaic energy are cheaper than new fossil fuel plants almost everywhere. The average cost of variable renewable energy generation is expected to drop further, from a levelized cost of electricity of $155 per megawatt hour in 2010 to $60 in 2028.

To finance these upgrades while minimizing the negative impacts on rate payers, new earmarked EU funds could complement tariff-based network revenues. While this has not been done before in advanced economies with complex electricity systems, policy innovation is required to keep the EU’s ambitious 2030 targets alive.

Not investing in transmission and distribution would jeopardize both European energy security and climate ambitions. By stalling deployment of renewable generation and thereby the electrification of heating and transport, failing to invest in the European grid would prolong high levels of fossil fuel imports. This would keep energy bills high, leave Europe exposed to fossil fuel supply insecurity, and place at risk Europe’s social and political fabric.

Bottlenecks to be addressed

Beyond financing challenges, building power infrastructure is notably slow. In Europe in particular, permitting procedures cause significant delays. The IEA highlights that the United States and EU have the longest deployment times for distribution—around three years—and transmission lines—between four and twelve years. The COVID-19 pandemic has made the problem worse, creating high demand while constricting supply for power grid components.

Regulatory frameworks are also constraining grid development. While the regulation of these natural monopolies has evolved in Europe to liberalize and unbundle the sector, national regulatory authorities need to deal with greater uncertainty; for instance, the rate of electrification and improvements on energy efficiency are difficult to predict. They will need to manage increased investment while encouraging innovation and keeping tariffs in check. Energy regulators must learn from previous experience, respond to current challenges, and anticipate future trends—all at the same time.

The overlooked factor in European energy security

Energy security in Europe hinges on the state of its power grids. As reliance on renewable energy and electrification grows, existing grid infrastructure is struggling to keep pace, causing congestion and delays. Substantial investments in grid upgrades and modernization are essential for integrating renewables, accelerating the electrification of heating and transportation, building technical redundancies to enhance resilience, combatting cyber threats, and protecting against extreme weather events.

While difficult to sell politically, investments in grid infrastructure will ultimately pay off in lower energy bills for consumers and industry, compared to a business-as-usual scenario. Failing to achieve these objectives will imperil Europe’s security of supply and its capacity to build a resilient energy future.

Andrei Covatariu is a Brussels-based energy expert. He is a senior research associate at Energy Policy Group (EPG) and a research fellow at the Centre on Regulation in Europe (CERRE). This article reflects his personal opinion.

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EnergySource Oct 10, 2023

The case for investing in Ukraine’s energy future

By Mark Temnycky

Despite uncertainty over when the war will end and corruption in Ukraine, international investors should see Ukraine’s energy reconstruction as an opportunity to create a European energy leader.

Energy & Environment Energy Transitions

EnergySource Sep 14, 2023

What to do about Russia’s energy trojan horse

By Olga Khakova, Charles Lichfield

The future of Gazprom’s piped deliveries to Europe looks bleak. However, Europe has no binding timeline for phasing out Russia’s growing LNG exports. Reducing these import will be critical to bringing Ukraine closer to victory and for securing Europe’s energy system.

Economic Sanctions Economy & Business

EnergySource Mar 10, 2023

Clean industrial policies: A space for EU-US collaboration

By Théophile Pouget-Abadie, Francis Shin, Jonah Allen

EU-US tensions over clean industrial policy could derail the energy transition. Collaboration on equal footing would bolster collective security and drive emissions reductions to new levels.

Energy & Environment Energy Markets & Governance

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The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.

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#BalkansDebrief – What EU reforms will make enlargement successful? A Debrief with Enrico Letta

sjones — Wed, 24 Jul 2024 19:15:50 +0000

IN THIS EPISODE

What EU reforms will make enlargement successful? Why should Europe focus on the Balkans? What are the potential opportunities and challenges for EU enlargement and the Growth Plan for this region?

Join Nonresident Senior Fellow Ilva Tare in this episode of #BalkansDebrief as she interviews Enrico Letta, former Prime Minister of Italy and current President of the Institut Jacques Delors. With his extensive experience in European Union affairs and his recent influential report on the future of the Single Market, Mr. Letta provides deep insights into the necessary reforms for successful EU enlargement.

In this episode, Mr. Letta discusses his advocacy for the “Regatta Method” over the “Big Bang” approach for EU enlargement, emphasizing the importance of allowing each country to join when ready rather than waiting for the slowest in the region. He also elaborates on his proposed blueprint for EU enlargement success, which includes critical reforms such as on veto rules and the creation of a “solidarity enlargement facility.”

Discover the future of the EU and the vital steps needed to integrate the six Western Balkan countries into the new Single Market, as envisioned by Enrico Letta, a staunch advocate of enlargement in the Western Balkans.

ABOUT #BALKANSDEBRIEF

Watch #BalkansDebrief on YouTube and listen to it as a Podcast.

Explore the #BALKANSDEBRIEF series

SUBSCRIBE TO #BALKANSdebrief

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MEET THE #BALKANSDEBRIEF HOST

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Ilva Tare

Resident Senior Fellow

Europe Center

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The Europe Center promotes leadership, strategies, and analysis to ensure a strong, ambitious, and forward-looking transatlantic relationship.

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The post #BalkansDebrief – What EU reforms will make enlargement successful? A Debrief with Enrico Letta appeared first on Atlantic Council.

Andriy Yermak: Ukraine and NATO are restoring Europe’s security architecture

Andriy Yermak — Mon, 22 Jul 2024 12:04:47 +0000

As I listened to world leaders announce the signing of the Ukraine Compact on the sidelines of NATO’s 75th anniversary summit at the Walter E. Washington Convention Center, my mind drifted back to September 13, 2022. On that cold, rainy day, Anders Fogh Rasmussen and I first unveiled the Kyiv Security Compact concept.

President Zelenskyy’s idea, which Anders and I began to implement together, was that allies should provide Ukraine with everything necessary to defeat Russia on the battlefield and to deter further aggression. The proposal outlined a set of measures designed to ensure that Ukraine could defend itself independently until it joins NATO.

Specifically, it included commitments from a group of guarantor states to provide weapons, conduct joint exercises under the EU and NATO flags, share intelligence, and assist in developing Ukraine’s defense industry. We claimed that security commitments were not an end in themselves, but a transitional phase towards Ukraine’s full-fledged membership in both the European Union and the NATO Alliance.

At the time, one journalist asked if I truly believed we could find even half a dozen countries willing to support this initiative. I responded with a line from John Lennon’s song: “You may say I’m a dreamer, but I’m not the only one.” This has proved to be an accurate forecast.

At the NATO Vilnius summit in July 2023, G7 leaders issued a Joint Declaration of Support for Ukraine, based on our initiative. Other countries began joining soon after. Before long, their number exceeded thirty. By that time, we already had several bilateral security agreements in place. This work is ongoing, with 23 bilateral agreements currently signed. Together with our allies, we set out on the path to restore the European security architecture. We are determined not to stray from it again.

The Ukraine Compact, open for others to join, became the final piece in creating an ecosystem of security guarantees for our country. It is designed to enhance Ukraine’s resilience and ability to defend itself in the future, and to serve as a bridge during the period when Article 5 does not yet apply. I’m pleased that this aligns perfectly with Anders’ and my original draft. The bridge metaphor is also enshrined in the NATO summit’s final declaration. This is a crucial detail. Since 2008, Ukraine has been hitting a glass wall trying to enter the Alliance’s supposedly “open doors,” and now it has been removed.

The summit declaration’s statement on Ukraine’s irreversible path to NATO is another strong step. Throughout the past year, Anders and I have emphasized again and again: NATO leaders need to make it clear to Vladimir Putin that his war is futile, that support for Ukraine will not waver, and that Ukraine will sooner rather than later become a NATO member. Finally, this signal has now been sent: Russia’s war of choice has been stripped of its stated pretext.

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Currently, the Ukraine Compact bears 25 signatures. It has been supported by the United States and Canada, nineteen European countries, and the European Union. Japan is also among the signatories. This is very telling, as Ukraine is a cornerstone not only of European but also of global security.

The Washington summit demonstrated that the Alliance can no longer limit itself to the Euro-Atlantic space as it seeks to effectively counter global challenges and threats. Aggressive autocracies are increasingly collaborating and taking on the shape of a military-political alliance. For all democratic countries this means one thing: Russia is not alone in its aggression against Ukraine, and the possibility of new conflicts elsewhere depends on Moscow’s ability to succeed. It is therefore in our common interest to do everything to ensure that Ukraine emerges victorious from this war, and that this victory is convincing.

I note that the recent NATO summit’s decisions are aimed precisely at this. Three key points are worth mentioning here. First, the institutionalization of aid formats that have emerged ad hoc during the war. Second, building Ukraine’s defense capabilities and strengthening the potential of its defense-industrial base. And third, the course toward deepening Ukraine’s political and military interaction with NATO structures.

We are sincerely grateful for these steps and extend thanks to our allies, whose unwavering leadership has allowed us to successfully defend ourselves despite Russia’s often overwhelming advantages in terms of resources. Your dedication and your value-based choices strengthen the chances of our common victory over a lawless and cynical enemy.

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Looking ahead, I need to outline several critical points. The further strengthening of Ukraine’s air defense system is crucial. Russia intends to continue terrorizing our civilian population by destroying residential buildings, power grids, and other critical infrastructure. The recent strikes on the Okhmatdyt children’s hospital in Kyiv, as well as two additional health clinics, have once again clearly demonstrated that for the Russian military, there are no red lines in terms of international law and ethics. There is therefore no alternative to strengthening the air shield over Ukraine.

One of the key components of this air shield will be F-16 jets. Ukraine’s allies have committed to delivering the first batch this summer. However, I have to emphasize that this is not enough. The Russians boast about using three-ton guided bombs against Ukraine. Their bombers are based at airfields in Russia’s border regions. In order to neutralize this threat, we still need long-range capabilities. Simply put, if there is a hornet’s nest in your neighborhood, you can hunt them one by one with varying success, or you can destroy the nest itself. Currently, only the first option is available to us, and even that is quite limited.

Addressing this problem will not only reduce the number of casualties; it will also further enhance the operational compatibility of Ukrainian defense forces with NATO. We sincerely welcome steps in this direction, in particular the creation of the NSATU (NATO Security Assistance and Training for Ukraine) program.

We are also extremely grateful to member states for their specific commitments to aid Ukraine, and for implementing a system of proportional contributions that will provide base funding of forty billion euros over the next year. We expect these funds to be spent specifically on purchasing weapons, rather than alternative forms of support, which are undoubtedly important as well.

At the same time, it is worth noting that this burden could be reduced by fine-tuning mechanisms for transferring frozen Russian assets to Ukraine. A related issue is the further intensification of sanctions pressure on both Russia and the partners who enable Moscow to continue making weapons using microelectronics produced in the West. This has made it possible for Russia to manufacture the type of missile that hit the Okhmatdyt children’s hospital with Western components.

Our relationship with NATO has always been a two-way street, and we remain committed to this principle. We fully understand that one of the leading factors in Ukraine’s Euro-Atlantic integration is our capacity for transformation. President Zelenskyy and his team remain dedicated to reforms aimed at strengthening institutional resilience and democratic processes in the country.

Changes continue despite the war, and they are irreversible. We unhesitatingly and without reservations agree that the reforms mentioned in the summit’s final declaration are of utmost importance for Ukraine’s prospects. At the same time, common sense suggests that all these changes will only matter if Ukraine withstands this war. Withstands and wins. Only a strong, free, and successful Ukraine can be a reliable outpost of democracy in Eastern Europe. Comprehensive and long-term assistance to Ukraine is not charity. It’s an investment in a secure future for the entire Euro-Atlantic community.

Andriy Yermak is the head of Ukraine’s Office of the President.

Hungarian PM Orban poses as unlikely peacemaker for Russia’s Ukraine war

Dmytro Tuzhanskyi — Thu, 18 Jul 2024 21:03:06 +0000

As perhaps the most pro-Kremlin and anti-Western leader of any EU or NATO member state, Hungarian Prime Minister Viktor Orban makes for an unlikely mediator in efforts to end Russia’s war in Ukraine. This did not prevent the Hungarian leader from embarking on an ambitious series of international visits in early July that he dubbed as a “peace mission.” In the first ten days of July, Orban visited four different countries on three continents, during which he claimed to have held twelve hours of talks with world leaders.

Orban’s intensive bout of shuttle diplomacy began with a visit to Kyiv on July 2, where he met with President Zelenskyy. This was the Hungarian leader’s first trip to neighboring Ukraine since 2015, and came just one day after his country took up the six-month rotating presidency of the Council of the European Union. The presidency, a position which rotates through all EU member states, is designed to coordinate the agenda and chair meetings of EU member state officials. It is limited in power, and the presidency carries no responsibility for representing the EU abroad.

A few days later, Orban was in Moscow for talks with Russian President Vladimir Putin, who he then lavished with praise in an interview with Germany’s WELT Documentary. On July 8, the Hungarian PM was in Beijing to meet with Xi Jinping. He subsequently flew to the US for the annual NATO Summit, before rounding off his diplomatic mission by meeting with US presidential candidate Donald Trump in Florida.

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While Orban’s globetrotting itinerary was certainly impressive, there is little indication that this diplomatic initiative achieved much beyond generating media buzz and upsetting Hungary’s EU partners. Orban pushed the idea that a ceasefire in Ukraine could “speed up peace talks” and has tried to pitch his peace plan in a letter to European Union leaders, but so far he has faced little enthusiasm and a significant backlash. Crucially, both Zelenskyy and Putin have ruled out an immediate ceasefire.

This lack of progress toward peace might not be a major issue for Orban. Indeed, some believe his recent diplomatic efforts may actually have been designed primarily to strengthen his own position, both domestically and on the international stage. Crucially, it has allowed the Hungarian leader to balance his country between the key global centers of Washington, Beijing, Moscow, and Brussels. It has also served as a welcome backdrop for the creation of the new Patriots for Europe grouping within the European Parliament, as part of Orban’s self-styled effort to “change European politics.”

This international outreach allows Orban to maintain the stability of his own domestic position via continued NATO security, EU funding and market access, cheap Russian energy imports, and Chinese investments. He has been pursuing a similar model since 2010, and has consistently attempted to make himself useful to all key players. In the current geopolitical context, this means playing the role of potential peacemaker in the broader geopolitical confrontation that has emerged as a result of Russia’s full-scale invasion of Ukraine.

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Orban’s current peacemaker posturing could prove particularly timely if Donald Trump wins this year’s US presidential election and returns to the White House in January 2025. This would set the stage for a likely increase in tensions between Washington and Beijing, with the Hungarian PM potentially positioned to serve as an intermediary on key issues such as Ukraine peace initiatives.

Critics have accused the Hungarian leader of handing Putin a significant PR victory. At a time when the Russian dictator is eager to demonstrate that he is not internationally isolated, their Moscow meeting was particularly welcome. This explains why Orban was careful to begin his world tour in Kyiv, allowing him to deflect accusations from the West that he is doing the Kremlin’s bidding. Instead, Orban sought to portray his outreach efforts as an example of the “third way” that the current crop of populist European politicians often seek to champion.

There can be little doubt that Orban’s tour was also an attempt to troll the entire EU leadership. By seizing the initiative and unilaterally embarking on high-profile visits to Moscow and Beijing while holding the EU presidency, Orban was hoping to contrast his own dynamic leadership with the perceived indecisiveness of the European Union’s more cautious diplomacy. In doing so, he succeeded in boosting his international profile while causing significant embarrassment in Brussels.

Despite generating much media interest and favorable headlines, it would be wrong to portray Viktor Orban’s peace mission as an unqualified success. At this stage, his peace proposals appear to have little genuine substance, and have so far gained virtually no traction. Nevertheless, the Hungarian leader will likely continue to view the invasion of Ukraine as an opportunity to advance his own balancing act between Russia, China, and the West.

Dmytro Tuzhanskyi is director of the Institute for Central European Strategy. This article is published in his capacity as an analyst of the Institute for Central European Strategy and does not reflect any other institution’s position.

In practice, this means her next term will mean more of a central and active role for the Commission—and for von der Leyen. But there will also likely be more roadblocks from the European Council and Parliament.

Start with her leadership style. In her first term, von der Leyen turned the Commission into the most important arm inside the EU at a time when crises came new and often. She served as the EU’s chief decision maker and negotiator during the COVID-19 crisis, helped coordinate Europe’s response to Russia’s full-scale invasion of Ukraine, and shaped the EU’s economic de-risking strategy and general hawkishness toward China, serving as Europe’s “bad cop” standing up to Beijing’s coercive and unfair trade practices. The grumblings of an overstepping and power-hungry Commission president from other arms of the EU and national capitals aside, European leaders still looked to the Commission and von der Leyen to take action.

The Commission’s role was boosted by its policy successes too. Her first term oversaw the adoption of major rules on the digital and green transitions. The EU pushed through world-leading digital regulations on artificial intelligence, online content moderation, and platform competition, and it incentivized semiconductor manufacturing. She also prioritized green policies to reduce emissions, including the Carbon Border Adjustment Mechanism and setting new emission reduction targets for cars, shipping, and factories.

The growing number and influence of far-right and hard-right groups will likely add extra complexity to the legislative process.

For her second term, von der Leyen will seek to pick up where she left off. The Commission will also look to build itself a stronger role in the traditional defense and the economic security agendas, with an eye to boosting Europe’s defense capabilities against Russia and de-risking from China. Von der Leyen’s focus on a competitiveness agenda will push for greater innovation and industrial support while furthering the green transition. On Thursday, von der Leyen promised a “European competitiveness fund” and a “clean industrial deal” within the first hundred days of the Commission’s next mandate, along with greater investment in energy infrastructure and technologies. This will all come with a price tag, and more responsibility for the Commission.

As a consequence of a busy 2019-2024 legislative cycle, von der Leyen and her Commission must now see through a raft of new rules. On digital policy alone, the to-do list is a tall order. The EU is standing up new offices and hiring a new army of competition lawyers, boosting the already massive size and scope of the Commission.

But there will be limits to von der Leyen’s ambition as member states and the parliament will look to exercise their own power.

Europe’s political center is not what it was in 2019, and EU members will want their influence felt. Von der Leyen will have to contend with a growing number of populist leaders around the table at Council meetings. More far-right governments may pop up over the next five years, including in major countries such as France as Marine Le Pen’s National Rally gets ever closer to power. And as the Commission tries to take on a bigger role in traditional member-state driven policies, such as security and defense, von der Leyen will need to deal with more engaged member states looking to exact concessions or carveouts, or to wield their own influence at the EU level.

Far- and hard-right groups in the European Parliament are also on the rise, and they are looking to make a mark. In a shift from her first term, emboldened hard-right politicians are more eager to influence EU policy rather than just play spoiler to it. The growing number and influence of far-right and hard-right groups will likely add extra complexity to the legislative process, and legislation may need to pass with ad hoc coalitions rather than the tradition of grand coalitions of parliaments past.

Greater influence on the right may hamper the Commission’s regulatory ambition. Von der Leyen promised she would continue the green transition, but the EU’s green rules have already become a political target. The platforms of the center-right European People’s Party (EPP), von der Leyen’s own group, and the further right European Conservatives and Reformists, both have peppered in objections to onerous new regulations, especially those associated with the green transition. And the competitiveness debate is in large part spurred on by this backlash to the Commission’s regulatory appetite. This may be difficult for the Commission. Institutionally, the Commission is designed to present new regulations and proposals. It is the only arm inside the EU that can. But that desire will be a point of friction with the aversion among member states and Parliament to new, seemingly onerous, rules.

Von der Leyen will face challenges from beyond Europe, too. “We have entered an age of geostrategic rivalries,” notes the policy guidelines. To the east, Beijing will continue to try to split Europe and poison the EU’s de-risking agenda just as it is starting to take off. And supporting Ukraine against Russia’s full-scale invasion will require sustained attention and funds.

To the west, von der Leyen cannot ignore the upcoming US elections. A transatlanticist at heart, she pushed the EU closer together with the United States in her first term—in large part benefiting from a new EU-friendly US administration. She will likely face an uphill battle in strengthening transatlantic ties in the event of a second Trump administration. “They treat us very badly,” former President Donald Trump said to Bloomberg News when asked about the European Union on June 25.

Von der Leyen’s confirmation this week goes a long way already to set up the EU for success and avoids an own goal for team Europe. Rejecting her would have forced the European Council back to the drawing board to pick a new—and likely weaker—appointee, wasting more time on internal bickering and politicking when predictability, not chaos, is critical. It’s not hard to picture the jubilee from Beijing, taunts from Moscow, and even snide comments from Washington about EU dysfunction in the face of a no vote. In the words of Greek Commissioner Margaritis Schinas (and von der Leyen ally) on her appointment, “There is no plan B.” It is a good thing plan A worked.

James Batchik is an associate director at the Atlantic Council’s Europe Center.

The post What to expect from Ursula von der Leyen’s second term appeared first on Atlantic Council.

Czech president: Don’t expect a ‘significant breakthrough’ in the war in Ukraine for the ‘foreseeable future’

Katherine Walla — Fri, 12 Jul 2024 22:20:13 +0000

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Online Event Fri, July 12, 2024 • 12:15 pm ET

The Czech president on next steps for transatlantic cooperation post-NATO Summit

AN #ACFRONTPAGE EVENT—President Petr Pavel discusses the future of US-EU collaboration on support for Ukraine and European security.

The support required to allow Ukrainians to fully reclaim their territory is “not realistic at this time,” Czech President Petr Pavel argued on Friday.

Pavel portrayed this sobering reality at an Atlantic Council Front Page event in Houston, Texas, following NATO’s Washington summit, where allies agreed to a “bridge” to membership in the Alliance for Ukraine.

“In the foreseeable future, we cannot expect any significant breakthrough on the front line,” he argued, later clarifying that if Ukraine holds the line and Russia doesn’t achieve any major successes, breakthroughs could happen late this year or early next. “We have to have in mind who is the opponent, and Russia definitely has much greater resources . . . than Ukraine.”

Following the NATO Summit, the Czech president said he was “positively surprised” by the Alliance’s response to Ukraine’s needs, with allies reaching bilateral security agreements with Ukraine and committing to send more financial and military support. “I believe that even [Ukrainian President Volodymyr Zelenskyy] was assured, even though he didn’t receive an invitation to the Alliance.”

As for when that invitation might be extended, Pavel said Ukraine’s military already works “seamlessly” with NATO in a number of areas—but the war is an “obstacle.” “Once we have a ceasefire, once we start negotiating peace, then we should also, in parallel, proceed with the integration,” he said.

Below are more highlights from the conversation, moderated by Atlantic Council President and Chief Executive Officer Frederick Kempe, which touched upon the Czech Republic’s support for Ukraine, approach toward China, and hopes for European autonomy.

Czech President Petr Pavel speaks with Atlantic Council President and CEO Frederick Kempe on July 12, 2024 in Houston, Texas.

Holding the line

Pavel argued that Ukraine’s partners should strive at this moment to “convince” Russia that it “cannot achieve any significant successes on the battlefield.” That, he said, would “bring them to the negotiating table.”

“And then once the negotiation starts . . . our position shouldn’t be to legalize occupied territories as Russian,” he clarified, “but rather declare them as temporarily occupied territories.”

“To achieve that, we have to equip Ukraine with all they need to really hold the line,” he said.

The Czech Republic took a “special forces approach” to support Ukraine, the president explained: “Act first, ask questions later,” he said. Low on stocks of artillery to send to Ukraine, Prague instead has located artillery in other countries and pooled funds from NATO allies to purchase rounds for Ukraine.
“We have financial cover for about half of a million rounds,” he said, adding that “it will fully cover Ukrainian need” and even fill reserves. He said that he is looking to expand the model to other forms of equipment.

Unity on China

Allies should concurrently work to convey to China that “it’s not in their interest to be so closely aligned with Russia,” Pavel said.

With four Indo-Pacific partner countries having attended the NATO Summit, Pavel explained that allies need to be “concerned” about security in that region because Euro-Atlantic security “cannot be separated” from security in the Indo-Pacific and elsewhere.

A Russian victory “would [embolden] China and make it more assertive,” he said, adding that the Indo-Pacific countries and NATO “are together in this global security environment,” because they share the same values.

Pavel said that while China is in many ways a “superpower,” it is also somewhat “dependent” on the “democratic world,” for example for trade. But the West doesn’t have “a common policy towards China,” the president said, warning that China is using that to divide the West “for its own benefit.”

Friendly autonomy

Pavel said that while European countries including the Czech Republic have reduced their dependency on Russian oil and gas, there is “still room for more coordination.” This summer, the Czech Republic and Germany began to push the European Union (EU) to hold talks on how to officially end imports of energy from Russia.

With US elections approaching, and the possibility of another Donald Trump presidency raising concern about the US role in transatlantic defense, some European members of NATO have argued that they need to reduce their military reliance on the United States. The EU “loves the word autonomous” in defense, the economy, energy, and more, Pavel said. “But whenever Europe gets into trouble, we look over the ocean.”

Ideas such as creating an EU army, Pavel argued, “don’t make sense” because such efforts would “duplicate what already exists.” Rather, European countries should “work with what we have,” he said, by reinforcing the European pillar of NATO.

This effort to reduce military reliance shouldn’t be “aimed against” the United States but rather should be seen as building “along with” the United States, he said. “The United States will need an equal partner in Europe, not a dependent child.”

Katherine Walla is the associate director of editorial at the Atlantic Council.

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Five reasons why Ukraine should be invited to join NATO

Paul Grod — Thu, 11 Jul 2024 20:33:21 +0000

NATO leaders have this week declared that Ukraine’s path to membership is “irreversible,” but once again stopped short of officially inviting the country to join the alliance. This represents another missed opportunity to end the ambiguity over Kyiv’s NATO aspirations and set the stage for a return to greater international stability.

The ongoing Russian invasion of Ukraine was high on the agenda as alliance leaders gathered in Washington DC for NATO’s three-day annual summit. This focus on Ukraine was hardly surprising. The war unleashed by Vladimir Putin in February 2022 is the largest European conflict since World War II, and poses substantial security challenges for all NATO members.

Since the invasion began almost two and a half years ago, Russia has strengthened cooperation with China, Iran, and North Korea, who all share Moscow’s commitment to undermining the existing rules-based world order. The emergence of this Authoritarian Axis has helped underline the need for a decisive NATO response to Russian aggression in Ukraine. Alliance members are acutely aware that China in particular is closely monitoring the NATO reaction to Moscow’s invasion, with any Russian success in Ukraine likely to fuel Beijing’s own expansionist ambitions in Taiwan and elsewhere.

While there is widespread recognition that the outcome of Russia’s war in Ukraine will shape the future of international relations, this week’s summit confirmed that there is still no consensus within NATO over Ukrainian membership. On the contrary, the alliance appears to be deeply divided on the issue.

Objections center around the potential for a further dangerous escalation in the current confrontation with the Kremlin. Opponents argue that by inviting Ukraine to join, NATO could soon find itself at war with Russia. Meanwhile, many supporters of Ukrainian NATO membership believe keeping the country in geopolitical limbo is a mistake that only serves to embolden Moscow and prolong the war.

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There are five compelling reasons to invite Ukraine to join NATO. Firstly, it would end Russian imperial ambitions in Ukraine. By formally inviting Ukraine to join NATO and announcing the commencement of accession talks, the alliance would send a clear message to Moscow that its dreams of subjugating Ukraine and restoring the Russian Empire are futile. This would represent a watershed moment for modern Russia that would likely force the country to rethink its role in the wider world.

Secondly, Ukrainian membership would significantly strengthen NATO. Ukraine boasts one of Europe’s largest, most capable, and innovative armies. For almost two and a half years, Ukrainian troops have defied expectations and successfully resisted the Russian military, which is widely regarded as the world’s second most powerful army. As a member of the NATO alliance, Ukraine would bolster Europe’s security, contributing its unique combat experience and knowledge of the most advanced battlefield technologies.

Third, inviting Ukraine to join NATO would help deter Russia from engaging in aggression or malign actions in other parts of Europe. It would confirm the counter-productive nature of Russia’s revisionist agenda and the likelihood of further negative consequences if the Kremlin continues to pursue policies hostile to the West. The security of Ukraine, eventually guaranteed by Article Five of the Washington Treaty, would ensure stability and peace throughout the Euro-Atlantic space.

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Ukraine’s advance in Kursk: What’s next and implications

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Fourth, Ukraine would be a particularly committed member of the NATO alliance. Polls consistently indicate that around three-quarters of Ukrainians back NATO membership, representing a higher level of public support than in many existing alliance members.

Ukrainian officials and Ukrainian society as a whole have a very good understanding of the responsibilities that would come with joining NATO. Throughout the past decade, Ukraine has demonstrated a high level of financial discipline, complying with NATO’s defense spending guidelines stipulating two percent of GDP. The Ukrainian military has also made major progress toward interoperability and the adoption of NATO standards.

The fifth compelling argument for Ukrainian NATO membership is the signal this would send to the international community. Inviting Ukraine to join the alliance would demonstrate the unity and resolve of the collective West at a time when Russia and other autocracies are looking for signs of weakness.

Few expected this year’s NATO summit to produce any meaningful breakthroughs toward Ukrainian membership. Nevertheless, the lack of progress will be welcomed by Russia, and will inevitably fuel frustration in Ukraine. Once again, NATO leaders have offered strong words but been unable to back this up with decisive actions.

Despite this setback, it is important to continue the debate over Ukraine’s future accession in the months ahead. Crucially, Ukrainians are not asking to join NATO immediately, and do not expect to receive the benefits of the alliance’s collective security in the context of Russia’s current invasion. Instead, they seek an invitation that will create a realistic and practical road map toward future membership.

Most Ukrainians see NATO membership as the only way to guarantee the long-term security of their nation against Russia and create the conditions for a sustainable peace in Eastern Europe. Unless a firm invitation to join the alliance is forthcoming, they fear that any ceasefire agreement with Moscow will only provide a temporary pause before Russia’s next attack.

Paul Grod is President of the Ukrainian World Congress.

This month’s topline events

Tensions mount within the Israeli government as conflict grinds on. As June ended, Israel and Hamas still had not agreed on a cease-fire, despite hopes earlier in the month that both sides would sign onto a previously floated three-phase plan. Although the United States assured that Israel accepted, it is unclear whether Israel declined the latest three phase. Yet Hamas requested some unworkable changes after all the parties alleged acceptance. Even as the two sides haggled over cease-fire terms, Israeli military operations in Gaza slowed due to operational tempo, but there remained an increase in intensity in the continued tit-for-tat exchanges between Israel and Iran-backed Hezbollah, driving global concern over a potential war between them that could evolve into a broader regional conflict. Netanyahu dissolved his war cabinet, the unit established to bring a unified approach to Israel’s fight against Hamas. The decision came following the resignation of former military chief Benny Gantz from the cabinet. Gantz resigned amidst protests over the continued lack of a strategic plan to defeat Hamas. Illustrating further divisions within the Israeli government over war aims, the Israeli army’s chief spokesman publicly questioned the government’s articulated goal of destroying Hamas, noting, “Hamas is an idea, Hamas is a party. It’s rooted in the hearts of the people—whoever thinks we can eliminate Hamas is wrong.” Tens of thousands of Israeli people protested in Tel Aviv to demand a cease-fire and the return of hostages.

Shaping the order. Tensions within the Israeli government, between Netanyahu and his military leadership, came to a head as the two sides seemed at odds over end goals for Israel’s military operations. There remains limited consensus on the way forward. In February, Netanyahu presented a post-war plan aiming for local officials to govern Gaza, with Israel preparing to test the experimental model with “humanitarian bubbles.” Allies have collectively strategized various pathways and there remains widespread skepticism of the plan. Yet the Israeli government continues to struggle to advance a post-conflict plan and receive sufficient buy-in from the United States, Arab states, and others, which remains a key priority for regional stability and US interests.
What to do. The Biden administration should continue to work with allies in Doha and Cairo to pursue a path to a temporary cease-fire and hostage-for-Palestinian-prisoners deal—that would also enable a flood of humanitarian relief in Gaza—despite the low probability of success.

The United States and its allies step up support for Ukraine. The United States expanded its policy to allow Ukraine to use US-provided weapons to strike “anywhere that Russian forces are coming across the border from the Russian side to the Ukrainian side to try to take additional Ukrainian territory,” according to US National Security Advisor Jake Sullivan. This builds on its May decision to allow Ukraine to use US-provided weapons to strike a limited set of targets, largely across the border from Kharkiv.

The Biden administration, following the G7 meeting in Italy, announced it would rush the delivery of air-defense interceptors to Ukraine by delaying the delivery of them to most other nations. The G7 also agreed to use interest on immobilized Russian sovereign assets to collateralize a fifty-billion-dollar loan to Ukraine. The United States added new and strong US sanctions against Russia and finalized a US-Ukraine ten-year memorandum of understanding on security cooperation.

As US munitions began to reach the front lines in Ukraine, the Russian offensive against Kharkiv lost momentum. Although Russian attacks on Ukrainian energy generation did considerable damage (taking down almost half of Ukrainian electric generation), the US decision to rush delivery of air-defense interceptors may help further mitigate such attacks, as will Romania’s decision to send to Ukraine one of its Patriot batteries. Meanwhile, Ukrainian attacks on Russian military infrastructure in Crimea were taking an increasing toll, and Russian President Vladimir Putin visited North Korea to shore up his relationship with dictator Kim Jong Un and ensure Pyongyang continues providing munitions and arms to Moscow for the war in Ukraine.

On the diplomatic front, Russia escalated its demands for a cease-fire in an unrealistic fashion, insisting that Ukraine must first abandon territory it currently holds in the four provinces partly occupied by Russia, land that Russia has been unable to take by force. Days after that, from June 15 to 16, ninety-three countries attended a peace conference in Switzerland to discuss Ukrainian terms (its ten-point plan) for a settlement and seventy-eight countries signed a document that called for the restoration of Ukraine’s territorial integrity, a key Ukrainian point (more countries have signed on since). China did not attend, however, and some key countries in the Global South such as South Africa, India, Brazil, and Mexico did not sign the conference document.

Shaping the order. The Biden administration’s decision to allow Ukraine to use US-provided weapons to strike inside Russia, beyond initial restrictions on targets near Kharkiv, is a significant, positive step in Western support for Ukraine. Using frozen Russian assets to collateralize a loan for Ukraine is another positive step, but the United States and its allies may find they need to go further, using said assets themselves rather than continuing to use their own funds exclusively.
Hitting home. Some US experts argue that Ukraine is a strategic liability and that US focus there diverts resources better used in the Indo-Pacific. Russian victory in the war, which is likely to result from a US withdrawal, would cause cascading security problems in Europe that would draw on even more US resources.
What to do. The United States and its allies must marshal continued military assistance for Ukraine, including air defense and weapons that support Kyiv’s attacks on Russian military targets in occupied Ukraine, especially Crimea. The United States has the means to intensify pressure on the Russian economy and should use such tools. Washington should consider enforcing sanctions to hit smugglers of technology subcomponents utilized for Russian weapons and evaders of the oil price cap (the latter missing from the otherwise strong June 12 US sanctions package). A successful Ukrainian land offensive may not be possible in the near term.

The center holds, but the right makes gains, in European Parliament elections. Across the EU’s twenty-seven member states, voters cast ballots to select their representatives to the European parliament. The election saw gains for the center-right and right, but it was a disappointing showing for French President Emmanuel Macron’s centrist Renew party. The European People’s Party, the European Conservatives and Reformists Group (of Italian Prime Minister Giorgia Meloni), and Identity and Democracy—the hard right—were the main beneficiaries of the elections. These results were overshadowed by Macron calling for a snap parliamentary election after his party’s incredibly poor performance in the European Parliament election (garnering less than half the votes of their far-right rivals, the National Rally): The snap election resulted in the left-wing New Popular Front on top, Macron’s centrist alliance placed second, and Marine Le Pen’s far-right National Rally, which finished third. Yet, the right did not do well in Scandinavia, Spain, and Romania, and had only a modest uptick in Poland, where the ruling Civic Platform came in first place. The parties in Germany’s ruling coalition—the Social Democrats, the Free Democrats, and the Greens—all lost ground in Germany, but the center-right alliance between the Christian Democratic Union and the Christian Social Union did well.

Shaping the order. Snap elections in France overshadowed the fact that the center mostly held its ground in the EU elections. The far right’s marginal gains will matter, however, if said forces can unite and if center-right parties are willing to engage with the far-right. Even so, the incoming parliament is likely to be more fragmented and polarized than its predecessor. And the French elections, the first round having wrapped, are pointing to a major defeat for Macron and a surge of the right, which is both nationalist and wary about the extent of French support to Ukraine.
Hitting home. Even though the center largely held in the European Parliament elections, the increased fragmentation will likely mean less clarity on policy issues that impact US companies.
What to do. The United States should constructively engage the European Parliament, encouraging it to hold firm to its moderate stances and not bend to the far right’s proposals.

Quote of the Month

“The votes cast put the far-right forces at almost 40 percent and the extremes [on the right and left] at almost 50 percent. This is a political fact that cannot be ignored.“
—French President Emmanuel Macron, speaking after the European Parliament elections.

State of the Order this month: Unchanged

Assessing the five core pillars of the democratic world order

Democracy ()

On June 30, the far-right National Rally won in the first round of the parliamentary elections, although it’s unclear whether they will get a majority with the second-round vote upcoming on July 7. Many French citizens have been protesting against the National Rally out of concern for women’s rights and minority rights, where thousands of women marched in dozens of French cities, including Paris, to protest against Marine Le Pen’s far-right National Rally.
Mexico elected Claudia Sheinbaum, its first female president, in the country’s largest election in history with 98 million registered voters. As Mexico City’s former mayor and the favored successor of outgoing President Andrés Manuel López Obrador, Sheinbaum was favored to win. Promising to continue López Obrador’s policies, she believes the government has a strong responsibility to address economic inequality and establish robust social security.
On balance, the democracy pillar was unchanged.

Security ()

Chinese forces seized Philippine small boats that were attempting to resupply a Philippine military outpost at Second Thomas Shoal. Multiple Philippine vessels were damaged, and sailors were injured in the incident. One US official called China’s actions “deeply destabilizing.”
Houthi rebels launched an aerial drone, striking and damaging the Transworld Navigator in the Red Sea, one of more than sixty attacks targeting specific vessels. The attack comes after United States recalled its USS Dwight D. Eisenhower after an eight-month deployment. Shipping in the corridor—crucial for connecting Europe, the Middle East, and Asia—has slowed significantly. The Houthis said they would continue the attacks as long as the Israel-Hamas war continues.
On balance, the democracy pillar was unchanged.

Trade ()

Amid the European Commission’s anti-subsidy investigations into electric vehicles (EVs) coming from China , the European Union announced additional tariffs on imported Chinese EVs. The tariffs range from 17.4 to 38.1 percent—and that’s on top of the 10 percent duty already in place. As a result, Chinese car companies may consider raising prices or establishing factories in Europe, as the continent recently became China’s largest EV export market.
On balance, the democracy pillar was unchanged.

Commons (↓)

The United Nations conducted a worldwide poll that revealed 80 percent of people want governments to take more action on addressing climate change. The survey noted majority support for stronger climate action in twenty of the world’s biggest greenhouse gas emitters and majority support globally a quicker transition away from fossil fuels. Despite the increasing state of global conflict and rise of nationalism, the desire to set aside geopolitical differences and work together on climate change is expanding.
Record-breaking heat, fueled by climate change, affected millions around the globe, scorching four continents and surpassing last summer as the warmest in two thousand years. There were more than forty thousand suspected heat stroke cases in India between March 1 and June 18, and in Saudi Arabia, over one thousand people died participating in the Hajj pilgrimage amid soaring temperatures. Devastating forest fires spread in Europe and northern Africa, and a heat dome trapped large regions of the United States, preventing cool air from getting in.
On balance, the commons pillar was weakened.

Alliances (↑)

For the first time in twenty-four years, Russian President Vladimir Putin and dictator Kim Jong Un met in North Korea, reinforcing their commitment to cooperate and protect each other’s interests. As part of the meeting, they signed a mutual military-assistance treaty, with Putin announcing that Russia could provide weapons to North Korea—with potentially destabilizing effects for the democratic world order.
The leaders of the G7 convened in Apulia, Italy, for the 2024 G7 Summit to discuss supporting Ukraine, pushing back on unfair economic practices, combating climate change, addressing food and health insecurity, leveraging critical technologies, and partnering with like-minded countries around the globe.
On balance, the alliances pillar was strengthened.

Strengthened (↑)________Unchanged ()________Weakened (↓)

What is the democratic world order? Also known as the liberal order, the rules-based order, or simply the free world, the democratic world order encompasses the rules, norms, alliances, and institutions created and supported by leading democracies over the past seven decades to foster security, democracy, prosperity, and a healthy planet.

This month’s top reads

Three must-read commentaries on the democratic order

Michael Doyle, in Foreign Affairs, argues that democratic peace is back in vogue and great powers can prevent the tensions between democracies and autocracies from escalating into full-blown global cold war.
Robert C. O’Brien, in Foreign Affairs, outlines a Trump administration foreign policy centered on the return of peace through strength.
Célia Belin and Mathieu Droin explore in Foreign Policy what a far-right victory would mean for French foreign policy.

Action and analysis by the Atlantic Council

Our experts weight in on this month’s events

Niva Yau, in an Atlantic Council report, shows how China is training future authoritarians overseas in order to secure its interests in Global South countries and beyond.
Matthew Kroenig and Dan Negrea, in Foreign Policy, explain that the United States’ competition with China should be focused on weakening and defeating the Chinese Communist Party regime.
Daniel Fried, in the New Atlanticist, offers seven ways to reboot G7 sanctions on Russia, stating that United States and its allies must commit to dedicating resources to identifying targets for taking economic steps against Russia.
Andrew Michta, in a piece for the German Council on Foreign Relations, contends that Germany must commit to significantly expanding its defense industrial base so that it will be well positioned to establish strong cooperation with whichever candidate wins the next US presidential election.

__________________________________________________

The Democratic Order Initiative is an Atlantic Council initiative aimed at reenergizing American global leadership and strengthening cooperation among the world’s democracies in support of a rules-based democratic order. Sign on to the Council’s Declaration of Principles for Freedom, Prosperity, and Peace by clicking here.

Patrick Quirk – Nonresident Senior Fellow
Dan Fried – Distinguished Fellow
Ginger Matchett – Project Assistant

If you would like to be added to our email list for future publications and events, or to learn more about the Democratic Order Initiative, please email pquirk@atlanticcouncil.org.

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Why the EU needs US liquefied natural gas

John M. Roberts, Ariel Cohen — Mon, 08 Jul 2024 13:00:00 +0000

In 2024, the gas market in Europe may seem calm, but the underlying threats are just as great. The continuing war in Ukraine, the Gaza conflict, and deep tensions throughout the Middle East mean the energy security environment is becoming increasingly volatile.

Europe is facing tough choices as it confronts Russia’s unexpected reentry into European gas markets in the form of steadily increasing deliveries of liquefied natural gas (LNG). A fourteenth round of sanctions adopted in June are designed to help curb these supplies. At the same time, Europe risks gas shortages if there are no alternative LNG supplies on hand.

To resolve Europe’s dilemma, it must have a clear alternative for immediate and long-term gas supplies from producers capable of outcompeting Russian gas. Surveying the possibilities points to a single source as the most promising reliable gas provider: the United States.

This fraught situation puts pressure on the Biden administration to resume issuing fresh permits for LNG projects intended for export to countries with which the United States does not have a free trade agreement (FTA). Currently, the United States has no FTA with any European country. And although a judge recently ordered the administration to resume permitting, it could appeal the decision, leaving the fate of additional projects in limbo.

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John M. Roberts

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The far right suffers a shocking defeat in France

Atlantic Council — Mon, 08 Jul 2024 01:12:22 +0000

JUST IN

It’s a tale of two “fronts.” In a surprise turnaround, the left-wing New Popular Front came out on top in France’s parliamentary elections on Sunday, with voters coalescing around alternatives to Marine Le Pen’s far-right National Rally, which finished third. President Emmanuel Macron, whose centrist alliance placed second, did not attain his hoped-for parliamentary majority, but his move did reinforce the tendency of French voters to come together as a “republican front” to keep the far right out of power. We turned to our experts working at the front lines of this story to explain the results and what to expect next.

TODAY’S EXPERT REACTION COURTESY OF

Gérard Araud (@gerardaraud): Distinguished fellow at the Europe Center and former French ambassador to the United States
Rama Yade (@ramayade): Senior director of the Africa Center and former French cabinet minister
Jörn Fleck (@JornFleck): Senior director of the Europe Center and former European Parliament staffer

Right in reverse

Macron called the snap parliamentary election to seek “clarification” from the electorate after National Rally finished first in European Parliament elections last month. Then National Rally earned the most votes in the first round of this election a week ago. So Sunday’s result, Gérard tells us, is “a total surprise. The anti-far-right bulwark has worked,” thanks in large part to third-place finishers from the left and center dropping out ahead of the second round to consolidate the anti-far-right vote.
“Great relief dominates in the country, which had come to the brink of an abyss,” Rama says. “But the aftermath will be difficult.”
What does that aftermath look like? “A long crisis full of uncertainties and political instability,” Gérard predicts. “Macron has lost his bet for clarification from the electorate. He is weakened, but resignation and realism are not his strong points.”

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Coalition chaos

Coalition governments, which are common in other European countries, are foreign to France. Macron will nominate a new prime minister (the incumbent, Gabriel Attal, said he will step down) but what happens after that is anyone’s guess. “While on paper and in media speculation, a coalition of the anti-[National Rally] forces is possible, in practice this will be hard to achieve,” Jörn tells us, particularly given the “maximalist demands” from far-left New Popular Front leader Jean-Luc Mélenchon.
“The coming weeks will indeed be a test to determine whether the left and the center are able to cooperate,” Gérard says. That would likely require a split in the New Popular Front, “which has shown its fragility,” he adds. Macron’s centrists could work with the center-left Socialist party, leaving out Mélenchon’s La France Insoumise.
And even after a coalition government forms, it will have “to avoid falling prey to a no-confidence vote,” Rama says. “The center of gravity of French politics will shift from the executive to parliament,” she forecasts, and “there is a possibility of permanent instability if the opposition parties unite.”
And it’s worth noting that National Rally and its allies still got the most votes of any group on Sunday, even if they won only the third-most seats. Le Pen remains focused on the presidency when Macron’s term ends in 2027, stating on Sunday that “our victory has only been delayed.” Adds Rama: “The new French government has less than three years to succeed and refute this prediction.”

European earthquake

While the European Union (EU) avoided the “worst-case outcome” of a National Rally government wreaking “budgetary and procedural havoc on France’s EU policies,” Jörn says the political chaos to come “will still weaken France’s position in Europe—and Europe itself.”
France will face “uncertainty, paralysis, and a self-consumed political leadership,” Jörn tells us. Meanwhile, Macron’s “credibility and political capital have been sapped in the eyes of Europe’s leaders by his brinkmanship and unforced strategic mistake of calling the snap elections in the first place.”
What does it all mean for Brussels? A diminished Macron “will weaken an important voice for forward-leaning, more ambitious EU positions,” Jörn predicts, on matters ranging “from internal reform to defense cooperation, support for Ukraine, and a tougher course on China.”

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Doing as the Romans do: Recommendations for the infrastructure development agenda for Italy’s G7 presidency

James Batchik, Rachel Rizzo, Nicholas O’Connell — Tue, 02 Jul 2024 13:00:00 +0000

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Introduction
The geopolitics of infrastructure
The economic realities
Coordination of project identification and implementation
Recommendations
Conclusion

Introduction

Infrastructure development is a central component of the West’s global engagement strategy. This effort, if done effectively, could be a strategic, economic, and geopolitical feat. The development of sustainable and secure infrastructure carries the potential to create economic prosperity for countries aspiring to move up the global value chain, support the world’s green transition, provide an alternative to China’s exploitative investments, and strengthen the Western-led order.

The Group of Seven (G7) countries have varying plans for infrastructure development in cooperation with various partners around the globe, with particular focus on the Global South. Launched in 2022, the G7’s Partnership for Global Infrastructure and Investment (PGII) aims to mobilize $600 billion in capital for development projects by 2027.¹ In Europe, the European Union’s (EU) Global Gateway will invest 300 billion euros by 2027 in global infrastructure projects on behalf of the bloc.² Italy’s Mattei Plan, launched in January 2024, brings a direct focus on infrastructure development in Africa.³ Further abroad, the Group of Twenty (G20) partners signed the India-Middle East-Europe Economic Corridor (IMEC) memorandum in 2023, which aims to directly counter China’s Belt and Road Initiative (BRI) and cut down transit time between India and Europe.⁴

These initiatives are a good start. However, all G7 members face various challenges that could ultimately hamper progress on these initiatives, most notably: geopolitical challenges, limited funds, skittishness from private sector investors, and lack of coordination. For these initiatives to have a lasting impact, the G7 and likeminded partners must closely coordinate to both avoid and overcome these pitfalls.

Some efforts to better coordinate development projects have already begun. Along with its investments and focus on leveraging private capital, the United States led in the creation of the Blue Dot Network, “a multilateral initiative aimed at advancing robust standards for global infrastructure and mobilizing investment for projects in developing countries.”⁵ In addition, the US-EU Trade and Technology Council (TTC) has launched coordinated connectivity projects between the United States and the EU in third countries including Kenya, Costa Rica, Jamaica, the Philippines, and Tunisia.⁶

Holding the G7 presidency for 2024, Italy has made infrastructure development and strengthening relations with the Global South, and in particular Africa, central to its priorities. The 2024 G7 Leaders’ Summit in Apulia, Italy, in June 2024 again reaffirmed the group’s commitment to PGII and investments across Africa, with announcements including the creation of a secretariat to coordinate investments and aid information sharing and a greater shared focus on unlocking investment for green infrastructure projects.⁷

Now, G7 countries must focus on transforming the summit’s conclusions into reality and making real progress on development coordination. This issue brief provides an actionable set of recommendations to advance the G7’s ambitions.⁸ It examines the geopolitical impetus for infrastructure development, the economic realities of infrastructure, and the state of coordination on project implementation before providing recommendations to take forward for the rest of Italy’s G7 presidency and beyond.

The geopolitics of infrastructure

The G7’s focus on development is rooted in the shared understanding that G7 countries must fundamentally reset relations with the Global South. Historically, countries in the Global South, particularly in Africa, have been on the receiving end of unfair and extractive relationships with the West.

The result has been growing mistrust and disillusionment, and many countries now view China as a better partner than Europe or the United States. A 2022 study conducted by the University of Cambridge noted that around seventy percent of people not living in liberal democracies held positive views of China, and those in the developing world held more favorable views of China than of the United States.⁹ Another 2023 survey saw China’s approval rating in Africa rise to its highest levels in a decade, with ten-point increases in some countries.¹⁰

On infrastructure development specifically, China has outcompeted the West for years. China’s outreach to the Global South has been generally successful, and the BRI has evolved into an established brand. For example, in 2021 China pledged $40 billion over three years to Africa (though this was a reduction from an earlier pledge of $60 billion), and Beijing has out-invested the United States in Africa every year since 2013.¹¹ Though Chinese investments have yet to surpass their pre-pandemic heights, China’s rate of investment is again rising, and Africa was the largest recipient of BRI investment in 2023.¹² In part, as a result, Beijing is also poised to overtake Europe’s total trade with Africa by 2030.¹³

There are downsides to partnering with China, however. Its values-ambivalent approach is not built for sustainability and comes with a well-documented debt trap. For example, Zambia, which had more than 50 percent of its foreign loans from China, went into default and was unable to afford interest payments on loans financing construction projects in the country including ports, mines, and power plants (though China and Zambia have agreed to a restructuring of Zambia’s debt).¹⁴ Similarly, in Kenya, the government held back paychecks to its civil-service workforce to save cash to pay foreign loans.¹⁵

G7 countries are making progress on closing this partnership gap with China. Leaders at the Apulia Summit reaffirmed their ambition to meet the spending target of $600 billion by 2027, and the summit’s conclusions have a clear focus on infrastructure development, including with an announcement of a secretariat to facilitate the coordination of development projects.¹⁶ Leaders made further announcements at a side event where Italy joined the US- and EU-led consortium on projects in the Lobito Corridor in southern Africa, and Western companies like Microsoft and Blackrock pledged more investments across Africa and beyond.¹⁷

The summit also saw the participation of countries including Algeria, Brazil, Kenya, and Tunisia, among others—something Prime Minister Georgia Meloni lauded as delivering on a pledge to make outreach to the Global South a cornerstone of Italy’s G7 presidency.¹⁸

The summit also highlighted that the West’s values-based approach can be a strategic asset to building sustainable global partnerships. A focus on good governance and environmental and labor standards allows for long-term success and, in turn, economic growth. The G7 recognizes the importance of engaging with Africa specifically, with the 2024 Communiqué positioning the PGII, the Global Gateway, and the Mattei Plan as frameworks to “promote [the West’s] vision of sustainable, resilient, and economically viable infrastructure in Africa underpinned by transparent project selection, procurement, and finance.”¹⁹

This is a good start, but there is still room for improvements. Some of the West’s recent outreach has received similar criticisms to previous efforts, for example, failing to consult the very countries these efforts are meant to engage. In particular, African leaders noted Italy failed to consult them before announcing the Mattei Plan.²⁰ Moreover, the West’s tedious approach to infrastructure development can be perceived as an obstacle, not an asset, especially if it is not applied consistently.²¹

G7 countries should make greater efforts to convene with PGII partners in the region including the private sector, civil society, and government—to sustain debate and discussion about the West’s ambitions and the reasoning behind its values. At the same time, more regular and targeted engagements can, in turn, expose Western public and private financial institutions to the realities of partner markets and address the misconceptions of perceived risks. It’s a win-win for both sides. Where possible, the framing should be adapted to showcase the importance of the long-term sustainability of projects, especially compared to the non-durability of Chinese infrastructure. This engagement will also be a useful tool to address criticisms that Western initiatives are organized without the feedback and involvement of partner countries.

Finally, while competition with China will be a defining element of Western global infrastructure projects, geopolitics cannot eclipse all else. Recipient countries are looking for projects for their benefit to move up the global value chain and to spur domestic growth—not to be a pawn in other parties’ geopolitical rivalries. States can and have the option to accept projects from different sources, including from China. In response, policymakers should be cognizant that countries might be interested in partnering with both China and the West, and should not be forced into a binary, mutually exclusive choice of one or the other.

It will be important, then, for transatlantic policymakers to work out how to both compete against and partner with China. This will be critical specifically in the area of information and communications technology (ICT) development, where using “untrustworthy” vendors has been an area of focus. Policymakers should be clear about where and when non-G7 countries are involved in projects, and in what respects that will not preclude partnership.

The economic realities

Geopolitics may be a key impetus for development initiatives, but policymakers must also contend with economic realities that have long-plagued development projects. Economic stability in recipient countries is important for investments, but that stability is not always a luxury the West can expect. The International Monetary Fund’s regional economic outlook from spring 2024 for sub-Saharan Africa, for example, notes “the fiscal position of many sub-Saharan African countries has deteriorated, a trend exacerbated by repeated shocks and the ensuing demand for fiscal support,” which adds to political and economic uncertainty.²² The cost of borrowing for African states is also four to eight times higher than for Western countries, making raising capital prohibitive.²³

The reality is that currencies can collapse and interest rates can rise, but the need and opportunities for investments will remain. The West, therefore, cannot wait to invest in projects until after implementing structural reforms to partner states’ finances and economies.

G7 countries, the United States in particular, have stressed the importance of the private sector to achieve its financing goals. The Apulia Summit placed additional emphasis on the necessity of private-sector capital for the success of PGII. Side events on the PGII have taken place at every G7 summit since the PGII was announced, and since 2023, have prominently featured participation from major investors and companies including Citi, Nokia, Global Infrastructure Partners, Blackrock, and Microsoft—usually with investment announcements in tow.²⁴ Policymakers should appreciate and foster a bottom-up approach to project identification from the private sector and its appetite to invest.

However, leveraging private capital to help fund infrastructure projects comes with its own challenges. Investments into large-scale infrastructure projects are inherently risky, and shaky local markets only add to the unease felt by private-sector investors as currency devaluations risk erasing investments.

G7 members will therefore need to play a greater role, in some form, as guarantors of investments to help reduce the cost of borrowing and alleviate some of the risk. This comes with its own difficulties, as unlocking government-backed funds is not a straightforward process. Certain firms may not be eligible for funding depending on where they are located. And while it makes sense for European taxpayer funds to go to European firms, for instance, multinational firms can become caught up in the bureaucratic web, impeding their involvement with investment projects. Nevertheless, governments must figure out how to play a role here. The European Union, for instance, has a AAA credit rating, and can take on the role of a guarantor for private-sector investment.²⁵ The US International Development Finance Corporation (DFC) has provided political-risk insurance up to $25 million for investments in Ukraine.²⁶ The case of Ukraine is not a one-to-one comparison to investments in the Global South, but offers a useful example to consider. This is not meant to provide a blank check to the private sector for risky investments. However, investment projects cannot wait for long-term structural reforms that will impact geoeconomic changes like foreign-exchange rates. Instead, investors need to work within current economic realities.

Greater efforts are also needed to address change Western misconceptions of African markets and perceived risks that may not truly reflect realities on the ground. The metrics used by the West to measure projects, specifically environmental, social, and governance (ESG) standards, do not always have as strong a foothold in recipient countries, making investment look riskier or undesirable. Balancing the focus to communicate the impetus for these metrics—while maintaining a degree of flexibility and not completely sacrificing all ESG baselines—will be an important needle for policymakers and investors to thread.

Coordination of project identification and implementation 

Shared project standards are an opportunity for greater coordination. The 2023 Hiroshima G7 summit provided a starting point, highlighting forty projects of common interest.²⁷ Italy’s G7 presidency looked to further this effort. As Meloni outlined at the G7 summit side event focusing on the PGII, Italy’s ambition was to create “structured synergies and coordinated activities to maximize efforts and investments” between G7 members’ various projects.²⁸

The 2024 Apulia Summit specifically pledged greater effort at coordination through three prongs: establishing a secretariat “for effective implementation and investment coordination with partners,” supporting investment platforms to “enhance information sharing, transparency, and public policies on investments in Africa,” and working in particular on green investments in Africa.²⁹ These efforts are all good starts, but they remain wide in their ambition and vague in actual substance.

Coordination on project identification should be an early priority for the PGII secretariat. As G7 countries and the private sector will necessarily look to identify more of these projects, it will be useful to have shared criteria for projects to meet quality and sustainability standards. A shared understanding of what projects G7 members are looking to support, and metrics to assess projects, would also help the private sector in more easily identifying projects in which to invest. The Blue Dot Network is a good starting point for this effort, but so far only a few European G7 countries are on its steering committee.

Additionally, coordination between the United States and the EU through the TTC to support connectivity projects provides another useful starting point for this effort. Established in 2021, the TTC has become the backbone of this US administration’s efforts to strengthen its relationship with Brussels. Despite its initially limited scope, it has morphed into a clearinghouse for discussions not only on transatlantic trade and technology coordination, but also on sanctions against Russia and support for projects in third countries to support internet connectivity.³⁰ Supporting connectivity projects at the TTC is useful, but it is limited to smaller projects. Taking coordination from the TTC to the G7 level would allow participation and coordination with countries like the United Kingdom and Japan.

In terms of project selection and implementation, the G7 must also ensure money is available for maintenance, and enough staff is available to follow-up and to make projects sustainable. Ongoing efforts must leverage available funding not just to start projects, but to fund them through their full cycle, and staff them at a level that supports medium- to long-term maintenance. Often, this will include building relationships with on-the-ground in-country partners, and then training and subsequently employing local civilians to shoulder these responsibilities. It is simply not feasible for European, US, Japanese, British, or Canadian project managers to shoulder this burden. In this respect, it is equally important to get buy-in from national and local governments in recipient countries. Locals with knowledge about projects, communities, and factors on the ground will be critical to the maintenance and durability of such projects. The G7 conclusions rightly noted the importance of working with local partners. Now, a secretariat should take forward that effort in earnest.

Maintenance also means investing in skills. This is just as important for implementation and maintenance as investing in technology or brick-and-mortar buildings. Project identification must not look past the funds and time needed to train partners on the ground. For G7 members it will be important, especially on projects in which the United States and EU are involved, to standardize, de-duplicate, or divide training efforts.

Recommendations

At the 2024 Apulia summit, G7 countries made some progress on global infrastructure development in the context of the PGII. Implementation must now follow pronouncements. Italy should lead through the rest of its G7 presidency to see that real progress is made and to ensure this remains a priority in forthcoming summits (much like the role Japan played on artificial intelligence), and each G7 member must also work to meet its national commitments. To make greater coordination a reality, the G7 should undertake the following recommendations.

Expand the Blue Dot Network Steering Committee. The European Union and/or all EU member states that are part of the G7—Italy, Germany, and France—should join the Blue Dot Network. The Blue Dot Network’s steering committee is currently composed of Australia, Japan, Spain, Switzerland, Turkey, the United Kingdom, and the United States (Canada, Czechia, and Peru are network members and do not contribute funds).³¹ All G7 members, and the EU, should become members of the steering committee. European membership in the Blue Dot Network should not be limited just to G7 EU members, and the EU could take on a role representing all EU member states.

Invest in the PGII secretariat and commit to the adequate staffing of development institutions. A PGII secretariat can serve as an important hub for coordination, but it must be staffed adequately. G7 countries should assign national-level envoys to the secretariat, or at least fold them into the offices responsible, such as IMEC. Much of the work to take forward the agreements at the G7 will also fall to domestic institutions and development finance institutions. However, staffing and financing shortages have limited their effectiveness. G7 members should pledge a benchmark for spending on development financing.

Establish regular convenings in or with partner countries. G7 members should commit to hosting regular meetings with partners and their private sectors, civil societies, and governments. The Hiroshima G7 meeting highlighting the PGII was a good start, but the initiative should now be further developed with a partner-first mindset. G7 member officials should host annual meetings in partner countries to make the case for the West’s efforts. This would signal a departure from the West’s historically paternalistic approach to engagements with African partners, and the Global South generally. Outreach and consistent engagement at the ambassadorial level would also be useful.

Identify which third countries can take part in which projects. Currently, there is no clear framework for which third countries can take part in specific development projects or what limits exist to partnering with third countries, including those like China. Where issues like human rights and national security come into play, G7 countries may differ in their strategies for engaging with third countries. At the same time, there should be clearer frameworks for private companies and governments in terms of in which projects each can take part.

Build in long-term maintenance and implementation of projects at the development stage. Projects should begin with the end in mind. If there is no way to measure success or to educate and employ local populations, these projects will turn into basic assistance with no longevity. G7 countries should agree that investment projects under the PGII umbrella should mandate a long-term implementation and maintenance plan with substantial involvement and buy-in from the partner country. Countries want economic success and want to move up the global value chain; they don’t want to be seen as mere development recipients. It is up to the G7 to ensure such upward movement happens.

Map and publish all PGII-related projects. The PGII secretariat should map out all investments under the PGII umbrella, along with projects of interest. This could serve as a clearing house, especially for the private sector to identify opportunities for investment. This would also create a strong public relations tools showcasing the West’s impact and investment footprint. This effort could also be utilized to facilitate the submission of new investment projects by the private sector and potentially lead to consolidated funding for joint investments promoted or pursued by G7 members.

Conclusion

Giorgia Meloni called the dialogue around the PGII “one of the most significant achievements of the G7” to deliver “concrete action” to Africa and the Global South.³² The G7 has made progress, but such a conclusion is premature. The G7 is well on its way to turning its ideas and visions for new partnerships with the Global South into action. Putting the resources and people behind those visions will ensure that they come to life.

About the authors

James Batchik is an associate director at the Atlantic Council’s Europe Center, where he supports programming on the European Union, the United Kingdom, Germany, Italy, and the center’s transatlantic digital and tech portfolio.

Rachel Rizzo is a nonresident senior fellow at the Atlantic Council’s Europe Center. Her research focuses on European security, NATO, and the transatlantic relationship.

Nick O’Connell is the deputy director for public sector partnerships at the Atlantic Council. He also contributes regularly to the Atlantic Council’s Italy project, a collaboration between the Europe Center and Middle East Programs.

#AtlanticDebrief – What happened in the first round of the French snap elections? | A Debrief with Amb. Gérard Araud

lignac — Tue, 02 Jul 2024 10:30:12 +0000

IN THIS EPISODE

What are the key takeaways from the first round of the French parliamentary elections? Why was voter turnout so high? Will the left and center blocs be able to form tactical alliances in the upcoming runoff elections? What are the implications of a hung Parliament for France’s foreign policy agenda? What would the dynamics between President Macron and National Rally look like?

On this episode of #AtlanticDebrief, Jörn Fleck sits down with Ambassador Gérard Araud, Distinguished Fellow at the Atlantic Council’s Europe Center, to unpack the first round of the French Parliamentary elections.

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Will Macron be the undoing of European centrist politics?

Jörn Fleck — Mon, 01 Jul 2024 15:32:04 +0000

Whatever French President Emmanuel Macron’s strategy was that led him to go all-in with calling snap elections, it looks like he lost. His high-risk gamble to contain and beat back the political extremes in France has backfired. It is not without irony that Macron, who entered the national and European stage as the prodigy of centrist politics, may be its undoing, as the person who paved the way to power for Marine Le Pen’s right-wing extremist National Rally. Macron’s underestimation of voter discontent, of the dynamism of the National Rally, of the likelihood of a united left, and of the willingness of the center-right Republicans to ally with Le Pen underlines how big the president’s miscalculations and isolation from the political realities really were.

Given the two-round run-off electoral system, much will depend on whether Macron and his challengers outside of Le Pen’s party can mobilize the traditional “republican front” and agree to tactical withdrawals of third-place candidates to boost the chances of non-National Rally candidates. The initial signs from Macron, Prime Minister Gabriel Attal, and the political left give some hope. As Raphaël Glucksmann, a left-wing member of the European Parliament, put it in calling for a united front: “We have seven days for France to avoid a catastrophe.” But the center-right Republicans seem less willing to stand down. An absolute majority for the National Rally is within reach but still looks unlikely.

Macron’s previously successful strategy to mobilize the center by scaring voters about the potential of the right and left fell flat this time.

For France and Europe, the two most likely outcomes are both a fundamental challenge. At best, Paris could be mired in political chaos, gridlock, and uncertainty if no clear majority—relative or absolute—emerges after the second round. That would also mean a paralyzed, absent France at the European level where—think what you like of his vision statements—Macron was one of the few leaders who sparked major European debates and challenged the European Union (EU) to act, even if his framing, wording, and timing often left much to be desired. Whatever the precise impact of a hung parliament might be, Macron’s freedom of action and his legitimacy in the eyes of other EU leaders will be seriously curtailed.

At worst, an absolute majority for the National Rally would give Macron little option but to allow the National Rally’s Jordan Bardella to form a government in what would be cohabitation in one of its most incompatible forms. Abroad, at the European level, a National Rally government might not only challenge the president’s “reserved domain” in foreign and defense policy but also use its budgetary powers to undercut France’s support for the single market, the EU budget, and key initiatives from support to Ukraine to enlargement and institutional reforms. The longer-term result could be a challenge to the EU as formidable as the United Kingdom’s Brexit vote in 2016—this time not as one big-bang Brexit-like withdrawal, but rather a creeping, piecemeal attempt at a partial “Frexit” and a Europe of nations from within.

For those trying to see some commonalities with the United States’ own leadership contest this fall, the lesson might be that it’s not good enough to be the perfect democrat. Macron’s previously successful strategy to mobilize the center by scaring voters about the potential of the right and left fell flat this time, despite a record turnout. As electorates are coping with cost-of-living crises, growth that has not benefited the many, and migration pressures, merely invoking the principles of the republic—American or French—to mobilize voters for centrist candidates might not be sufficient any longer.

Jörn Fleck is the senior director of the Atlantic Council’s Europe Center.

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Experts react: What to expect from the European Union’s new leadership

Atlantic Council experts — Fri, 28 Jun 2024 04:00:00 +0000

It’s a chip off the old bloc. European Union (EU) leaders on Thursday chose to put forward Ursula von der Leyen for a second term as European Commission president, in the wake of European Parliament elections earlier this month that saw her center-right grand coalition largely hold together even as the far right made gains. They also nominated former Portuguese Prime Minister António Costa to be the next European Council president and Estonian Prime Minister Kaja Kallas to take over as the EU’s top diplomat. Below, our experts break down what each brings to the bloc and what’s ahead for von der Leyen and Kallas, who still need to be confirmed by EU lawmakers.

Click to jump to an entry on an EU leader:

Ursula von der Leyen: A welcome sign of stability, but parliamentary approval is no sure thing

António Costa: The skilled negotiator will be a major contrast to Charles Michel

Kaja Kallas: The first EU foreign policy chief from the east takes a stronger stance against Russia

Ursula von der Leyen: A welcome sign of stability, but parliamentary approval is no sure thing

Von der Leyen’s nomination for a second term at the helm of the European Commission is a much-needed signal for stability following the fallout from the European elections in early June. Despite much hyperbolic media speculation to the contrary, it also hardly comes as a surprise. Paris and Berlin, which otherwise could have tried to block von der Leyen, are mired in their own domestic post-election instability—and in the case of French President Emmanuel Macron, lost their political capital to seriously influence decision making at the EU level. All eyes were on Rome to see what Italian Prime Minister Giorgia Meloni might do as one of the few winners among major EU leaders from the June 6-9 ballot. However, Meloni’s moment doesn’t seem to have materialized (yet) as her political family was shut out from negotiations on the EU’s top jobs by the old guard of pro-EU traditionalists from the center-right, center-left, and liberal wings.

Von der Leyen should not celebrate yet, though, as she faces a tough confirmation vote from the European Parliament. Getting to the magic number of 361 votes could prove a tall order. In 2019 von der Leyen got only a slim majority for her first term. Now an even more difficult road to confirmation lies ahead in the new European Parliament. Von der Leyen will need all her political skill to assemble a new majority in a legislature that includes a much-reduced, less reliable mainstream coalition at her back, with some old and more than a few new detractors. Then there are the hard-right critics who feel emboldened by their performance at the ballot box, and they are irritated by their exclusion from her nomination process. The two options that could push her safely over the finish line—adding Meloni’s political group on the right or the Greens on the left to the pro-EU coalition at the center—are mutually exclusive, as neither wants to be part of a von der Leyen bloc that involves the respective other. But that’s not the only problem. Reaching out to those wings would also risk undercutting the existing coalition, as von der Leyen’s center-right allies are wary of the Greens, while the center-left has warned von der Leyen not to even talk to Meloni’s hard-right group.

Von der Leyen is still more likely than not to go on to win confirmation for a second term. She has the skill and experience to put together a winning policy agenda with just enough on offer for just enough of the key players. The election outcome helps further converge the agenda for Europe’s next political cycle around themes in part shaped under von der Leyen 1.0—from economic competitiveness and economic security to greater defense industrial cooperation and a Europe that gets tougher on migration. And the combination of Macron’s election gamble at home, the instability that could emanate from a hung parliament in France, and the leadership vacuum from Paris to Berlin more generally will act as disciplining force on some that may have second thoughts about von der Leyen. Many in her existing coalition may not want to risk adding another political crisis at the EU level by rejecting her in the current situation.

For many in Washington, a second term for von der Leyen would be welcome. Von der Leyen and the European Union played an important role in US President Joe Biden’s “America is back” narrative of reaffirming key alliances. She and her team not only helped keep Europe united on sanctions and energy diversification in the face of Russia’s full-scale invasion of Ukraine, but also led creative efforts to see the EU step up in major ways from military to macro-financial assistance to Kyiv—without which the administration’s political challenges at home on Ukraine could have been significantly worse. Most importantly, however, the Commission president started building an economic security agenda and toolbox for the EU that led to much greater convergence with the United States on what really matters to Washington—the long-term strategic competition with China. On that front, the United States would probably continue to have a major ally in von der Leyen, especially with the debate among member states on the right course vis-à-vis Beijing likely to heat up in the coming months and years. A second Donald Trump administration could again put all of von der Leyen’s political skills and flexibility to the test of having to both be the “tough negotiator” on behalf of the EU that Trump lauded when they first met in 2020, and also build a rapport anywhere close to the one she enjoys with the Biden White House.

—Jörn Fleck is the senior director of the Atlantic Council’s Europe Center.

António Costa: The skilled negotiator will be a major contrast to Charles Michel

Costa is a safe and smart choice to be the next president of the European Council, succeeding Charles Michel. Costa, who served as the Portuguese prime minister from 2015 to 2024, is expected to be a more selfless convener for the Council and the entire EU, in contrast with Michel, who has irked leaders with his self-promotion.

Costa is a master negotiator who excels at striking deals behind the scenes. He made his mark forming a unique coalition of left-wing parties (geringonça, in Portuguese) to initially govern in 2015, and he was just as comfortable making deals with the opposition as prime minister. These skills will serve Costa well as European Council president, as he will have to navigate the twenty-seven personalities and priorities of the EU’s heads of state to move policy along, especially given what is expected to be a bold agenda for the next Commission.

Costa brings socialist/center-left and southern European equities to the position. He won the presidency over Danish Prime Minister Mette Frederiksen despite an ongoing investigation in Portugal involving allegations of corruption within Costa’s former inner circle that caused him to resign. The fact that the EU went forward with Costa as the next Council president shows that the bloc is comfortable with the status of the ongoing investigation, one in which Costa has not been formally charged. Costa is expected to have a strong working relationship with von der Leyen in her second term as European Commission president and is also well-respected among other national leaders such as Macron. To be effective in his new role, however, Costa will need to become more hawkish on defense and migration issues, areas that were not his strengths domestically in Portugal.

—Andrew Bernard is a retired US Air Force Colonel and a visiting fellow in the Atlantic Council’s Europe Center.

Kaja Kallas: The first EU foreign policy chief from the east takes a stronger stance against Russia

If Kallas is confirmed as high representative for foreign affairs and security policy, this will be the first time a leader from Europe’s east will take the EU’s top diplomatic post. While this is a major milestone for the bloc, her appointment is also concerning for some allies. Kallas, one of the EU’s staunchest Russia hawks, has been a leading voice in supporting Ukraine with military and financial aid, and ramping up the dial on sanctions against Russia. She’s even a “wanted person” in Russia in connection with her efforts to remove Soviet-era World War II monuments in Estonia, which the Kremlin decried as the “desecration of historical memory.” Kallas’s highly critical stance toward Russia has made some leaders worry that handing her this post may be seen as too provocative.

Kallas has also faced difficulty on the home front, with her approval rating among Estonians plunging to 16 percent earlier this year after the news broke that her husband had stakes in a logistics company that continued to operate in Russia after its full-scale invasion of Ukraine in February 2022. Further, EU diplomats accused Kallas’s government of inflating reimbursements for equipment sent to Ukraine under the European Peace Facility, an accusation she has denied.

Overall, however, with her reputation as a pragmatic leader, Kallas is a good choice for high representative, though she will perhaps have some work to do when it comes to ensuring that the EU is seen as a respected authority in regions such as the Middle East and the Global South.

—Rachel Rizzo is a nonresident senior fellow with the Atlantic Council’s Europe Center.

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Electrification of the road transport sector in Europe and the case of Italy

Pier Paolo Raimondi — Thu, 27 Jun 2024 20:00:00 +0000

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Executive summary

The European Union (EU) has increasingly raised its climate ambition, especially since the launch of the European Green Deal in 2019, which set a target of climate neutrality by 2050. The bloc’s achievement demands a contribution from all sectors: power, industry, buildings, and transport. The latter is sizable, accounting for almost a quarter of the total emissions of the twenty-seven EU members (EU-27) in 2021—with road transport responsible for more than 75 percent of the transport sector’s total emissions given its reliance on fossil fuels. Additional policies and measures are required since the sector’s emissions have substantially increased since 1990, unlike the other sectors.

While EVs are gaining relevance and are set to become an increasingly important factor in decarbonization, policymakers will need to address critical issues, especially relating to enabling infrastructure (i.e., charging stations) to have a sustainable and smooth transition. Italy, one of the largest car markets in Europe, has much to do to decarbonize road transport. It has developed alternative fuels, but electricity still accounts for less than 0.3 percent of vehicle fuels. It has set ambitious EV targets to achieve by 2030: 6.6 million cars including 4.3 million BEVs.

This article explores Europe’s rising ambition in electrifying this sector and the political and market drivers at work; presents the case of Italy, including its national objectives, trends, and challenges in the transition; and provides a summary of takeaways and policy recommendations to further support the electrification of the road transport sector, especially in Italy.

About the author

Pier Paolo Raimondi is a researcher in the Energy, Climate and Resources Program at the Istituto Affari Internazionali (IAI) in Rome. His main research topics are related to energy markets, energy policy, energy geopolitics, and geoeconomics. He also is a PhD student in institutions and politics at the Catholic University of Milan. He holds a master of international relations and a bachelor degree in political science from the University of Milan.

Your primer on France’s snap elections

Atlantic Council experts — Thu, 27 Jun 2024 19:58:22 +0000

“I cannot pretend that nothing has happened,” stated French President Emmanuel Macron on June 9, as he called snap elections for the National Assembly following the stifling defeat of his Renaissance party in the European elections. The situation in France is now uncertain with the far right surging. Our experts are breaking down the biggest issues to watch and what the election might mean for France in a critical era for the transatlantic community.

What did we learn from the June 30 first-round results, and what do they tell us about what’s to come in the July 7 second round?

The first round of the French parliamentary elections has been an unmitigated disaster for Macron. As foreseen by the polls, his party has been crushed between the far right and the coalition of the left. Macron’s Ensemble alliance only got a bit more than 20 percent on June 30, while National Rally is the winner of the day. The only question is whether National Rally, along with its conservative allies, will get a relative or an absolute majority on July 7—the second scenario being quite possible. It will depend on the way centrist and leftist voters will rally in the second round to defeat the far right.

In any case, France is entering a long crisis. If the far right governs, it will sooner or later enter into a confrontation with Macron. If the parliament is ungovernable, France will be totally self-centered and unable to act. It’s a sad day for France and for Europe.

—Gérard Araud is a nonresident senior fellow at the Atlantic Council’s Europe Center and a former ambassador of France to the United States.

Macron’s gamble in calling a snap legislative election already appears to have backfired, but things still remain very uncertain ahead of the next round on July 7. Marine Le Pen’s far-right National Rally party is in the lead with 33 percent of the vote, but that does not suggest the party will be able to achieve an absolute majority in the second round to control the parliament. The left-wing alliance came not far behind, with 28 percent. Macron’s centrists came third with 20 percent—a dramatic decrease from their position before, but not low enough to be knocked out of the second round in most constituencies.

High turnout and fewer candidates will mean an unprecedented number of three-way contests in the second round. It is therefore now up to the center and the left to decide if they join forces to stand down candidates in specific constituencies to prevent the far right from taking power. But this may be difficult because there are huge divisions between them, especially with far-left frontman Jean-Luc Mélenchon continuing to provoke Macron and presenting himself as the head of the left-wing alliance.

—Dave Keating is a nonresident senior fellow at the Europe Center and Brussels correspondent for France24.

The first round has been a punishment for Macron. His party is in third place with 20 percent of the vote. He has lost the (relative) majority he got in 2022 after his election as president. He will face a cohabitation in which his power will be shared with a government from another political party.

The National Rally is in first place, with 29 percent alone and 33 percent when grouped with its far-right allies. The New Popular Front obtained nearly 28 percent, while other small parties accumulated scores that may help the left when it comes to building coalitions. Whereas some polls had anticipated the National Rally would win as much as 37 percent, the official results indicate their victory wound up being smaller than those polls expected. There could be a slight sense of disappointment in the National Rally headquarters. The left has not lost yet; if the various member parties of the coalition stick with each other and, more importantly, if the “front republicain” joins together with the center, that would work perfectly to block the National Rally. Macron’s message is not very clear on whether he is calling on his voters to do that or not. A lot will depend on his candidates that did not qualify for the second round: Will they vote for the far right or the left? Despite the president’s weak situation, a lot will depend on Macron and his voters. Whether the far right will get an absolute or a relative majority depends on the level of the center’s mobilization.

As soon as the first results were published Sunday evening, thousands and thousands of French gathered in the streets to protest against the National Rally and remind the world that, despite the doublespeak, the far right will remain the far right—steeped in anti-immigration, Euroskeptic, and racist rhetoric that has defined it for decades.

—Rama Yade is the senior director of the Atlantic Council’s Africa Center and a senior fellow with the Europe Center. She was the first woman of African descent to become a member of the French cabinet, serving as France’s deputy minister of foreign affairs and human rights, deputy minister of sports, and ambassador to the United Nations Educational, Scientific, and Cultural Organization (UNESCO) under French President Nicolas Sarkozy (2007-2012).

The below responses were compiled before the June 30 first round of elections.

What are the stakes?

Never, in the last fifty years, have the stakes in a French election been so high. This electoral campaign has been unprecedentedly short, dramatic, intense, and uncertain. The country has been totally surprised by Macron’s decision to call snap elections. The defeat of the president’s party in the European elections was expected and didn’t have any direct consequence in domestic politics. It wasn’t necessary to rush to elections at such short notice. And there is no assurance that the election’s outcome will take France on a stable path.

The opposite is the most likely scenario. Some are saying that Macron has thrown the country under the bus. Polls show increasing bitterness toward him.

Suddenly, France is facing the prospect of a government led by the far right or far left, considering that the president’s centrist party is generally expected to lose ground. A government led by the far right or far left would face domestic and international backlash. In the best-case scenario (or more accurately in the least-bad scenario), the elections could lead to a hung parliament and therefore an essentially ungovernable country. In any case, France has been stepping into a prolonged political crisis with unpredictable consequences. Some opponents even suggested that in the event of political deadlock, the president would need to resign to avoid political crisis.

No matter what Macron will try to assert, France will be much weakened in international affairs. That will particularly be the case on two issues. The first is Ukraine, where the far right and far left have advocated for more engagement and negotiation with Russia. The second is the European Union (EU), where the two extremes of the political spectrum share similar Euroskepticism. With the United Kingdom drifting away and Germany facing its own crisis, there will be a vacuum in the European leadership at a moment when the continent can hardly afford it.

—Gerard Araud, distinguished fellow at the Atlantic Council’s Europe Center and former ambassador of France to the United States.

What are Macron’s goals and ambitions in calling this election now?

There are numerous theories as to why Macron called early parliamentary elections, especially with his party lagging so far behind in the polls. Macron has described the move as the “most responsible” decision following his party’s disastrous showing in the recent European Parliament elections. It could be that the French president is simply respecting the electorate’s overwhelming decision. But more realistically, Macron’s calculation is more complicated. Among the going theories as to why he called for elections, a handful stand out:

Macron could be hoping to catch his competitors by surprise, forcing them to pull together last-minute campaigns, while spurring action among his base with the memory of the far right’s gains fresh in their minds. The move could also be a bet that the French public would not actually double down on their protest vote, a vote often exercised in European elections, and would rather choose unpopular prudence in Macron’s party over the populist anger of protest parties on the far right and far left. This move assumes that the public’s vote in June was, in fact, just a protest vote and not a deeper shift within France to the extremes.
Macron might be making a tactical retreat. Marine Le Pen’s National Rally is in a strong position to win the most seats in the National Assembly and thus has the best shot at forming a government with Le Pen’s protégé, Jordan Bardella, at the helm. A far-right government could demonstrate the potential failures of far-right leadership. The move could grant the public its desire for change while presenting a sobering reality ahead of the vastly more critical presidential elections in 2027. However, this thinking assumes that the far right—when handed the keys to the government—will fail and that any dysfunction would fall at their feet, not at Macron’s.
Macron could be looking to carve out a new place for himself. In the wake of Macron’s announcement, a number of left-leaning parties—including the Socialist Party, the Ecologists, La France Insoumise, and the Communist Party—united to form the New Popular Front, which is now polling second behind the far right. With both the left and right having the potential to emerge victorious from the elections, Macron can present himself as the savior of the center, potentially swaying some less radically inclined voters to his camp, similar to what he did when he first ran for office. However, this approach assumes that the ground hasn’t shifted under Macron’s feet and risks another electoral disaster for the second time in a month.
Finally, and most simply, Macron might just be hoping that his party can pull off a miracle. Prior to dissolving the parliament, Renaissance did not have an absolute majority in the National Assembly and had to build coalitions on a case-by-case basis for every piece of legislation. If he thinks Renaissance has a shot to regain its majority through snap elections, Macron could avoid serving the rest of his term as a lame duck. But looking at the polls, and barring any major changes or shocks, this is the least likely scenario of them all.

—Emma Nix, assistant director with the Atlantic Council’s Europe Center.

What do the polls say and what might their results mean for the rest of Macron’s term?

At first glance, the polls spell trouble for Macron. The far right leads with a healthy margin (34 percent for the National Rally, 29 percent for the left, and 22 percent for Renaissance).

However, because of how France votes, it isn’t clear just how bad the situation really is for the French president’s party. Candidates must get at least 12.5 percent of the registered voters in their district to even continue to the second-round election. While the polls appear decidedly in favor of the National Rally, turnout has the potential to impact how many candidates make it to the second round. In general, high turnout is expected to bolster Renaissance’s chances of making it out of the first round, and Renaissance competes better against the far right (though still not great) than the left does in polls regarding the second round. Further adding to Macron’s glimmer of hope is a recent boost in the polls after the first week of campaigning. Even so, the National Rally appears poised to win the most seats in the National Assembly, which would hamper Macron’s agenda and legacy.

The polls are hinting that some of Macron’s policies are at risk. The French system assigns the president significant influence over foreign and defense policy, while domestic policy is implemented by the prime minister and the government, which controls the budget and other key levers of power and could spell trouble for Macron. For example, both the left and far right have expressed interest in overturning Macron’s controversial pension reforms and have pledged to spend more despite France’s precarious budgetary position. For Macron, implementing his vision for France hasn’t been easy. Renaissance already lacks an absolute majority in the National Assembly, making the passage of Macron’s agenda difficult. But in any event of “cohabitation,” or a president and prime minister of different parties, paralysis in government is a likely outcome for the rest of Macron’s term.

—Emma Nix

What are the key drivers impacting voters in this election?

Ahead of the European elections held earlier in June, French voters indicated that their top concerns were poverty and social exclusion, climate change, and public health. French constituents cared for these issues up to 10 percentage points more than the European average. Inflation and purchasing power also ranked among the most pertinent issues and are expected to similarly drive voter dynamics in the upcoming snap election. Current polls point to immigration, social protection, and security as other issues driving voter preferences, laying the groundwork for a shift to the right.

For many, this election will be personality-driven. Dissatisfaction with Macron’s leadership seems to be fueling anti-elite sentiments among voters. Only 28 percent of the French public is favorable towards the president, ranking lower than right-wing figures such as Bardella and Le Pen and also lower than current Prime Minister Gabriel Attal, a member of Renaissance.

France’s political blocs have moved in the past to cater to voter priorities. Macron’s Renaissance announced an unemployment insurance reform decree between the two voting rounds, and the National Rally promises to reduce energy prices drastically and to toughen immigration laws. During this campaign, left-wing parties have attempted to appeal to voters in part by promising to repeal Macron’s controversial 2023 pension reform.

—Moritz Ludwig, young global professional with the Atlantic Council’s Europe Center.

What might the election outcomes mean for France’s foreign policy approach?

Whatever the actual results of the snap election, its implications for France’s foreign policy might actually take a long time to be felt. This has to do with the practices of the country’s institutions and with the goals a new government would actually pursue (assuming Renaissance will not pull off a victory).

On the first point, the French constitution does not provide clear guidelines on the roles assumed by the president and the prime minister. The president traditionally has domaine réservé (“reserved domain”) on foreign and defense policies. If the polls prove true, the president will have to govern with a majority from the opposition. This isn’t the first time the president would need to do so, but two features make today’s case exceptional: It could be the first time that a far-right party such as the National Rally would rule, and there seems to be less potential for consensus on foreign policy between parties than in the past.

What has worked in the past is no guarantee for the future, and the foreign-policy role of the prime minister (and the government he or she oversees) remains a question mark. Paralyzed domestically, Macron may be tempted to spend more energy on the international stage. Or, on the contrary, he might need to get much more involved domestically on issues he prioritizes, such as the budget law. In both cases, there are effects to be felt. Should he focus abroad, he would likely be undermined by his government should it have conflicting foreign-policy priorities. Should he focus inward, France would risk its credibility on the international stage, and there would be an increasing likelihood that many French voices push their own contradictory proposals.

What’s more, French domestic politics could spill into the international scene. If there is no majority in the National Assembly, delivering on promises made to the voters may prove to be increasingly difficult. The necessity for political wins might encourage a new government to be more active in foreign policy. Because of the greater difficulty in reaching consensus, both the president and the governing party will have to prioritize which political battles to fight. Foreign policy might well be collateral.

The specific foreign-policy aims that will actually be pursued remain uncertain. Here, the personnel may well determine policy. The political party of the minister of defense or the minister for Europe and foreign affairs will be much more critical now in determining France’s foreign-policy direction than in the past few years. On the left, despite remarkable differences, the New Popular Front succeeded in finding consensus on issues that initially split them (Hamas’ October 7 terrorist attack on Israel had a major impact in dissolving the left coalition in the National Assembly, for instance). However, foreign policy is definitely one of the areas in which the parties have the least in common. As for the far right, the ever-changing positions on key foreign-policy issues—like France’s leadership in the European Union, support to Ukraine, and France’s approach to NATO—indicates more about what it would not do (at least for now) and less about the issues it would realistically pursue.

Foreign policy has rarely been a key issue for French voters in elections, and these snap elections are no exception. Yet, the belief that French foreign policy would be preserved from the turmoil of the domestic scene is, at best, wishful thinking.

—Marie Jourdain, nonresident senior fellow at the Atlantic Council’s Europe Center.

What might the election outcomes specifically mean for…

France’s role in NATO

Since 1958, France’s constitution, combined with its institutional and political norms, has afforded the president broad discretion—a “reserved domain”—on issues involving defense and foreign policy. During three previous periods of “cohabitation,” when French parliamentary elections were won by the opposition party, a broad consensus on those issues allowed the president and opposition figures (including the prime minister) to avoid major clashes. Will the past be prologue?

If Macron’s party suffers minimal losses, he likely would muster continued support for his stance on NATO—and, most notably, his steps to increase bilateral and multilateral military assistance to Ukraine—from a number of center-right and moderate leftist members of the National Assembly.

Since Russia’s full-scale invasion of Ukraine in 2022, the far-right National Rally has scaled back its most explicit anti-NATO rhetoric. It no longer calls for France’s withdrawal from NATO’s integrated military structures (as Le Pen did in the 2022 presidential race), and it currently calls for support to Ukraine. But National Rally leaders are skeptical of the scale of aid to Ukraine, especially Macron’s recent calls for supplying offensive French combat aircraft, more sophisticated missiles, and training for Kyiv’s embattled forces. A prime minister and foreign and defense ministers drawn from—or acceptable to—the National Rally would likely trim back French contributions to NATO’s forward posture enhancements in Eastern Europe and oppose Ukrainian membership in NATO and the EU.

A parliamentary majority led by the left’s New Popular Front coalition, perhaps the least likely election outcome, could be disruptive for NATO and support for Ukraine. On one hand, the recently unveiled program provides very little information on military issues, including NATO, but it clearly calls for “indefectible defense of Ukrainian people’s sovereignty and freedom, including integrity of borders through the necessary arm transfers.” But on the other, there is reason to doubt that Jean-Luc Mélenchon, leader of the far-left France Insoumise party, and his loyalists take that statement seriously as during the 2022 legislative elections, they played down Russian aggression and the illegal annexation of Crimea, questioned the effectiveness of sanctions against Moscow, and blamed NATO for causing trouble. Mélenchon has been a longtime and virulent opponent of French membership in NATO and, in effect, has accused Macron of getting closer to dragging France into war with Russia. But a push by Mélenchon for French retrenchment on a range of issues, including NATO and Ukraine, would be fought by others in the leftist coalition, especially from members of the Socialist and Ecologists parties. The result could be, as the French expression goes, that chaos “reigns, but does not govern.”

—Leo Michel, nonresident senior fellow at the Atlantic Council’s Transatlantic Security Initiative.

France’s role in the EU

A French legislature controlled by the far left or far right could spell big problems for the EU. The past term saw a huge raft of EU legislation passed, which now needs to be transposed and implemented into national law. Macron may be sticking around regardless of the legislative election outcome, and he will remain in charge of the country’s foreign policy, but it will be up to the French legislature to transpose these EU directives.

With both the far right and the far left having expressed antipathy toward the EU, there is a big question about whether they may refuse to do that. This was highlighted with the European Commission’s announcement that it is launching an excessive deficit procedure against France, which will be followed by instructions in the fall for fiscal tightening to reduce France’s deficit. Both the far right and far left have made campaign promises that would significantly increase France’s spending and borrowing, and politicians on both sides were quick to attack the Commission and say they would not follow such instructions. If they don’t, fines will follow.

But France is no ordinary EU member state. It is the most powerful and influential country in the EU institutions (not, as many think, Germany). That is why France usually gets lenient treatment. For instance, the Commission declined to trigger the excessive deficit procedure against France many times over the past decade even though the country’s deficit was beyond the threshold. Open fighting between the Commission and the French Parliament could spell trouble for the future of the EU since France sits at the heart of the European project. If the French parliament openly defies Brussels and refuses to abide by the country’s international obligations, how far is the Commission willing to go as the guarantor of the EU treaties?

—Dave Keating, nonresident senior fellow at the Atlantic Council’s Europe Center.

France’s role in Africa

These historic elections present a serious reputational risk for France, which—after having suffered snubs from the Sahel to the Democratic Republic of the Congo and frictions with Morocco and Algeria under Macron—may see anti-French sentiment strengthen in Africa if the far right comes to power. Although Le Pen has made a few trips to the continent, including Chad in 2017 and Senegal in 2023, the far right is not appreciated in Africa.

Whatever the result of these elections—in which Africa is only discussed as part of the topic of immigration—Africans no longer have any great illusions about France because of its repressive migration policy and the way in which it has become the driving force behind populist movements.

Long gone are the days when Africa, especially French-speaking Africa, looked mainly to the former colonial power. For twenty years, Africans have expressed their need to prioritize their sovereignty and to diversify their partnerships. Now, France is only the fifth-largest trading partner of African states, falling behind China, India, the United States, and the United Arab Emirates.

But for Africans living in or still aspiring to go to France, the country is likely to be an even more complicated destination than before. If he becomes prime minister, Bardella is set to increase the number of expulsions of and repressive measures against immigrants. National Rally’s reputation has been further damaged since it welcomed Fabrice Leggeri, who formerly led the European Border and Coast Guard Agency (known as Frontex) but resigned when the agency faced accusations from a watchdog organization of mistreating migrants and other misconduct. Leggeri won a seat in the European Parliament this month as a National Rally member.

As for those already settled in France, they are in the crosshairs of the far right through a policy proposed by National Rally that many consider racist: national preference, which seeks to grant French people an advantage over immigrants in accessing social benefits or finding work. (Although, Le Pen has argued that national preference was inscribed in law with a controversial immigration bill backed by Macron and passed in the National Assembly.)

If he wins, Bardella may be the final nail in the coffin of French influence in Africa.

—Rama Yade, senior director of the Atlantic Council’s Africa Center and former French deputy minister for foreign affairs and human rights

How will France’s snap elections play out? Here are four scenarios.

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The far-right National Rally party is dominating the French political landscape ahead of elections on June 30 and July 7, but its victory is just one of several possibilities.

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France NATO

The Europe Center promotes leadership, strategies, and analysis to ensure a strong, ambitious, and forward-looking transatlantic relationship.

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The post Your primer on France’s snap elections appeared first on Atlantic Council.

Green Deal fatigue? How the European Parliament elections could affect EU climate policies.

Moritz Ludwig — Wed, 26 Jun 2024 18:50:03 +0000

The European Union (EU) likes to present itself as a decarbonization pioneer. Its ambition to make Europe the first climate neutral continent by 2050 has been translated into bold measures that challenge the economic and social status quo. The European Green Deal, as the cornerstone climate project of the past European Commission approved in January 2020, set in motion key energy and environmental legislations and established strategies for different sectors.

But now, climate-skeptic voices and opposition to climate efforts are gaining political weight, as shown by recent trends in the European Parliament election results earlier this month. While Europeans still see climate change as a major challenge, discontent with financial developments and concerns about defense and security rank even higher in their priorities, according to the latest Eurobarometer polling.

With the changing composition of the European Parliament, some of the biggest implications will concern climate policy. A weakened EU climate agenda could result in the continent falling short of decarbonization targets. It could also influence partners abroad to mirror more lax climate policies. In the face of these shifts, Europe’s policymakers need a resilient environmental policy profile that endures political shifts and builds trust in the longevity of EU climate action among voters and international partners.

The legacy of a climate consensus

In the 2019 European Parliament elections, climate change was a decisive topic for voters. Following the vote, the then nominee for European Commission president, Ursula von der Leyen, promptly pledged a strong focus on climate action as part of her eventually successful bid to secure the approval by the European Parliament. The Commission turned her pledge into action with the European Green Deal, which comprised numerous ambitious decarbonization policies. Von der Leyen called it Europe’s “man on the moon” moment.

To align EU legislation with the intermediate goal of reducing net greenhouse gas emissions by at least 55 percent by 2030, the Fit for 55 package expanded the EU emissions trading system, introduced the Carbon Border Adjustment Mechanism for carbon-intensive imports, and set new standards for the land use, transportation, and energy sectors, among other policies. Furthermore, at least 30 percent of the European recovery package funding was allocated for climate action.

Despite the initial progress, the wind in the sails of the EU’s green agenda now appears diminished. A sluggish economic recovery, stubbornly persistent inflation, and rising energy costs—in part, a downstream effect of Russia’s full-scale invasion of Ukraine in 2022—have resulted in the green agenda as a target for farmers’ protests and rallies.

Interest group pressure and conservative opposition to climate action have hampered green policies at the national level, too. A watered down German climate change law, climate-skepticism among Italian political leadership, and French President Emmanuel Macron calling in May of last year for a “pause” of EU environmental regulations exemplify the simultaneous nature of developments on the member state and the EU level.

Green parties lost in this year’s European Parliament elections, greatly diminishing their political weight in the body. Some commentators have already written the obituary of the bloc’s green agenda, arguing that “Europe’s green moment is over.”

What’s next for the Green Deal?

The center-right European People’s Party (EPP), von der Leyen’s party group and the largest in the European Parliament, reaffirmed Europe’s leading role in global climate action in its 2024 party platform. At the same time, it advocates for technological neutral approaches and distances itself from the Greens and Socialists, whose position the EPP calls “ideological” in their manifesto. The rejection of a contentious bill on pesticide use in 2023 demonstrates the group’s ambiguous stance on environmental legislation as it restrained von der Leyen’s Green Deal objectives to foster sustainability in the agricultural sector. Newly and reelected EPP members are “completely divided on where to go with the Green Deal,” according to Greens/EFA co-president Terry Reintke, emphasizing the limbo in which the project currently hangs.

In the incoming European Parliament, support for the Green Deal will continue to come from the center-left Socialists and Democrats (S&D) group, which highlights the social aspects of a just climate transition, and the liberal Renew Europe group, which emphasizes the need for pragmatic implementation. While the Greens proposed an even more ambitious Green and Social Deal as a major investment plan, other left groups are more critical of the bloc’s approach to decarbonization.

Further to the right, the green backlash has become a rallying cry for conservative and far-right political groups, such as the European Conservatives and Reformists (ECR) and the populist Identity and Democracy (ID), which oppose the Green Deal, advocate for local climate strategies, and call decarbonization targets unrealistic. A more prominent role of the ECR and ID in the European Parliament, following their gains in the European elections could slow down the already insufficient emissions reduction and impede the effective implementation of Green Deal policies.

However, it’s too soon to declare the death of the green agenda. It will, instead, likely be deprioritized, contending with competing policy interests. While the overlapping crises of climate change, pandemic recovery, the war in Ukraine, and the resulting inflationary trends have drawn away the electorate’s focus on climate issues, environmental concerns remained salient for voters. It is unlikely that the European Green Deal will be abandoned, especially if von der Leyen stays on as European Commission president.

The new distribution of the parliamentary seats opens possibilities for a more conservative majority but also for coalitions with center-left parties. While the three main centrist groups have reportedly reached an agreement on top European Union posts with von der Leyen as Commission president, it is not a given that she will gather enough votes in parliament. Given the new distribution of parliament seats, Green parties might therefore be the key to securing von der Leyen a second term and thus exert influence on climate protection to remain prioritized.

Regardless, even a weakened climate agenda would be a mistake. Both for political and strategic reasons, European policymakers cannot abandon the green transition. Other priorities may, rightly, deserve attention, but the climate crisis must not be ignored. Europe is, after all, the fastest-warming continent, according a recent report by the United Nations and EU. Temperatures there are rising at around twice the global average.

To ensure the viability and centrality of the Green Deal in the new European parliament, officials will need to link policy issues and make the case that the green transition can help the competitiveness agenda. A focus on implementation rather than new legislation is likely. In this consideration, a nonpartisan commitment to technologically sound and ecologically just climate action is necessary to accommodate voters’ demands and bridge party gaps. This will require political leadership, especially from von der Leyen and her EPP party group, which has yet to find a common line regarding the future of the European Green Deal.

Moritz Ludwig is a young global professional with the Atlantic Council’s Europe Center.

The post Green Deal fatigue? How the European Parliament elections could affect EU climate policies. appeared first on Atlantic Council.

The EU’s new tariffs are just the start of the EV trade saga with China

Jacopo Pastorelli, James Batchik — Wed, 26 Jun 2024 15:26:42 +0000

In May, the Biden administration took a big step forward in its trade saga with China by imposing large tariff increases on, among other goods, Chinese-made electric vehicles (EVs). Now Europe has joined the fray. Earlier this month, the European Commission announced that tariffs on some Chinese-made EVs from certain Chinese companies would rise up to 38.1 percent in the European Union (EU).

These new tariffs on both sides of the Atlantic signal greater alignment between Washington and Brussels on China. That is good news for the transatlantic partnership. But the technical differences in the latest salvos by the United States and Europe point to important differences in where Washington and Brussels are starting from and where they each might move next.

The Biden administration’s tariffs, announced on May 14, cover a wide range of strategic industries deemed critical to national security. These industries include steel, aluminum, microchips, EVs, and batteries. The most eye-grabbing figure was US tariffs on Chinese EVs quadrupling to 100 percent. The news from Brussels on June 12 delivered a similar but smaller effort, and one based less on a national-security framing. Moreover, Europe’s new tariffs are part of an ongoing investigation into Chinese practices, and therefore they are provisional.

Chinese-made EVs account for around 25 percent of the European market, with Beijing exporting 430,000 such vehicles to the continent in 2023.

The European Commission began its probe into Beijing’s massive subsidies of key sectors in October 2023. It has focused on the threat of cheap Chinese imports flooding the European market, driving down prices, and hurting Europe’s automotive sector. The investigation reflects a calculated approach, aligning with the EU’s new de-risking approach, but still, as is typical for the bloc, centering on adherence to World Trade Organization-complying trade defense regulations.

Unlike Washington’s tariffs, which apply to the entire sector, the new European tariffs target specific Chinese companies. They do not, in the words of German Vice Chancellor Robert Habeck, amount to “punitive tariffs.” Europe’s tariffs on battery EVs will cover a wide umbrella of companies, including Western brands with production facilities and joint ventures in China. This leaves open the option for carmakers to relocate their production to Europe, thereby avoiding the tariffs.

Much of the difference between Washington and Brussels is due to the different immediate market threats posed by Chinese EVs. The United States imported fewer than three thousand EVs from China last year, and the tariffs are in part intended to prevent Chinese market share from growing. In Europe, in contrast, China is already a major player. Chinese-made EVs account for around 25 percent of the European market, with Beijing exporting 430,000 such vehicles to the continent in 2023, a number that has quadrupled in the past five years. The EU decision therefore must be seen as an attempt to strike a balance between protecting Europe’s internal automobile industry and avoiding escalation into a trade war with Beijing.

Another factor is European unity—or lack thereof. European Commission President Ursula von der Leyen has underscored that Europe “will not waver from making tough decisions needed to protect its economy and its security” and she has not shied away from directly confronting China’s leadership on Chinese overcapacity “flooding the European market.” But von der Leyen is well out in front of many of her European counterparts with her economic security agenda. Export-oriented members, such as Germany, Sweden, and Greece, have expressed reservations toward the increased tariffs, and the Commission’s announcement came only after an eleventh-hour push by Germany to lower the tariffs.

This hesitance from certain member states is spurred on by Beijing, which has fought the investigation since its inception and sought to sow division within the bloc. Even though Europe’s countervailing duties are likely insufficient to offset the advantage China holds in production, Beijing has warned that the EU’s moves could lead to a trade war. On June 17, Beijing opened a dumping probe into imports of pork from the EU in response to Brussels’ tariff announcement.

Prior to the news of the EV tariffs, China also threatened retaliatory tariffs targeting German carmakers, French luxury products, and the European aviation and agricultural sectors, highlighting the breadth of China’s appetite to hit back at sectors that will hurt specific EU countries.

Another difference between the US and EU tariffs is the finality of these announcements. The Biden administration can move relatively quickly and decisively, but the European Commission’s tariff announcement is provisional. The investigation is still ongoing, and final tariffs will come four months after the provisional tariffs’ imposition on July 4. The EU’s tariffs could realistically be lowered during this time if China continues to push back and if EU member states get skittish. The EU and China have already begun consultations on the tariffs, which may bring about some revisions to the EU’s actions.

Finally, there is the issue of leadership. The United States will hold an election in November, but Washington is generally united on its approach toward China. As the Biden administration’s extension of many of the Trump administration’s policies toward Beijing signal, tariffs and a hardline approach on China will likely feature in any next US administration. There is far less certainty of consistent support in Europe, however.

Over the summer, the European Commission leadership will turn over. If von der Leyen were to win a second term leading the next Commission, it would solidify the EU’s increasingly tough trade policy approach toward China, signaling continuity and alignment with Washington. But nothing is guaranteed. Von der Leyen has yet to be nominated by the EU’s member states or confirmed by the European Parliament. She will certainly defend her Commission’s decisions on China, but she may be forced to make concessions on future action to secure her post. This trade saga is far from over.

Jacopo Pastorelli is a program assistant with the Atlantic Council’s Europe Center.

James Batchik is an associate director at the Atlantic Council’s Europe Center.

The post The EU’s new tariffs are just the start of the EV trade saga with China appeared first on Atlantic Council.

#BalkansDebrief – Do Balkan nationalist chants at EURO 2024 fuel ethnic tensions? | A Debrief with Florian Bieber

sjones — Wed, 26 Jun 2024 14:08:16 +0000

IN THIS EPISODE

Do Balkan nationalist chants at EURO 2024 fuel ethnic tensions? Football and politics are deeply intertwined, especially in the Balkans, where the mix can be volatile. At the UEFA Euro Cup in Germany this year, nationalistic chants and provocative acts highlighted the ongoing tensions among Balkan nations. Serbia, Albania, and Croatia clashed not only in the stadiums but also in a display of ethnic rivalries.

In this episode Ilva Tare is joined by Florian Bieber, a renowned historian and professor at the University of Graz, specializing in inter-ethnic relations and nationalism in the Balkans. They discuss the complex role of football as both a catalyst for rivalry and a potential bridge for unity in the region.

How does football act as a double-edged sword, fueling both rivalry and potentially fostering unity in the Balkans?

How do nationalistic rhetoric and historical narratives shape the current tensions?

Can the younger generations break the cycle of resentment, or are they destined to inherit past grievances? What role can they play in reconciliation?

Given the political landscape, is peace in the Balkans a realistic goal? What concrete steps can governments and the international community take to foster stability?

Join #BalkansDebrief for a thought-provoking discussion on the dynamics of football, nationalism, and the quest for peace and reconciliation in the Balkans.

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Ilva Tare

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The Europe Center promotes leadership, strategies, and analysis to ensure a strong, ambitious, and forward-looking transatlantic relationship.

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The post #BalkansDebrief – Do Balkan nationalist chants at EURO 2024 fuel ethnic tensions? | A Debrief with Florian Bieber appeared first on Atlantic Council.

Historic day for Ukraine as EU launches official membership talks

Peter Dickinson — Tue, 25 Jun 2024 19:43:21 +0000

Ukraine began official membership talks with the EU on June 25, providing the embattled East European nation with a powerful morale boost as it continues to fight for survival against Russia’s ongoing invasion.

The talks, which took place within the framework of an intergovernmental conference in Luxembourg, marked the launch of a process that could still take years to complete. While much work lies ahead, Ukrainian officials were keen to emphasize the symbolic importance of this latest milestone in the country’s long journey toward European integration.

“Today is an historic day,” commented Ukrainian President Volodymyr Zelenskyy in a celebratory social media post. “We will never be derailed from our path to a united Europe, to our common home of all European nations. A home that must be peaceful!”

Ukraine’s Deputy Prime Minister for European and Euro-Atlantic Integration Olga Stefanishyna, who headed the country’s delegation in Luxembourg, called the talks “a truly historical moment for my country.” Stefanishyna noted that Tuesday’s breakthrough would give Ukrainians “the moral power to continue withstanding” Russia’s invasion.

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While the official start of accession talks was widely toasted in Kyiv, formal negotiations are unlikely to get underway for several more months. Ukraine must then implement a wide range of reforms in thirty-five separate policy areas in order to bring the country’s laws and regulations into line with EU standards. Ukrainian officials have spoken tentatively of aiming to join the EU by 2030, but even this timeline might be overly optimistic.

Nor does the start of negotiations represent any guarantee of future Ukrainian EU membership. A host of other European countries including Türkiye, Serbia, North Macedonia, and Albania are all also bidding to join the bloc. The experience of the Western Balkans in particular illustrates the challenges of transitioning from EU candidate to member status, with numerous countries still struggling to advance despite in some cases more than a decade of talks.

Eurasia Center events

Online Event Thu, August 15, 2024 • 9:00 am ET

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

Ukraine’s progress on the road to EU membership has been remarkably rapid since the start of Russia’s full-scale invasion in February 2022. Days after the outbreak of hostilities, President Zelenskyy announced the country’s application to join the European Union in a video address delivered from Kyiv as columns of Russian troops advanced on the city. Four months later, EU leaders granted Ukraine official candidate country status. The decision to begin talks then followed amid much fanfare in December 2023. Rarely has Brussels bureaucracy seemed so dramatic.

For millions of Ukrainians, the quest for EU membership represents the country’s civilizational choice of a European future and the decisive rejection of Russian authoritarianism. This historic shift began in 1991, when more than ninety percent of Ukrainians backed the country’s declaration of independence and voted to leave the Soviet Union.

The next major milestone in Ukraine’s geopolitical divorce from Russia was the 2004 Orange Revolution, which saw Ukrainians from across the country flood into Kyiv to protest a rigged presidential vote and prevent the election of a Kremlin-backed candidate. This was to prove a watershed moment in post-Soviet history; the Orange Revolution established Ukraine’s European integration aspirations and sparked a rift with Russia that would only grow more pronounced over the coming decades.

Nine years after the Orange Revolution, Ukrainians once more took to the streets to oppose a renewed Russian bid to force the country back into the Kremlin orbit. The 2013-14 Euromaidan Revolution further cemented Ukraine’s pivot toward the West, while deepening the divide separating the country from Russia. Days after Ukraine’s ousted pro-Kremlin president Viktor Yanukovych fled across the border to Russia, Vladimir Putin began the invasion of Ukraine with the seizure of Crimea, sparking a war that continues to this day.

The past decade of Russian aggression has had a profound impact on Ukraine’s commitment to European integration. Prior to the start of Russia’s invasion in 2014, many Ukrainians still favored close ties with Moscow and other former Soviet republics. However, the war unleashed by Putin has transformed Ukrainian public opinion, with the vast majority in today’s Ukraine now backing EU membership.

Ukrainians understand that joining the European Union will not protect them from further Russian aggression. They are also realistic enough to recognize that huge challenges remain before they can finally achieve the goal of member status. Nevertheless, the start of official EU membership talks sends a strong signal that the country is moving in the right direction toward a future that is worth fighting for.

Peter Dickinson is editor of the Atlantic Council’s UkraineAlert service.

Kyiv Pride event highlights changing attitudes in wartime Ukraine

Aleksander Cwalina — Mon, 24 Jun 2024 21:38:28 +0000

On June 16, members of Ukraine’s LGBTQI+ community and allies gathered in central Kyiv to celebrate the first Pride March in the Ukrainian capital since the beginning of Russia’s full-scale invasion more than two years ago. The event highlighted changing attitudes in wartime Ukraine as the country stands defiant against Russia and embraces a European future.

Hundreds of kilometers from Kyiv on the front lines of the war with Russia, the Ukrainian LGBTQI+ community is also present within the ranks of the military among Ukrainians of all ethnic backgrounds and religions defending the country. While calculating the exact number of LGBTQI+ soldiers is challenging, a 2023 article in Britain’s Daily Telegraph estimated that between two and seven percent of serving personnel in the Ukrainian Armed Forces are members of the LGBTQI+ community.

Some serve openly, sporting symbols such as a unicorn patch below the blue and yellow national colors of Ukraine on their military uniform. In many cases, they do so to demonstrate that, contrary to assertions from Russian propagandists and other opponents, LGBTQI+ Ukrainians are just as willing to defend their country as other Ukrainians.

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As the world watches the Russian invasion of Ukraine unfold, UkraineAlert delivers the best Atlantic Council expert insight and analysis on Ukraine twice a week directly to your inbox.

The increasing openness in Ukraine toward issues of sexual orientation and identity stands in stark contrast to the deteriorating situation in regions of the country currently under Kremlin control. Throughout occupied Ukraine, the LGBTQI+ community faces the reality of draconian Russian legislation that often prevents them from defending their rights and sets the stage for serious human rights abuses.

According to Nash Svit, a Ukrainian LGBTQI+ organization, these abuses include public humiliation, torture, extortion, and sexual violence. The National LGBTQ Consortium in Ukraine has documented a similarly oppressive atmosphere of increased fear and violence in eastern Ukraine’s Donbas region and the Crimean peninsula following Russian occupation in 2014.

In Russia itself, LGBTQI+ individuals have long featured in the ever-growing category of scapegoated groups, where they are joined by representatives of the free media, civil society, and the country’s tiny anti-war opposition as proxy targets in the Kremlin’s campaign against the West. Scores of LGBTQI+ Russians have fled the country in recent years, citing a mounting climate of insecurity and oppression. Those who remain face routine discrimination along with threats to their livelihood and personal safety.

In line with Russian President Vladimir Putin’s increasingly radical anti-Western rhetoric, last year Russia’s Supreme Court declared the “international LGBTQ movement” a terrorist and extremist organization. The Russian authorities have since used this ruling to convict Russians of displaying the rainbow flag, raid LGBTQI+ clubs, and brand LGBTQI+ activists as foreign agents.

Eurasia Center events

Online Event Thu, August 15, 2024 • 9:00 am ET

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

The oppression of the LGBTQI+ community in Putin’s Russia has sparked debate across the border and helped persuade many in traditionally conservative Ukraine to reject homophobia. A June 2023 poll found that more than 70% of Ukrainians believe members of the LGBTQI+ community should have the same rights as any other Ukrainian citizen, representing a significant increase from prewar levels of social acceptance.

Despite indications of progress, significant challenges remain. While LGBTQI+ individuals can now serve openly in the Ukrainian military, many say they face difficulties not experienced by non-LGBTQI+ soldiers. Efforts are ongoing to secure equal partner rights, including the right of same-sex partners to make medical decisions on behalf of their partner in case of injury, and to receive the same state benefits for military service.

Amid the unprecedented trauma and turbulence of Russia’s full-scale invasion, the issue of LGBTQI+ rights remains on Ukraine’s political agenda and continues to gain traction. In 2022, Ukrainian President Volodymyr Zelenskyy acknowledged growing demand for recognition of same-sex civil unions. A year later, Ukrainian MP Ivana Sovsun formally introduced a bill on civil unions.

Current trends look set to continue. As Ukraine takes additional steps toward membership of the European Union, the accession process will include a growing focus on Ukrainian human rights legislation. This will include measures to bring Ukrainian law into line with EU standards, meaning the likely introduction of greater legal protections against discrimination based on sexual orientation and gender identity.

Ukraine’s LGBTQI+ community is in many ways at the forefront of the struggle against Vladimir Putin’s authoritarian brand of Russian imperialism. From the LGBTQI+ soldiers on the front lines of the war to the activists pushing for social change in Kyiv, the community plays a vital role in Ukraine’s ongoing European integration and defense against the Kremlin’s anti-Western crusade.

Aleksander Cwalina is a program assistant for the Atlantic Council’s Eurasia Center.

Fleck, Lipsky, and Shullman cited by Business Insider on Europe-China economic decoupling

rmurphy — Mon, 24 Jun 2024 17:58:06 +0000

Read th e full article here.

The post Fleck, Lipsky, and Shullman cited by Business Insider on Europe-China economic decoupling appeared first on Atlantic Council.

How the far right could shape the future of the European Parliament

Joely Virzi — Thu, 20 Jun 2024 17:35:38 +0000

Far-right parties across Europe made significant gains in the European Parliament elections that concluded June 9. But how these parties wield their newfound influence in Parliament remains an open question.

There is a clear interest among the right to figure out ways to make their gains felt in Brussels. Leaders, including France’s Marine Le Pen and Italy’s Matteo Salvini, recently met in Brussels to discuss uniting the fractured right wing, giving oxygen to persistent rumors of merging or shuffling the existing European Conservatives and Reformists (ECR) group with the Identity and Democracy (ID) group to form a far-right supergroup. ECR has already picked up enough new members to overtake the centrist Renew Europe group as the third largest group in the Parliament.

Membership in these groups matters. Members of the European Parliament are elected nationally but sit within pan-European party groups, in which votes are whipped and decisions shaped. Membership and the size of party groups also carries implications for funding, staffing, and even speaking time in Parliament debates, making membership a calculated decision.

But uniting the far right is easier said than done. Ideological differences and internal divisions present obstacles. For instance, ECR largely holds a pro-Ukraine stance, while parties in ID can be more sympathetic toward Russia. As these coalitions undergo reshuffling, the influence of the right in the European Parliament remains in flux. The answers to three questions will shape this influence going forward: How will the far-right Alternative for Germany (AfD) party align in the Parliament? How will Hungary’s Fidesz party align? And will the Brothers of Italy party work more with centrist or more radical partners?

AfD searches for a new home

Germany’s far-right AfD, currently unaffiliated in the Parliament after being tossed from ID, is one to watch. After then-lead candidate Maximilian Krah made a controversial statement about the Schutzstaffel, the elite guard of the Nazi regime also known as the SS, AfD was dismissed from the ID group. Krah has since been expelled from the AfD delegation in the Parliament.

The AfD still had a strong second-place showing in the elections, finishing ahead of all three member parties of Germany’s government coalition and increasing its membership in the Parliament from nine to fifteen. AfD’s likely ambition is to rejoin ID. If it fails, then its members of parliament face a dilemma: find a new group or form an alternative one. AfD’s fifteen votes would be an enticing get for the Parliament’s existing groups, but the party is arguably the most high-profile and toxic bunch in Parliament, making its adoption by ECR almost impossible. Its reabsorption into ID is also uncertain. Even if it does eventually rejoin, it is unlikely to do so before the national elections in France in late June and early July, in which Le Pen’s National Rally, a leading voice in ID, is leading in the polls.

Forming an alternative group isn’t easy either. To be officially recognized as a group in the European Parliament, there must be at least twenty-three members of parliament with representation from at least seven member states. Should AfD try to form an alternative group, it would likely seek out other dissenting parties with a pro-Russia stance from countries such as Poland, Lithuania, Bulgaria, Hungary, and Slovakia. AfD’s exile from any existing group won’t stop it from voting along hard-right lines, but it is worth watching how AfD will try to use its leverage inside the Parliament—or risk obscurity on its sidelines.

Fidesz looks beyond ECR

Hungarian Prime Minister Viktor Orbán’s Fidesz party, having secured eleven of Hungary’s twenty-one seats, is another prominent party currently unaffiliated, after being kicked out of the center-right European People’s Party (EPP). Remaining unaffiliated would limit Orbán’s power in the European Parliament, so Fidesz was thought to be considering joining ECR or another new grouping.

Joining ECR would have made strategic sense for Fidesz, but just days after Orbán posed for photos with ECR bigwigs, including Italian Prime Minister Giorgia Meloni and former Polish Prime Minister Mateusz Morawiecki, news broke that his party would not find a home in ECR. Fidesz cited the “extreme anti-Hungarian stance” of new ECR members from Romania’s Alliance for the Union of Romanians party—once again highlighting the contradictions of far-right, nationalist groups forming a coherent pan-European grouping. Other reporting suggested Meloni herself rejected Orbán’s efforts.

Barring any reversal, the news of Fidesz’s failed would-be relationship with ECR leaves Orbán with few options. Fidesz could try to join ID, but the group’s ideology may limit Fidesz’s reach at a time Orbán is looking to strengthen it, especially as Fidesz just had its worst election performance in two decades. Orbán has also been keen on forming a far-right bloc, one that could potentially unite or create a de facto alliance among the far right in the Parliament. With the door to ECR closed, he may bet on some new constellation of the far right, with Fidesz in the middle.

Meloni becomes Europe’s biggest player

Meloni and her dominant Brothers of Italy party are currently some of the most influential actors in the new European Parliament. A leader in ECR decision making, Meloni and her party have become widely sought after, with both Le Pen and European Commission President Ursula von der Leyen reaching out to discuss cooperation. For Le Pen, a pact with the Brothers of Italy and ECR more broadly would give the far right enough members to become the second-largest bloc in the European Parliament, even if unofficially. Similarly, von der Leyen has left open the possibility of working with Meloni in hopes of first securing her confirmation from the Parliament to continue as European Commission president.

Meloni and the Brothers will not leave the ECR, and, unlike AfD or Fidesz, they are in a strong position. Still, Meloni will need to choose her alliances carefully. Working with von der Leyen would allow her party to use the leverage it has collected to influence the Parliament’s actions, but it could dull her nationalist credentials. Working with ID would likely close the door to cooperation with von der Leyen’s EPP and leave Brothers of Italy on the outside looking in. How well Le Pen’s National Rally does in the upcoming French parliamentary elections may factor into decision making in Rome.

The evolving landscape of the European Parliament

The realignment of political groups is crucial for the future of the European Parliament, but also important will be how the new Parliament will operate with more dynamic policy-specific coalitions. Meloni’s Brothers of Italy is a case in point. Narrower margins mean centrist groups will likely need to rely on partners further along the ideological spectrum to pass legislation on specific issues. With the reshuffling of coalitions, tight margins, and major national developments, important European Union issues—defense, climate change, immigration, and economic policy—hang in the balance.

Joely Virzi is a young global professional at the Atlantic Council’s Europe Center.

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Will the new Parliament change Europe’s course on energy security and climate?

András Simonyi, Olga Khakova, Pau Ruiz Guix, Andrei Covatariu, and Elena Benaim — Fri, 14 Jun 2024 19:29:18 +0000

The last European Parliament governed as Europe’s energy system withstood unprecedent shocks to global markets and the economy. The shocks were numerous and severe: from negative pricing during the COVID-19 pandemic to all time-high energy costs following Putin’s full-scale invasion of Ukraine; from tensions in the Middle East and cyber and kinetic attacks on energy infrastructure to extreme weather events made more severe by climate change.

While energy was not the driving issue for the majority of the 185 million European voters for this election, the newly elected Parliament will play an important role in determining how to defend the bloc’s energy security, reduce emissions, and boost competitiveness.

Our experts weigh in on the impact of Europe’s elections on these issues.

Click to jump to an expert analysis:

András Simonyi: Will the EU elections slow its energy transition?

Pau Ruiz Guix: How the EU can stay the course on clean energy goals

Andrei Covatariu: EU elections put climate, energy security, and political capital at risk

Elena Benaim: EU climate and energy agenda hangs in the balance

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Will the EU elections slow its energy transition?

Five years ago, the European Commission under President Ursula von der Leyen set out to make the green transition its top priority. What comes next for the EU’s climate and energy agenda is uncertain. The Parliament’s new composition, and, perhaps even more importantly, the final choice of Commission president (which is up in the air) and members of the Commission, along with the distribution of portfolios, will be reflective of but also critical to the future direction of the EU.

While the gains of the extreme right are mainly a result of the migration crisis, the huge losses suffered by the Greens, plus the economic and political costs of the energy transition, need to be taken into account. These indicate a strong push to “rebalance” green transition and energy security.

Europe’s competitiveness has thus been added to climate and security/energy security concerns—for some member states, it is the number-one priority. Besides the geopolitical realities, as we warned years ago, the “absorption” capacity of European societies increasingly determines the speed with which the green transition can move forward.

There is an overwhelming view that now the next Commission will have to focus on the implementation of previous decisions. There are clearly two competing political trends, however. One aims to speed up the green transition as a panacea to all the issues mentioned above. The other takes a more pragmatic and realistic position to continue the transition, while taking into account the security, cost, and social aspects of that transition.

No matter what, energy security will take center stage. This means that US liquefied natural gas (LNG) will continue to play a major role, particularly as the majority view in Europe is that it will not go back to the status quo ante with Russian energy supplies.

András Simonyi is the former Hungarian ambassador to the United States and a nonresident senior fellow with the Atlantic Council Global Energy Center.

How the EU can stay the course on clean energy goals

The European elections results reflect a sentiment that has already been increasingly apparent: a need to align ambitious climate policy with a competitiveness and resilience agenda that delivers growth and economic security. While the reality of European policymaking means that a clearer picture will only emerge when new leadership is at the helm of the European Commission, the next five years will be all about implementing already-adopted regulation to reduce European greenhouse gas emissions by 55 percent by 2030.

To deliver on deep decarbonization goals, EU countries will need to implement targets to decarbonize hydrogen production at a time when carbon pricing will be extended, and the Carbon Border Adjustment Mechanism will be implemented and potentially expanded.

To deliver on domestic clean technology manufacturing goals, the new European leadership may opt to accelerate a trend toward re-shoring and friend-shoring, requiring new instruments, partnerships, and relationships within the multilateral trade system.

To deliver on clean hydrogen deployment goals, a sector where final investment decisions (FIDs) are struggling to take off, the new mandate should finalize low-carbon hydrogen rules and revise clean hydrogen rules reflecting what works and what doesn’t.

Achieving these three broad goals, which inevitably tackle global and trade-exposed sectors, will require strong climate and energy diplomacy that strengthens global cooperation on increased decarbonization of hard-to-abate industries, supply chain security, and regulatory alignment and certification. The US position and transatlantic cooperation will play a key role in achieving these objectives, and, therefore, not only European elections but American ones in November will inform and influence the realm of possibilities.

All in all, a world of different speeds in the energy transition is a challenging place, and the European experience shows that only by working together is it possible to balance climate, economic, and security objectives to the benefit of the people and the planet.

Pau Ruiz Guix is a trade and international relations officer with Hydrogen Europe.

EU elections put climate, energy security, and political capital at risk

In 2022, after Russia’s full-scale invasion of Ukraine, the European Commission set ambitious energy and climate targets to a significant extent aimed at minimizing social unrest and maintaining political stability in the European Parliament for the 2024 elections. This strategy largely succeeded, with the 2019 political coalition still holding a majority—albeit a narrow one— while public protests have been managed over the last years.

However, overambitious targets may soon backfire. As Commission President Ursula von der Leyen works to secure a strong coalition (which could include the Greens), some of the energy and climate objectives are at risk. Revising the approved 2030 targets is complex and politically risky with a right-leaning European Parliament. This could slow the transition pace, possibly enhancing short-term energy security but undermining long-term climate goals and supply security.

An alternative would be to maintain the existing targets, but this approach would also risk leaving goals unmet. This outcome could hurt energy security and political credibility, especially as the deadline for meeting targets falls right after the five-year term of the newly elected European Commission. Failing to meet the targets could erode the credibility of the leaders who will be in power at the end of this decade.

Looking beyond 2030, negotiations over the unapproved 2040 EU energy and climate targets pose even greater challenges than before, thus creating yet another significant political risk. Additionally, the EU enlargement process may also become less ambitious, which will only continue to generate spillover effects. Prospective countries would remain easily targeted by Russia with physical attacks on critical infrastructure, cyberattacks, or energy supply cuts, which will continue to hurt EU member states.

Andrei Covatariu is senior research associate at Energy Policy Group (EPG) and a research fellow at the Centre on Regulation in Europe (CERRE). This article reflects his own personal opinion.

EU climate and energy agenda hangs in the balance

On June 6, 2024, when called upon to vote for the European Parliament, European voters kept the center-right European People’s Party (EPP) as the leading group with 190 seats—a slight increase compared to the previous elections. However, to hold the majority, which requires 361 seats out of 720, the EPP will need to find working coalitions with other groups to pass legislation.

As announced by the EPP, European Commission President Ursula von der Leyen will again be their candidate for the presidency. With a second mandate, von der Leyen would be expected to protect the Commission’s legacy (including its key initiatives such as Fit for 55 and RePower EU) and to continue focusing on competitiveness, cleantech, innovation, global leadership, and energy resilience. However, coalitions in the European Parliament will heavily determine the direction of climate and energy policies.

With a majority formed by the EPP, Progressive Alliance of Socialists and Democrats (S&D), Renew Europe, and the Greens, the European Green Deal could be safe in terms of ambitions and targets. The coalition would probably maintain a decarbonization agenda strongly focused on energy security and industrial competitiveness and a likely dominant conversation around the social dimension of the energy transition.

With a majority that includes the hard-right group European Conservatives and Reformists (ECR), there could be a serious risk of seeing climate ambition weakened. Right-wing parties in member states have openly criticized Europe’s climate ambition, and this could result in undermining the provisions of the Fit for 55 plan. It might also complicate the already challenging discussion on unlocking investments for the green transition at the EU level.

A move to the right by the EPP would have severe implications for the legacy that the previous Commission built and hinder the possibility for the EU to build a strong industrial competitiveness strategy that supports the energy transition and climate targets.

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

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Lipsky interviewed by CNN on EU tariffs on Chinese EVs

rmurphy — Thu, 13 Jun 2024 15:37:13 +0000

Watch the full interview here.

The post Lipsky interviewed by CNN on EU tariffs on Chinese EVs appeared first on Atlantic Council.

Ukraine officially embraces English as historic westward pivot continues

Oleksiy Goncharenko — Thu, 13 Jun 2024 11:27:03 +0000

The Ukrainian Parliament took another small but meaningful step on the road toward European integration in early June with the adoption of a new law officially establishing English as the language of international communication in Ukraine.

In line with this legislation, a wide range of Ukrainian government officials will now be expected to reach a degree of English language fluency, while various state services will be made available in English. The law also envisages expanded English language educational opportunities, and support for the screening of English language movies featuring subtitles rather than dubbing.

Ukraine’s recent decision to grant the English language elevated official status reflects a much broader national transformation that has been underway since the country first regained independence more than three decades ago. This historic process has helped transform the Ukrainian linguistic landscape.

In 1991, Ukrainian was officially recognized as the only state language of the newly independent country. In practice, however, Ukraine remained deeply embedded within a Russian language culture inherited from the Soviet era. This informal empire extended from schools to popular culture, with generations of post-independence Ukrainians growing up in an information space that was still dominated by Moscow.

While old imperial ties remained strong, only the privileged few could afford to travel to most Western countries. Strict visa regimes acted as an additional barrier to engagement with the Western world until Ukrainians finally secured visa-free travel to the EU in 2017. Despite these obstacles, the popularity of English language studies in the decades following 1991 reflected Ukraine’s growing openness to the outside world.

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Research indicates that demand for English language learning has increased significantly since the start of Russia’s full-scale invasion in February 2022. This interest in language skills may at first glance appear somewhat unexpected, given the enormous challenges facing Ukrainian society over the past two years. For many Ukrainians it makes perfect sense. In wartime Ukraine, studying English is an attractive route toward greater personal development that can also provide opportunities to boost the country’s defense and support integration into the wider European community.

The war with Russia has dramatically underlined the importance of the English language as a tool for international communication. At the most immediate and practical level, knowledge of English has been a huge asset for Ukrainian soldiers and commanders learning new skills and encountering new weapons systems for the first time. Indeed, it was striking to see English language fluency specifically cited as a key requirement during discussions with Western partners over plans to train Ukrainian pilots.

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The same linguistic logic has applied to non-military engagement with international partners at the governmental and nongovernmental levels. As Ukrainians have sought to develop new relationships and address complex wartime issues with officials and volunteers from dozens of different countries, English language skills have proven absolutely crucial.

This deepening dialog is very much a two-way street. While greater English language proficiency is proving important for Ukrainians in their engagement with the international community, it is also allowing foreign partners to learn more from the Ukrainian side. In the military sphere, for example, no other country is currently able to match Ukraine’s experience in modern warfare. Speaking the same language makes it far easier to share this experience and pass on important lessons to allies.

As Ukraine moves closer to the rest of Europe and continues to make progress toward the goal of EU membership, the role of the English language within Ukrainian society will only increase. The recently adopted law on the status of English reflects this reality, and should help create an environment that supports the country’s broader Euro-Atlantic integration aspirations.

For centuries, Russia has used language as a tool to suppress Ukrainian independence and impose an artificial imperial identity on Ukrainians. By officially embracing English as the language of international communication, Ukrainians now aim to support their country’s historic pivot away from Moscow and return to the European community of nations.

Oleksiy Goncharenko is a Ukrainian member of parliament with the European Solidarity party.

The size of these tariffs indicate that the French have more influence than the Germans in EU trade policy, at least for now. French carmakers, in contrast to German auto brands, are less dependent on the Chinese market and more willing to use tariff policy to protect local production capacity. Indeed, the tariffs and their political fallout reflect a split between EU member states with deep ties to China’s car industry, such as Germany, Sweden, and Hungary, and member states that view China as more of a threat than an opportunity, such as France and Italy.

—Sarah Bauerle Danzman is a resident senior fellow in the GeoEconomics Center’s Economic Statecraft Initiative.

The European Commission unveiled its higher-than-expected countervailing tariffs on some EVs imported from China. With this move, European Commission President Ursula von der Leyen’s economic security agenda has won out against even a last-minute push by Germany to soften the decision. Concerns and disappointment have already echoed from German industry, criticizing the Commission’s “Trumpian protectionist” decision and denouncing detrimental economic consequences for Germany’s automotive industry. However, apart from the howls of opposition from some large German auto and chemical actors, almost 70 percent of German industries support protective measures against China’s unfair trade practices and market distortion. This fracture between Germany’s Mittelstand and major global players (such as Volkswagen, Siemens, BMW, Mercedes-Benz, BASF, and Bayer) reflects the underlying contrast between the EU’s need to protect its industries against Chinese overcapacity versus certain export-dependent sectors within the European bloc.

With a strong chance of von der Leyen leading the Commission for the next five years and an increasingly protectionist-oriented global economy, it will be interesting to watch who catches up with whom. Will von der Leyen’s ambitious economic security agenda that echoes Washington’s tougher stance on China be reined in by export-dependent member states such as Germany? Or will Berlin come to a realization that the EU has to address key vulnerabilities vis-à-vis Beijing? This is only the opening salvo in a longer-term policy debate.

—Jörn Fleck is the senior director of the Atlantic Council’s Europe Center.

—Jacopo Pastorelli is a program assistant in the Atlantic Council’s Europe Center.

In order to not affect the European Parliament election campaign, the European Commission waited to announce its decision to impose additional tariffs on Chinese EVs. But now that the election is over, it can finally move. It is indeed high time for the EU to react to China’s subsidized industrial overcapacities. The United States and other countries, such as Turkey, had already announced additional tariffs on Chinese EVs, thereby raising the pressure on the EU, because China could further divert its exports to Europe.

But the decision by Brussels is not backed by all EU member states. While France is in favor, auto giant Germany has been wary of these tariffs and made an eleventh-hour bid to dilute and reduce the Commission’s planned tariff hike. In the corridors of the German chancellery and parts of the German economics ministry, there is great concern that the German automotive industry could bear the brunt of Chinese retaliatory action. And this remains a space to watch. So far, this is a provisional predisclosure by the European Commission. It now has four months to adopt definitive measures, which will require an implementing act with an examination procedure, which usually implies a qualified majority vote in a comitology procedure, meaning it is not final and set in stone, yet.

—Roderick Kefferpütz is a nonresident senior fellow at the Atlantic Council’s Europe Center and the director of the Heinrich-Böll-Stiftung European Union office in Brussels. The opinions expressed are those of the author and do not necessarily represent the views of the Heinrich-Böll-Stiftung.

The EU is undertaking tariffs on China-made EVs due to surging shipments to Europe. Additionally, the US imposition of tariffs on EVs and other products—especially batteries—forced the EU’s hand.

The EU is of at least two minds regarding tariffs on China-produced EVs. Germany, Sweden, and Hungary all oppose the tariffs, which they feel will damage existing commercial ties with China. Germany fears retaliation against its own auto sales to China. Sweden’s Volvo brand is owned by the Chinese firm Geely. And Hungary has received substantial EV investments from Chinese EV and battery companies. Conversely, France, Italy, and several other EU actors advocated for additional tariffs, as these measures could protect EU automakers from subsidized competitors while attracting inward investments from China.

Owing to a lack of internal consensus, as well as the rapidly changing nature of the EV landscape, the EU may well revisit its decision in the coming months. The EU’s decision is caveated at several points and could be reassessed if the European-US alliance weakens over the next year.

—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center, where he leads the center’s efforts on Chinese energy security.

2. How does this step compare with the new US tariffs?

Because the United States has very little Chinese EV market penetration as of now, its recent Section 301 tariffs on Chinese EVs are largely preventive. In contrast, the EU’s tariffs are responding to a rapid increase in Chinese EV imports. In this way, the EU tariffs are more in keeping with the manner in which antidumping/countervailing duty investigations are usually undertaken, and the EU announcement makes it clear that it is at least attempting to impose these duties in a World Trade Organization-compliant manner, including by offering to enter negotiations with the Chinese government.

The EU tariffs are both lower than the United States’ and more complicated. By choosing to apply tariffs on a company-by-company basis, the EU is trying to demonstrate that its actions are rooted in factual determinations about Chinese subsidies, which themselves are provided on a company-by-company basis. By ensuring SAIC cars are hit with the highest tariff rate, the EU is also differentiating between state-owned car companies (which SAIC is) and private firms (such as BYD and Geely). This also gives the EU tools to incentivize car companies on an individual basis to transfer more production to the EU in order to gain better market access. The message is clear—site production in the EU or be subject to a tariff designed to eliminate the subsidization benefits of building vehicles in China.

The differences between the US and EU tariffs further highlight how much more dependent major European car manufacturers are on China—as a market, a production site, and as a source of inward investment. US carmakers are much less reliant on China for revenue, largely because as Chinese automakers have grown, US brands have been pushed out. The sense that China is a declining market for US autos has also blunted organized industrial opposition to tariffs on Chinese vehicles. Across the Atlantic, European car manufacturers have been much more vocal and concerned about tariff action against Chinese EVs due to the potential for retaliation, and this shows in both the tariff level—which is much lower than the United States’—and the firm-specific carve-outs.

—Sarah Bauerle Danzman

The EU’s tariffs are vastly different from the US measures in several key aspects. The EU-announced tariff rates are substantially lower than comparable US measures; are differentiated on a company-by-company basis; and, unlike the United States’, indicate a receptiveness to inward investment.

The European Commission’s investigation determined that Chinese automakers BYD and Geely will receive preferential tariff rates of 17.4 percent and 20 percent, which will be applied on top of the existing 10 percent tariff rate that Chinese EVs face. Other producers would face additional tariffs ranging from 21 percent to 38.1 percent.

While the criteria for determining provisional countervailing duties is not transparent, it appears that the European Commission awarded lower rates to automakers investing into the European ecosystem.

It is not clear how the Commission determined a level of subsidization on a company-by-company basis—or if this exercise is even possible. The Chinese system of subsidies is diverse, complex, and opaque. Chinese firms often receive direct or implicit support via preferential interest rates, directed credit, tax credits, and cross subsidies—such as in the steelmaking and shipbuilding sectors. Moreover, these subsidies take place at the national, provincial, and even local level.

While it’s not clear how the European Union could determine the level of these subsidies, especially on a company-by-company basis, it can calculate which firms have the largest local footprint. Both BYD and Geely have substantial investments in Europe. BYD has already opened an EV plant in Hungary and plans to open another facility. Geely owns the Swedish brand Volvo and has begun to shift production of some vehicles from China to Belgium.

Finally, China’s SAIC group received the maximum tariff rate of 38.1 percent. The automaker has a limited footprint on the continent, and it has yet to select a site for its first European production facility, despite nearly a year of consideration. Accordingly, Europe seems to be warning SAIC to site a facility within Europe or face tariffs.

—Joseph Webster

3. How might China react?

China will likely issue some corresponding tariffs on European-made goods, even if only for symbolic purposes. Yet, it may have no choice other than to accept that Europe will accept its investment, but not its exports. Beijing may also seek to re-engage with Europe on electric vehicles after the US presidential election, which will have significant implications for transatlantic ties.

Beijing will closely watch Europe’s posture toward lithium-ion batteries, which can be used for grid storage or electric vehicles (and also have potential military implications). With US tariffs on lithium-ion batteries beginning in 2026, Europe will be flooded by these products unless it applies its own measures.

—Joseph Webster

China has already indicated it may retaliate with tariffs against internal combustion engine vehicles, aviation equipment, and agriculture. It remains to be seen whether China makes good on that threat, but it did send a letter to the Commission in the aftermath of the tariff announcements, asking for a negotiated settlement and threatening to start retaliatory measures in aviation and agriculture in the absence of a deal. Agriculture and aviation are both politically sensitive sectors, with exports to China representing more than 6 percent of the EU’s agricultural trade. It’s less clear how easily China could absorb the costs of aviation tariffs given that Airbus planes represent more than 50 percent of China’s commercial aviation fleet.

At some point, the usefulness of tariffs in changing governments’ behavior displays decreasing returns. This is especially true as rounds of protectionism reduce firms’ market share in each other’s markets. The lack of strong US industrial opposition to tariffs on Chinese EVs is a case in point. The lesson here is that governments are going to eventually have to sit down and work out their differences; trade wars might be on-trend at the moment, but eventually the downsides—including increased costs and reduced consumer choice—will become more apparent to citizens.

—Sarah Bauerle Danzman

The post Europe is gearing up to hit Chinese EVs with new tariffs. Here’s why. appeared first on Atlantic Council.

#AtlanticDebrief – What’s behind President Macron’s snap election decision? | A Debrief from Amb. Gérard Araud

lignac — Tue, 11 Jun 2024 22:48:20 +0000

IN THIS EPISODE

What prompted President Macron’s decision to resolve parliament and initiate snap elections? Would a cohabitation with a far-right Prime Minister be a likely scenario? How might the potential political change affect France’s foreign policy, in particular regarding the support for Ukraine? What do these developments mean for Macron’s support of European Commission President von der Leyen?

On this episode of #AtlanticDebrief, Ilva Tare sits down with Ambassador Gérard Araud, Distinguished Fellow at the Atlantic Council’s Europe Center, to discuss the implications of the dissolution of the French National Assembly and the call for a parliamentary snap election.

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The post #AtlanticDebrief – What’s behind President Macron’s snap election decision? | A Debrief from Amb. Gérard Araud appeared first on Atlantic Council.

Setting the European Parliament elections in the ‘right’ context

Jörn Fleck, James Batchik — Tue, 11 Jun 2024 18:45:43 +0000

Is it a surge, a lurch, or something else entirely? The far and hard right did well in the European elections that concluded on June 9. But beyond the hype of Europe’s shift to the right, a closer look at the election outcome paints a more nuanced story of the center holding.

The center-right European People’s Party (EPP), not the far- and hard-right parties, was the biggest winner of the elections. The EPP came in first and performed better than in the last European election in 2019. It is projected to hold 186 seats, a touch over 25 percent of the European Parliament’s total, and up from around 24 percent in 2019. It also came first in twelve countries across the European Union (EU).

This victory is welcome news for the EPP’s Ursula von der Leyen, the current and likely next European Commission president. The party’s performance does not guarantee an easy nomination or approval for von der Leyen, who will need the nod from the EU’s heads of government at the European Council and then a majority of Parliament members to back her. But the results set her up as best as she could realistically hope for another five-year stint in the Berlaymont.

The two biggest losers are, first, French President Emmanuel Macron and his liberal Renew group and, second, the Greens. Renew is projected to get seventy-nine seats, down to 11 percent of the total from over 14 percent in 2019. Macron’s bad night prompted him to dissolve the French parliament and call for new elections. It is the gamble of his political life as he once again tries to head off Marine Le Pen’s far-right populism. The Greens also fared badly, winning just over 7 percent of the seats and going from the fourth-largest group to the sixth in the Parliament.

Breaking down the right’s options

Most attention on the elections went to the gains made by the far and hard right. The European Conservatives and Reformists group (ECR) of Italian Prime Minister Giorgia Meloni sits in fourth place with just over 10 percent of the seats. The more radical Identity and Democracy (ID) group follows up in fifth with just over 8 percent. Both ECR and ID stand to gain new members if currently nonaligned members join their ranks, such as members from Hungary’s Fidesz and Bulgaria’s Revival party.

ECR and ID performed well, but their boost was not uniform. In places such as Italy and Austria, leading hard-right parties topped the polls, as expected. Elsewhere, far- and hard-right parties will enter the European Parliament with somewhat more power. For example, Portugal’s Chega picked up two seats, Spain’s Vox took six seats, and Geert Wilders’ Party for Freedom in the Netherlands won six seats. However, note that many of these far-right parties, including those in Spain and Portugal, performed worse in the latest European Parliament election than they did in their national or regional elections in recent months. This cuts against the narrative of an inexorably rising far right.

Most of the hard right’s gains came from France, with National Rally demolishing Macron’s Renew coalition by 31 percent to just over 14.5 percent, and to a lesser degree from the AfD in Germany, which came in second behind the EPP’s Christian Democrats but ahead of Germany’s governing coalition parties.

The results in Germany and France serve as an important reminder that these elections are in large part national referenda. They are an opportunity for citizens to punish member state governments over domestic issues.

And voters in Germany and France were in a punishing mood. In Macron, France has a president who is unpopular, with approval ratings hovering around 35 percent. He is an apparent lame duck, with his party already ruling with a minority government in a difficult political system. Germany did not fare much better, with a deeply unpopular, seemingly absent chancellor at the helm of a dysfunctional coalition that cannot get Europe’s largest economy going and which seems allergic to political leadership.

The far- and hard-right groups could have an impact—if they can use their leverage. Taken together, the ECR and ID groups can challenge the center-left Progressive Alliance of Socialists and Democrats (S&D) group as the second-largest grouping if they coalesce in a so-called “supergroup.” Such a group would include the likes of Meloni’s Brothers of Italy, Le Pen’s National Rally, and far-right parties from across the EU advancing a generally nationalist, Euroskeptic vision for the bloc. However, the prospect of such a group overlooks the very real and wide divergences among these groups on issues key to their identities. There remains distrust among parties, which are divided over the West’s support for Ukraine, for example, and there are persistent national grievances, the likes of which notably led to the AfD’s unceremonious departure from ID.

And yet, too narrow of a focus on the far right’s gains risks missing perhaps that the center held. Not only did the EPP do well, but the S&D avoided major bloodletting, keeping its second-place position with only small losses. Despite a rough showing, Renew currently can claim to be the third-largest group in Parliament, and the Greens’ losses look more like a correction following a massive overperformance in 2019.

Furthermore, the pro-European parties of EPP, S&D, and Renew still together form a majority—a smaller one than in 2019 but a majority nonetheless. Von der Leyen has already pledged to work with S&D and Renew to form a working majority. She may raise eyebrows with her attempts to win over the likes of Meloni, but has stressed that any partner must be “pro-European, pro-Ukraine, and pro-rule of law.” The Greens may also have a role to play as another pro-European party.

What’s on the agenda now?

It is still early, but when it comes to the agenda, the election outcome will likely see a reinforcement of trends that have been well underway for much of the last year: toward a greater focus on competitiveness and economic security measures, a tougher approach on migration that is already baked into the recent New Pact on Migration and Asylum, and a Europe that offers greater protection of its citizens from a more treacherous geopolitical and geoeconomic environment. Support for these issues does not just come from the hard right, but from the political right in all its gradations.

Given the nationalist and protectionist tendencies of many on the far right, the prospects for major EU trade agreements seem to have dimmed further. Single market reforms and progress on enlargement will have to rely on tighter majorities, too. Meanwhile, continued political, military, and financial support for Ukraine seems safe in the short to medium term given national governments’ predominant role in these areas—at least until the next long-term EU budget negotiations start in earnest.

The far-right parties in the Parliament can try to be spoilers on some of these issues. Or they can try to shape them in their own image. But whether they will be able to articulate an alternative political agenda for the EU, let alone get down to exercising their potential power by taking on serious lawmaking, master the skillful manipulation of parliamentary procedures, and secure the committee roles that come with group status is a big question. Their prior track record and persistent divisions suggest the answer remains a likely no, non, and nein.

Jörn Fleck is the senior director of the Atlantic Council’s Europe Center.

James Batchik is an associate director in the Atlantic Council’s Europe Center.

The post Setting the European Parliament elections in the ‘right’ context appeared first on Atlantic Council.

Experts react: How the European Parliament’s right turn is playing out across the continent

Atlantic Council experts — Mon, 10 Jun 2024 17:52:01 +0000

The tectonic plates are shifting. The European Parliament elections, which wrapped up Sunday, saw the centrist coalition remain in power—but far-right forces make striking, if uneven, gains across the continent. The epicenter of the political earthquake was France, where Marine Le Pen’s National Rally party had double the support of President Emmanuel Macron’s Renaissance—leading Macron to call for snap elections in the coming weeks. Below, our experts take stock of the results across Europe.

Click to jump to an expert analysis:

Jörn Fleck: The right is rising, but don’t expect a revolution

Léonie Allard: With his snap elections gamble, Macron may be trying to discredit National Rally’s governing ability

Dave Keating: Could a ‘supergroup’ unite the far right?

Daniel Fried: The center held, but just barely

Paolo Messa: Will Giorgia Meloni be the new Angela Merkel?

Nicholas O’Connell: Italian influence across European institutions is growing

Aaron Korewa: In Poland, the prime minister is strengthened but his coalition partners are weakened

Andrew Bernard: In Portugal, the pendulum swings back to the socialists, while Chega underperforms

Carol Schaeffer: In Germany, a new AfD challenger is emerging—is it leftist or right-wing?

Andrew Bernard: In Spain, the center right wins, but a referendum against Sánchez fails to materialize

Patrik Martínek: The Czech political landscape remains highly fragmented

The right is rising, but don’t expect a revolution

Initial results and exit polls suggest few surprises from the outcome of the European elections: The next European Parliament will see a shift to the right, with the mainstream center-right European People’s Party (EPP) placing first and parties from the far right making modest gains. Voters punished green and liberal parties, and to a lesser degree center-left social democrats. Even if important differences and idiosyncrasies among member state results remain, all that was largely expected.

But what impact exactly this shift to the right will have on the future of the European Union, its politics, and its key policies is far less clear on election night. Expect more complexity and protraction, but hardly a revolution in parliamentary business.

At the strategic level, the key question is whether the political right can overcome disunity and wield its supposed new power. Far right, hardcore Euroskeptic parties are dispersed across at least two political groups and the nonaligned. Divisions among these parties—especially among two of the largest players in this ill-defined bloc, the French National Rally (NR) and the German Alternative for Germany (AfD)—have in the past prevented concerted political action in the parliament and have recently flared up again. Add to that the unresolved relationship between the two more mainstream conservative forces—the EPP and the European Conservatives and Reformists (ECR), which includes Italian Prime Minister Georgia Meloni’s Brothers of Italy and the Polish Law and Justice party—and between them and the far-right bloc, and it’s far from certain the political right can really act in unison in parliament to leave a significant imprint on policies from the green transition to migration and economic competitiveness.

Two other factors will likely moderate the impact of this shift to the right. For one, in absolute terms, mainstream pro-EU parties will retain a solid, if shrunken, majority of 450-plus seats (out of 720). The small rightward shift in the center of gravity of that “mainstream coalition” will help the EPP little in shaping conservative policies if it cannot threaten the center-left parties with a credible alternative majority on the right, especially from the ECR. Second, the European Parliament does not possess the right of initiative. All EU legislation originates from the EU’s executive, the European Commission, and the European Parliament is a mere co-legislator in the process, together with the Council representing the twenty-seven member states. In that role, the Parliament can try to block, delay, and amend legislation. But it will hardly reshape the strategic direction of EU policies.

The election outcome does mean more uncertainty for a second term of current Commission President Ursula von der Leyen. This is less because the mainstream coalition of pro-European parties in the new Parliament does not have a solid majority that could get von der Leyen over the finish line. Rather, it is because of the wild-card element of Macron calling national parliamentary elections following the thumping his party coalition received in the European ballot at the hands of the nationalist, Euroskeptic National Rally. The snap elections between the end of June and mid-July broadly coincide with the period for EU leaders and the new European Parliament to have finalized the nomination and confirmation of the next Commission president. It seems unlikely that Macron, at the helm of the second largest EU member state, will drive forward that process before this do-or-die campaign for his party and legacy is settled. And a National Rally victory in this Macronian gamble of a ballot carries institutional implications for the EU. Much will depend on developments in France and on how much certainty, consensus, and stability European leaders can project at their upcoming summits in mid and late June.

—Jörn Fleck is the senior director of the Atlantic Council’s Europe Center.

With his snap elections gamble, Macron may be trying to discredit National Rally’s governing ability

Macron’s party suffered a huge setback in the European Parliament, securing only 14.5 percent of French ballots, well behind the far-right National Rally, which won with 31.5 percent of the vote. On the same day, Macron dissolved the National Assembly, marking the first time a French president has done so since 1997, and called for new legislative elections that will take place on June 30 and July 7. Since his reelection in 2022, Macron has, with difficulty, governed with a relative majority in the National Assembly, despite a recent reshuffle that welcomed a more right-leaning government. The snap elections put Macron’s Renaissance party in a duel with the National Rally, with the aim to present his party and policies as the only possible barrier to far-right populism.

It’s a risky endeavor to bet that far-right parties will not gain a majority in the National Assembly. This is purely political maneuvering from Macron, as there are no institutional rules that call for such a decision. If National Rally were to win a majority of seats in the National Assembly, this would lead to the creation of a “cohabitation” government, with Jordan Bardella or Le Pen potentially becoming prime minister. Perhaps by calling for snap elections, Macron is making the risky bet that if the National Rally does win enough seats to join the government, the party can then be discredited and pushed out of power before the 2027 presidential elections.

Le Pen’s party has been extremely critical of Macron’s policy toward Russia, opposing “useless” sanctions at the outset of the war as well as every new initiative to support Ukraine over the past few months. The Kremlin has exploited these narratives to support Russia’s war of aggression. The repercussions of the potential arrival of the National Rally party in government can however be tempered by the institutional set-up of the Fifth Republic. In times of divided government, the president can carve out a “reserved domain” (“domaine réservé”) for foreign and defense policy, and Ukraine would logically fall into that category.

—Léonie Allard is a visiting fellow at the Atlantic Council’s Europe Center, previously serving at the French Ministry of Armed Forces.

Could a ‘supergroup’ unite the far right?

The big news of Sunday night was the shock decision by Macron to dissolve the French parliament and call a snap legislative election in response to the astonishing performance of Le Pen’s far-right National Rally party, which received more than twice the votes of Macron’s party. But it’s important to note that this far-right surge in France did not occur in the EU election as a whole.

According to the latest projections, the far-right ECR group of Giorgia Meloni will go from 9.5 percent to 10 percent of the seats, while the far-right Identity and Democracy (ID) group of Le Pen will actually shrink from 8.2 percent of the seats to 8.1 percent. That’s because Le Pen kicked the German far-right party AfD, which came second in its country, out of the ID group just before the election (with AfD included, ID would have increased its share by more than ECR did). So what we know already is that there was no far-right surge overall, and in fact the gains were in line with the trajectory of the far right’s growth over the past two decades. But now comes the group formation process, in which many of the new undeclared or nonaligned members of the European Parliament are likely to join ECR and ID, which may unite into a far-right supergroup if Le Pen has her way. But even if they do, they would not have enough members to tempt the center-right EPP into a right-wing majority coalition. The EPP emerged the big winner of the 2024 election, just like they have been the big winner of every EU election for the past twenty-five years.

The worst fears of the centrists—that the EPP, center-left Socialists and Democrats (S&D), and liberal Renew would not win enough seats to form a majority—has not come to pass. They have far more seats than they need. In the coming month, they will hammer out the details of their coalition agreement and decide whether they want to confirm von der Leyen for a second term, if she is appointed to one by the twenty-seven national EU leaders as expected at a summit at the end of the month. The most important thing to watch will be the group formation talks of ECR and ID. Can they put their differences aside to unite? And if not, who will win the competition to attract the new nonaligned far-right members of the European Parliament, such as those in the new Se Acabó La Fiesta party?

—Dave Keating is a nonresident senior fellow at the Europe Center and the Brussels correspondent for France 24.

The center held, but just barely

The June 6-9 European parliamentary elections featured a swell in support for hard-right parties, but not the nationalist wave that some headlines are proclaiming. The hard right did so well in France that Macron decided to call snap elections. But the hard right did less well in Scandinavia, Spain, Poland, Romania, and Slovakia.

In Romania, the ruling center-left/center right coalition gained more than 50 percent of the vote, and in Poland the center-right/liberal Platforma outperformed the rightist Law and Justice party for the first time. Italy’s hard-right Brothers of Italy party did well. But Meloni, the party’s leader, has steered away from the pro-Russia positions of many other hard-rightists in Europe and maintained a more Atlanticist stance. In Germany, the hard-right AfD did well, but the main story there is the sagging support for the Social Democrats and Greens, as well as the strong showing by the center-right Christian Democratic Union.

Von der Leyen’s election night statement that “the center has held” seems about right, though not by much.

—Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council, former US ambassador to Poland, and former US assistant secretary of state for Europe.

Will Giorgia Meloni be the new Angela Merkel?

Giorgia Meloni could be the new Angela Merkel in today’s EU. The Italian prime minister is the only leader among the big EU countries to celebrate a clear victory after the June 6-9 elections. Unlike Macron and German Chancellor Olaf Scholz, her support has significantly grown.

Meloni will be pivotal in Brussels going forward, as she plays three leading roles: Italy’s head of government, leader of the national Brothers of Italy party, and a prominent figure in the ECR group in the European Parliament. Her participation in the new European parliamentary majority is essential. She could help to rebalance some of the economic policies that were failing during the last European Commission, in particular on energy, as well on industry more broadly. She could also help strengthen European support for Ukraine and counter the malign influence of Russia and China on the continent.

It is worth noting that Italian voters didn’t reward the parties that championed anti-NATO narratives. Matteo Salvini’s Lega has not succeeded, and the Five Star Movement has lost a third of its electorate. Conversely, the success of Forza Italia, the pro-Europe and pro-West party led by Deputy Prime Minister and Minister of Foreign Affairs Antonio Tajani, is another piece of good news for von der Leyen and her winning centrist strategy.

—Paolo Messa is a nonresident senior fellow at the Atlantic Council and founder of Formiche.

Italian influence across European institutions is growing

Meloni’s rise to the top of European decision making was seemingly the talk of the town (or of the continent, in this case) in this election cycle. And yet, the results for Italy’s opposition parties are potentially just as consequential.

Despite being a sitting prime minister, Meloni fared remarkably well, further cementing her position as undisputed leader of her governing coalition and of the European Conservatives and Reformists. In the opposition, other parties remain fractured and nowhere close to the more than 40 percent support that Meloni’s coalition enjoys, but the Democratic Party staged a surprising late surge in the polls and is now poised to secure among the largest representation within the S&D group. Several prominent figures and astute political operatives from the Democratic Party are set to join the ranks in Brussels, including former governor of Emilia-Romagna Stefano Bonaccini and Florence’s mayor, Dario Nardella. Expect them to secure growing leadership positions within S&D. With a weakened Five Star Movement, the Democrats are expected to emerge as the primary opposition force in Italy, although their messaging and stances on various issues, from Ukraine to migration, remain somewhat ambiguous.

Meanwhile, Renew Europe parties faced a particularly bleak election, largely due to their leadership’s inability to forge common ground and present a united front to the electorate. Both centrist parties fell short of the crucial 4 percent threshold required, in Italian elections, to send members to the European Parliament.

Italy now finds itself center stage, from Meloni and her Brothers of Italy leading ECR to the Democratic Party gaining increased clout within S&D. Analysts anticipated a more pronounced Italian leadership in the next European Parliament, but even so, the extent of this influence came as a surprise.

—Nicholas O’Connell is the deputy director for public sector partnerships at the Atlantic Council. He previously worked in Italian politics.

In Poland, the prime minister is strengthened but his coalition partners are weakened

Securing 37.1 percent of the vote, Polish Prime Minister Donald Tusk’s center-right Civic Coalition (KO) managed to defeat Jarosław Kaczyński’s nationalist Law and Justice party, which won 36.2 percent of the vote, marking the first time the KO has surpassed Law and Justice in ten years. The other winner was the far-right and anti-EU Confederation political alliance. Its 12.1 percent is the highest vote share in the party’s history. Tusk’s coalition partners, the centrist Third Way and the Left, suffered setbacks, each one securing only about 6-7 percent of the vote.

Having in effect run the KO campaign single-handedly, Tusk will likely emerge stronger, but the poor results for his partners may lead to tensions within his coalition, which came into power after the national elections in October 2023. This will also strengthen Tusk’s position in Brussels. With KO now one of the largest parties in the EPP group, he can present himself as the champion of the pro-EU, anti-populist cause.

For Law and Justice, the result is not likely to lead anyone to question Kaczyński’s leadership. There was no clear sign of which way the party should go, as both members of their radical wing and the centrists associated with former Prime Minister Mateusz Morawiecki managed to win seats.

The campaign focused mainly on security issues. For the past few months, Poland has seen an increased amount of cyberattacks and arsons, as well as escalating tensions on the border with Belarus. Shortly before the election, a Polish soldier was killed by a migrant trying to cross the border from Belarus to Poland and one of Warsaw’s largest shopping malls burned down. Tusk has laid the blame on Russia and showed that he could speak on national security issues, which he normally does not do. Despite high political polarization, Poles remain largely united on such issues.

Having had national, local, and now European elections in the span of only eight months, all the parties will now be gearing up for the final leg of this electoral marathon—the presidential elections in the spring of 2025.

—Aaron Korewa is the director of the Atlantic Council’s Warsaw Office, which is part of the Europe Center.

In Portugal, the pendulum swings back to the socialists, while Chega underperforms

Only three months after national legislative elections that propelled the center-right Democratic Alliance (AD) to victory, the pendulum oscillated ever so slightly back to the center-left Socialist Party during the European elections. Of Portugal’s twenty-one seats in the next European Parliament, the Socialists won eight and the AD won seven. This will embolden the Socialists domestically, hardening their opposition program and weakening an already fragile minority AD government.

The far-right Chega party won two seats during its European election debut, but the results were bittersweet. For a party that did not exist during the last European elections, two seats are a victory. The party, though, failed to capitalize on its robust national election results, underperforming at the European level. This suggests that portions of the electorate have sobered to the idea of a new far-right party in Portuguese politics.

The far-left parties continue to fall out of favor in Portugal. The Left Block and the Communist-led Unitary Democratic Coalition each dropped a seat in Strasbourg, while the People, Animal, and Nature party lost the one seat it had, knocking it out of the European Parliament entirely. The centrist Liberal Initiative’s gains were the biggest surprise, winning two seats for the first time and showing there is fertile ground for new political thinking in Portugal.

—Andrew Bernard is a retired US Air Force Colonel and a visiting fellow in the Atlantic Council’s Europe Center.

In Germany, a new AfD challenger is emerging—is it leftist or right-wing?

The biggest headline from Germany, as with the rest of Europe, is likely to be that the far right made significant gains. The AfD performed better than in any election it had ever run in, gaining 16 percent of the vote. However, this is hardly close to the 23 percent that polls were indicating for the AfD earlier this year, most likely due to a scandal involving the party that brought Germans out to protest en masse for weeks.

Inversely, the governing Social Democratic Party performed the worst it ever has in any election. Other members of the governing coalition managed to hold onto their base numbers, with the Greens winning around 12 percent (down from a peak of around 20 percent five years ago) and the Free Democrat Party remaining at 5 percent.

But the real news from my view is the emergent Sahra Wagenknecht Alliance. Wagenknecht was a well-known political star of the Left party for years until she broke off to form her own party late last year. This is the first election her party has appeared in and it managed to claim six parliamentary seats. Wagenknecht has been courting a particular and peculiar left-right political line that encourages a strengthened welfare system along with harsher laws against immigration and welfare for migrants. She is particularly popular in the former East Germany, where the AfD also has its strongest base.

Wagenknecht seems to be peeling voters away from the AfD while also attempting to appeal to voters who are put off by AfD’s extreme right-wing image, but who may agree with its tough-on-immigration platform. Wagenknecht is signaling that the right may be electorally divided, but right-wing issues, particularly when it comes to immigration, will be here to stay in upcoming elections.

—Carol Schaeffer is a nonresident senior fellow with the Atlantic Council’s Europe Center and a policy fellow with the Jain Family Institute.

In Spain, the center right wins, but a referendum against Sánchez fails to materialize

Sunday’s results from Spain did not drift too far from last year’s national elections, with the center-right Popular Party (PP) winning by a narrow margin over Prime Minister Pedro Sánchez and the ruling Socialists (PSOE). PP won 34 percent of the vote and secured twenty-two of Spain’s sixty-one European parliamentary seats, with PSOE grabbing twenty seats. PP leader Alberto Núñez Feijóo ran the campaign as a national referendum against Sánchez, focusing on corruption allegations and criticism of his policy of amnesty for Catalonian separatists. The results, though, are not overwhelming enough for Sánchez to call for new national elections.

One of the reasons for PP’s failure to gain ground was its inability to stem the growth of far-right parties. Vox gained two seats, which gives it six seats in the next European Parliament, while the reactionary far-right Se Acabó La Fiesta gained three seats. For the PP to govern again, it will have to find a way to either win back voters from Vox or learn to govern with them.

As for Sánchez, he and the Socialists will continue to cling to power, thanks to a strong showing in Catalonia. The prime minister continues to bank on Catalonian stability as a recipe for success.

—Andrew Bernard is a retired US Air Force Colonel and a visiting fellow in the Atlantic Council’s Europe Center.

The Czech political landscape remains highly fragmented

The European Parliament elections yielded surprising results for Czechia this year. Voter turnout reached a historic high of 36.45 percent, significantly surpassing the 28.72 percent turnout in the previous elections and the dismal 18.2 percent turnout in 2014. This high turnout appears to reflect a broad vote against the government, particularly benefitting far-right, populist, and Euroskeptic parties and echoing the successes of opposition parties in Germany and France.

As seen in the past four elections, the European parliamentary elections acted as a referendum on the ruling party. The opposition party Action of Dissatisfied Citizens (ANO), led by former populist Prime Minister Andrej Babiš, reaffirmed its position as the strongest entity in the Czech political arena, securing 26.14 percent of the vote. Despite this, the ruling coalition, made up of two coalitions of five parties, secured more seats in the European Parliament, picking up nine seats while ANO won seven. The main coalition party, Together, received 22.27 percent of the vote, translating to six seats. The ruling coalition expressed satisfaction with its results, viewing it as valuable feedback from the voters. However, losses for some coalition parties signal potential trouble for Prime Minister Petr Fiala’s government ahead of the national parliamentary elections in late 2025.

Commenting on the election outcome, President Petr Pavel stated on X, “We cannot ignore the rise in support for extremists in Europe,” adding that “we need to take note of these voices and think about why this is happening.”

The right-wing alliance Oath and Motorists, focusing on “protecting combustion engine cars from the EU” and combating illegal migration, garnered 10 percent of the vote and won two seats. The left-wing coalition Enough!, consisting of three parties including the Czech Communists, also secured two seats.

With these results, the Czech political landscape remains highly fragmented, with twenty-one European parliamentary seats divided among seven entities, four of which are coalitions.

—Patrik Martínek is a visiting fellow at the Atlantic Council’s Europe Center, currently in residence from the Czech Ministry of Foreign Affairs.

The post Experts react: How the European Parliament’s right turn is playing out across the continent appeared first on Atlantic Council.

As the far right rises in Europe, can the center hold?

Atlantic Council — Mon, 10 Jun 2024 00:32:50 +0000

JUST IN

Right is up, left is down, and the center remains. European Parliament elections across the European Union’s twenty-seven member states concluded today with gains for far-right parties but the centrist “grand coalition” nevertheless projected to emerge largely intact. Meanwhile, after his centrist party was trounced, French President Emmanuel Macron dissolved the National Assembly in a surprise move that will lead to yet more elections in the coming weeks. We turned to our Europe experts to make sense of it all and forecast what comes next.

TODAY’S EXPERT REACTION COURTESY OF

Jörn Fleck (@JornFleck): Senior director of the Atlantic Council’s Europe Center and former European Parliament staffer
Dave Keating (@DaveKeating): Nonresident senior fellow at the Europe Center and Brussels correspondent for France24
Carol Schaeffer (@thencarolsaid): Nonresident senior fellow at the Europe Center

The right way to think about the right

The first-place showing for the center-right European People’s Party (EPP) was coupled with “modest gains” for far-right parties, Jörn tells us, while “voters punished green and liberal parties.” The upshot? “Expect more complexity and protraction, but hardly a revolution in parliamentary business.”
The big win for Marine Le Pen’s far-right National Rally party in France, which led Macron to call snap elections, generated the most headlines. But Dave points out that “there was no far-right surge overall.” In fact, he adds, “the gains were in line with the trajectory of the far right’s growth over the past two decades.”
Digging deeper into the results, Carol notes that the far-right Alternative for Germany (AfD) “performed worse than expected,” following a scandal sparked by reports that party members had discussed deporting German citizens en masse. Meanwhile, Viktor Orbán’s party in Hungary lost ground and the Netherlands’ Party for Freedom gained seats but did not win outright—as it did in last year’s national elections. “So while the far-right made significant gains across the EU, their sweep is hardly uncontested,” she points out.

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Divisions or a ‘supergroup’?

There are also many divisions within the right-wing Identity and Democracy (ID) group—which includes National Rally but recently kicked out AfD—and between ID and the less radical European Conservatives and Reformists (ECR) group, which includes Poland’s Law and Justice Party and Italian Prime Minister Giorgia Meloni’s Brothers of Italy. “It’s far from certain the political right can really act in unison in parliament to leave a significant imprint on policies from the green transition to migration and economic competitiveness,” Jörn says.
Still, Dave predicts that when members of the European Parliament form groups in the coming weeks, “many of the new undeclared or nonaligned MEPs are likely to join ECR and ID, which may unite into a far-right supergroup if Le Pen has her way.”
Le Pen could further cement her influence in France and beyond during the country’s snap elections, which will take place on June 30 and July 7. A victory for the Euroskeptic National Rally “would most certainly mean a deep institutional crisis for the EU,” Jörn argues. “Much will depend on developments in France and how much certainty, consensus, and stability European leaders can project at their upcoming summits in mid and late June.”

The wild card to watch

Where does this all leave European Commission President Ursula von der Leyen as she seeks a second five-year term? She would need to be appointed by EU national leaders and confirmed by the parliament, where her coalition has been stable. “The [von der Leyen-affiliated] EPP emerged the big winner of the 2024 election, just like they have been the big winner of every EU election for the past twenty-five years,” Dave notes. “The worst fears of the centrists . . . have not come to pass.”
But there is “more uncertainty” now for von der Leyen’s bid, Jörn says, “because of the wild-card element” of the French snap elections, which will take place during the period when the Commission president is typically nominated and confirmed.
It “seems unlikely” that “Macron, at the helm of the second-largest EU member state, will drive forward that process before this do-or-die campaign for his party and legacy is settled,” Jörn says.

The post As the far right rises in Europe, can the center hold? appeared first on Atlantic Council.

#AtlanticDebrief – What can we expect from the European Parliament elections? | A Debrief from Dave Keating

lignac — Fri, 07 Jun 2024 21:48:51 +0000

IN THIS EPISODE

Between June 6 and 9, EU voters head to the polls to elect 720 members of the European parliament, who will play a key role in shaping the EU’s politics and policies for the next five years. What are the key issues driving voters in these European elections? What parties are expected to make the most gains and losses? And how will Europe’s far-right parties perform? How might the results of these elections impact the future of the EU’s policymaking agenda?

On this episode of #AtlanticDebrief, Ilva Tare sits down with Dave Keating, Brussels correspondent with France 24, to preview the outcome of the European parliament elections and discuss potential implications.

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The post #AtlanticDebrief – What can we expect from the European Parliament elections? | A Debrief from Dave Keating appeared first on Atlantic Council.

Your primer on Belgium’s elections

James Batchik — Wed, 05 Jun 2024 17:39:02 +0000

The European Parliament elections aren’t the only elections taking place this June that can change the landscape of governance in Brussels. On June 9, Belgians will go to the polls for their regional and national elections on the same day as they vote for the new European Parliament.

Ahead of the election, the Europe Center is answering the big questions about the vote, leading parties, and top issues on the ballot.

Why does this election matter?

The most eye-catching—and perhaps slightly hyperbolic—reason these elections matter is that the future of the Belgian state may hang in the balance. Pro-separatist parties in Belgium’s northern, Dutch-speaking Flanders region are poised to take the largest share of votes. These parties have advocated for the independence of Belgium’s northern province, ending an unhappy marriage with French-speaking Wallonia to the south. But don’t rush to throw away your maps just yet: Belgium is likely not splitting up anytime soon. The country is notoriously difficult to govern, and divvying up the country has been a much-discussed idea for decades. It’ll come down to what the new government in Belgium looks like—and whether it has any separatist involvement.

The election holds implications beyond the future of the Belgian state. The majority of the frozen Russian assets in Europe sit in Belgium’s jurisdiction, and Belgium is working out how to best manage and implement the various ideas being mooted regarding what to do with the funds. Belgium, with a new government—if it can form one in any timely fashion, never a given—plays an outsized role in the use of the funds and will continue to face pressure from Washington and others inside Europe. These elections will also be part of any success or failure of a rightward shift across the continent. Far-right parties are on the rise, and Belgium is no outlier as its mainstream parties have been losing their vote share to more fringe elements in recent years. How these parties do in Belgium will matter in determining whether or not there is a pattern of any significant shift to the right for Europe.

How does Belgium’s regional division play into the government’s formation?

Regional divides play an overwhelming role in the country. Almost all the country’s actual governance sits with devolved regional parliaments and authorities. In the north, the Dutch-speaking Flemish are represented. To the south, it’s the French-speaking Walloons. (A small German-language community to the east of the country also has its own parliament, and the Brussels-Capital Region has its own regional representation too.) For the federal elections, parties are also split by region. Walloons will get a choice from French-speaking parties, and Flanders will choose their own Dutch-speaking parties—with only few exceptions. All parties will meet in Brussels to hash out some sort of coalition agreement. This means the federal parliament has an immense number of parties represented and further complicates the government formation at the federal level. There are, for instance, twelve parties represented in the current federal parliament (seven of which are in the current governing coalition). Negotiations over the formation of the government in the country are notoriously tedious—and infamously long. Belgium went 652 days before inagurating the current government, and it took 541 for a government to form following Belgium’s 2010 elections.

What are voters’ top priorities in the election?

It varies by region, but the federal election maps trends seen across Europe. Flanders has a strong tinge of separatism. Voters there also have a focus on migration, where the far right is expected to make gains. The far-right Vlaams Belang party is leading the polls in Flanders, followed by the right-wing and separatist New Flemish Alliance party. Voters in Wallonia to the south are traditionally more left leaning than their northern counterparts. The Socialist Party leads polls in the region, but the centrist Reformist Movement is making up ground. This contradictory trend adds an extra layor of complication in coalition negotiations.

Can the far right win? How would that impact the independence discussion?

It’s difficult to tell whether the far right can enter government. Belgium fits within the larger European trend in which the right and far right are making gains. But in Belgium, a party winning in elections does not necessarily mean that party will win in negotiations. Success at the ballot box and ending up in power are two very separate discussions. After the elections, the various parties will have to come up with some sort of governing pact. The matter of who takes the prime minister post is uncertain and subject to negotiations. The party of current Belgian Prime Minister Alexander De Croo came nowhere near the top of the polls in the last election, but De Croo found himself at the helm. Moreover, it will be difficult for the far right to find its way into power. Belgium has kept the far right out of any governing coalition in the past with its cordon sanitaire. The future of keeping the far right out of power is another key detail to watch both in Belgium and at the European Union-level, as European parties grapple with exactly how to govern (or how to avoid governing) with rising far-right parties across the bloc.

James Batchik is an associate director at the Atlantic Council’s Europe Center.

The European Parliament is still learning its lesson from corruption scandals

By Sophia Athan

With European Parliament elections upcoming, EU institutions should codify stricter definitions of foreign influence and interference, and they should pass additional reforms to ensure transparency.

Corruption European Union

New Atlanticist Apr 30, 2024

The case for Mario Draghi as the next European Council president

By Mario De Pizzo

As European Council president, Draghi could help enact his proposals to make the European Union more integrated and competitive.

Economy & Business European Union

New Atlanticist Mar 26, 2024

In this year of elections, the US-EU Trade and Technology Council should get strategic

By Frances Burwell

On April 4-5, US and EU officials will meet in Leuven, Belgium, where they will need to chart a bolder way forward for the US-EU Trade and Technology Council.

Economy & Business Europe & Eurasia

The post Your primer on Belgium’s elections appeared first on Atlantic Council.

CBDC Tracker cited by Cryptonews on digital euro development

rmurphy — Wed, 05 Jun 2024 14:44:41 +0000

Read the full article here.

The post CBDC Tracker cited by Cryptonews on digital euro development appeared first on Atlantic Council.

Katherine Tai on how US and EU trade approaches must ‘evolve’ to deal with China and other global challenges

Katherine Walla — Tue, 04 Jun 2024 15:08:01 +0000

Watch the full event

Online Event Mon, June 3, 2024 • 1:00 pm ET

US Trade Representative Katherine Tai on the future for US-EU trade

An #ACFRONTPAGE Event—US Trade Representative Katherine Tai discusses how the United States and European Union should adapt the transatlantic trade relationship at the eightieth anniversary of the Bretton Woods system.

Economy & Business Europe & Eurasia European Union International Financial Institutions

“We need to evolve the way we do trade,” warned US Trade Representative Katherine Tai. “You can’t do that by yourself.”

At an Atlantic Council Front Page event on Monday, Tai discussed how the United States and the European Union (EU) should work together to adapt their trade relationship to a new geopolitical reality.

“Basing that community on a community of democracies is really important,” she said. And while China may have been considered a cooperative partner in the past, Tai noted, “the China that we’re dealing with now, the PRC, is not a democracy; it’s not a capitalist, market-based economy.” And with China having “an incredibly large footprint” across the world, the United States and its partners will need to rethink how to “coexist” with China and “adapt” to today’s global economy, she said.

With the US elections in November pitting the current president against his predecessor, Tai said that a commitment to changing the US approach to trade is something that the Biden and Trump administrations have shared. “The world is significantly different, and . . . the benefits here in the United States are not inclusive enough,” she argued. “I think we share a lot of the same diagnoses.”

Below are more highlights from the conversation, moderated by Atlantic Council President and Chief Executive Officer Frederick Kempe, during which Tai discussed adapting to today’s new geopolitical challenges.

“Hit pause” and “come back”

Tai said that the quick pace of technological change is putting pressure on traditional approaches to trade. “When we’re talking about data, it’s not just about the bits and bytes that help to facilitate a traditional goods transaction anymore,” she said. “Data is the game itself.”
She added that this shift on data may require a rethink of traditional approaches to trade. “Isn’t it time for us to hit pause on this, come back . . . and try to get our arms around what is actually happening here and what is in the public interest?” she asked.
In doing so, the Office of the US Trade Representative (USTR) would need to reconnect with decision makers from “all the other policy silos” across the government, Tai said. “A USTR-led answer to how we should be regulating tech and data . . . is not going to be the right answer.”
“We have got to figure out what works for the United States . . . what works for our democracy,” she said. “It’s a domestic policy issue first before we bring it to the international realm.”

“Another new world order”

Today’s globalization “has created a lot of efficiencies.” Tai acknowledged; however, it has also incurred “costs”: for example, fragile supply chains in which a single country can dominate a specific part of the supply chain or a sector. Another cost, she said, is tense geopolitical competition that is “built on pitting our workers against each other . . . creating this kind of a zero-sum competition for economic and industrial growth opportunity.”
To avoid those costs, Tai said that leaders in the United States and EU will need to adopt a “holistic” approach to trade that incorporates domestic and international needs and economic and security priorities. That holistic approach, she said, will be needed to bring about “another new world order,” she explained.

Eighty years on, are Bretton Woods institutions fit for purpose?

Tai said that the institutions that formed the foundation for the post-World War II world order—including the Bretton Woods institutions and the United Nations—“are all showing their age.”
“These institutions still absolutely have an important role to play, if not an even more important role to play today than they did in the past,” Tai said. But the architecture of such organizations, she added, needs “revisitation.”
“They need to be improved and supported in growing and realizing their full potential,” she explained, “which may require some revamping and some education and investment.”

Katherine Walla is the associate director of editorial at the Atlantic Council.

Watch the full event

The post Katherine Tai on how US and EU trade approaches must ‘evolve’ to deal with China and other global challenges appeared first on Atlantic Council.

‘A new era’: What Catalonia’s regional elections mean for Spain and the European Union

Stuart Jones — Fri, 31 May 2024 16:58:18 +0000

On May 12, Catalonia voted for its first non-separatist regional government since 2010. “Catalans have decided to begin a new era,” proclaimed Salvador Illa of the Catalan Socialist Party (PSC), which won forty-two of the 135 seats in the Catalan parliament, enough to oust the combined forces of the separatist parties but not enough to govern alone.

The consequences of the vote—and the future horse-trading for a regional governing coalition and president in the Catalan parliament before August—will extend far beyond the regional level. Given the weight that Catalonia carries in Spanish and European Union (EU) politics, the results and fallout of the May 12 elections will have massive implications for Spanish Prime Minister Pedro Sánchez’s national coalition government, which includes Catalan separatist parties; the upcoming European Parliament elections in June; and the EU’s foreign policy agenda going forward.

A setback for Catalan separatism?

The election results pose a political conundrum for Sánchez. The victory of the PSC, a direct affiliate of Sánchez’s national-level Socialist Party (PSOE), should by all logic be cause for celebration in the Moncloa Palace. Some have called the PSC’s victory a vindication of the prime minister’s strategy to pacify separatist forces in Catalonia and “turn the page” for the region’s politics by taking a more conciliatory approach toward the Catalan independence movement.

Indeed, Illa and the PSC won on a popular platform that prioritized issues such as the cost of living, housing availability, and drought in the region, rather than the longstanding debate over secession from Spain. However, despite their electoral defeat, the separatist bloc in Catalonia will still likely be a source of sustained headaches for Sánchez in Madrid as well as the next Catalan government in Barcelona.

At the national level, Sánchez has staked his minority coalition on the support of numerous small regional parties from across Spain, including the Basque Country’s own pro-independence party, EH Bildu. From Catalonia, Sánchez’s national coalition includes both the Republican Left (ERC) and Together for Catalonia (Junts), which are the region’s largest separatist parties, each holding seven seats in Spain’s lower house of parliament.

Bringing these parties into the coalition government has proven a tumultuous gamble for Sánchez. To secure their support in parliament after the 2023 general elections and form a majority over the center-right People’s Party (PP), which won the most seats, Sánchez passed a controversial amnesty law in 2023 to pardon hundreds of individuals involved in the illegal Catalan independence referendum of 2017—possibly including Junts leader Carles Puigdemont, who has been living in Belgium to avoid prosecution. On May 30, after months of deliberations, Spain’s parliament approved the amnesty law in its final form by a margin of five votes, which Sánchez and the PSOE celebrated as a milestone for “political, social, and institutional normalization” in Catalonia.

And, in an otherwise unprompted move while seeking coalition partners in September 2023, Sánchez went to Brussels and proposed that Catalan, Gallego, and Euskara—minority languages with co-official status in their respective regions in Spain—be granted official legal status in EU institutions. The proposal was shot down by member states, at least temporarily, but Sánchez’s message to regional nationalist parties at home was clear.

Despite these concessions, however, Sánchez was rebuked when Junts refused to support the PSOE’s legislative package in January 2024, which included measures to combat inflation and access ten billion euros of EU funds for Spain. Junts ultimately lifted its opposition to the legislation—through abstention, not approval—only after Catalonia was granted “comprehensive” authority over the region’s immigration policy. Junts even voted against earlier iterations of Sánchez’s Catalan amnesty bill, arguing it did not go far enough to protect Catalans indicted for terrorism in the 2017 referendum.

The defeat of Junts and the ERC in Catalonia’s elections could trigger further coalition infighting at the national level in Spain, which could cause pro-independence parties to barter for greater regional autonomy by blocking future PSOE legislative proposals. And, importantly, now with the amnesty law’s passage through parliament on May 30, the ERC and Junts have already indicated the possibility of a new referendum on independence, which would be the ultimate backfire for Sánchez.

Rightward shift in Barcelona, Madrid, and Brussels

Another revelation of the May 12 elections in Catalonia is the momentum of Spain’s right-wing politics. The PP performed historically well in the Catalan region, winning fifteen seats—up from just three seats held in the previous legislature and its best results since 2012.

At the national level, as well, PP leader Alberto Núñez Feijóo has become a prominent anti-Sánchez voice for many centrist and conservative voters in Spain. He repeatedly criticizes the prime minister’s coalition politics with Junts and ERC as being cynical and politically motivated. He also participated personally in the widespread protests in Madrid against the amnesty bill in November 2023 and called on Brussels to take action against the legislation, claiming it breaches EU norms for the rule of law.

Mirroring trends across Europe, far-right parties Catalan Alliance and Vox also performed well on May 12, which will surely cause problems for Illa and the PSC in the region’s parliament. Ahead of the European Parliament elections in June, Vox in particular is enjoying a surge in support beyond its base in Andalucía, polling nationally at 11 percent—a significant boost compared to the 6.2 percent of votes won in 2019’s EU contest.

Vox has recently joined the center stage of the European Conservatives and Reformists (ECR) group in the European Parliament, pushing for a rightward paradigm shift in Brussels alongside Italian Prime Minister Giorgia Meloni’s Brothers of Italy and Poland’s Law and Justice Party. Ahead of the EU elections starting on June 6, current polls predict that Spain’s left-wing parties belonging to the Renew Europe and Progressive Alliance of Socialists and Democrats groups will lose substantial ground, while Spanish members of the European Parliament (MEP) from the ECR and especially the European People’s Party, which includes Spain’s PP, could nearly double their seat count.

What next for Catalonia and Europe?

Puigdemont claimed that an electoral defeat for the party on May 12 would signal his withdrawal from politics altogether and that he had “a right to get some rest after these very difficult years.” However, Catalonia could yet see another round of elections in October if the PSC is unable to form a majority coalition of sixty-eight seats in the Catalan parliament and vote for a new president by August 25, which is the deadline set by the outgoing president, Pere Aragonès of the ERC. To meet this deadline, the PSC will require the backing of either the opposition-minded ERC or an unlikely mix of the far-left Sumar alliance alongside the PP and Vox on the opposite side of the aisle.

While another round of elections would be cumbersome for Catalans, whose low voter turnout of 57.9 percent on May 12 indicates little electoral appetite, this could see a return of Puigdemont to the podium—perhaps even on Catalan soil, following the approval of the amnesty law on May 30.

There could yet be more distant reverberations in Europe following Catalonia’s election results. The removal of Catalan pro-independence parties from power in the region could influence EU foreign policy and, specifically, enlargement.

With renewed wind behind its sails since Russia’s full-scale invasion of Ukraine, European enlargement could see new progress from the EU if Spain lifts its official nonrecognition of Kosovo, which is largely born out Madrid’s concern over the Catalan separatist movement. Madrid’s official recognition of the Palestinian state on May 28 should logically also open new doors for the recognition of Kosovo, whose political institutions, regional relations, and territorial integrity have, despite recent shortcomings, long been ready for such a move by Madrid.

For the EU to make progress on its enlargement goals, Spain and the four other holdout member states will need to recognize Kosovo’s independence. It was a step in the right direction for Spain to recognize Kosovo passports in January this year, allowing Kosovars to travel throughout the EU’s Schengen area visa-free. Spain should build on this progress by extending recognition to Kosovo’s state sovereignty, as it did for Palestine, to move the ball forward on this critical priority for European and transatlantic foreign policy.

The full implications of the PSC’s victory and the seeming defeat of Catalan separatist political forces on May 12 are still uncertain. Nationally, a recalcitrant Junts and ERC could render Sánchez “a prisoner of his own associates,” as Vox MEP Jorge Buxadé Villalba has described him and as the separatist parties have already proven capable of doing. A worst-case scenario for Sánchez would be a collapse of his coalition and a call for new general elections in Spain, as Feijóo advocated after the May 30 amnesty law approval.

In Catalonia, despite the amnesty law’s passage, the process of coalition-building and king-making in Barcelona could yet prove fruitless and result in fresh regional elections come October. By then, with a new EU administration after June’s European Parliament elections, Catalonia’s “new era” could look just as tumultuous as before.

Stuart Jones is a program assistant at the Atlantic Council’s Europe Center.

The post ‘A new era’: What Catalonia’s regional elections mean for Spain and the European Union appeared first on Atlantic Council.

Who’s a national security risk? The changing transatlantic geopolitics of data transfers

Kenneth Propp — Wed, 29 May 2024 19:34:02 +0000

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Introduction
Data transfer politics come to America
Data transfer politics in Europe
Conclusions

Introduction

The geopolitics of transatlantic data transfers have been unvarying for the past decade. European governments criticize the US National Security Agency (NSA) for exploiting personal data moving from Europe to the United States for commercial reasons. The US government responds, through a series of arrangements with the European Union, by providing assurances that NSA collection is not disproportionate, and that Europeans have legal avenues if they believe their data has been illegally used. Although the arrangements have not proven legally stable, on the whole they have sufficed to keep data flowing via subsea cables under the Atlantic Ocean.

Now the locus of national security concerns about international data transfers has shifted from Brussels to Washington. The Biden administration and the US Congress, in a series of bold measures, are moving aggressively to interrupt certain cross-border data flows, notably to China and Russia.

The geopolitics of international data flows remain largely unchanged in Europe, however. European data protection authorities have been mostly noncommittal about the prospect of Russian state surveillance collecting Europeans’ personal data. Decisions on whether to transfer European data to Russia and China remain in the hands of individual companies.

Will Washington’s new focus on data transfers to authoritarian states have an impact in Europe? Will Europe continue to pay more attention to the surveillance activities of its liberal democratic allies, especially the United States? Is there a prospect of Europe and the United States aligning on the national security risks of transfers to authoritarian countries?

Data transfer politics come to America

The US government long considered the movement of personal data across borders as primarily a matter of facilitating international trade.¹ US national security authorities’ surveillance of foreigners’ personal data in the course of commercial transfers was regarded as an entirely separate matter.

For example, the 2001 EU-US Safe Harbor Framework,² the first transatlantic data transfer agreement, simply allowed the United States to assert the primacy of national security over data protection requirements, without further discussion. Similarly, the 2020 US-Mexico-Canada Free Trade Agreement³ and the US-Japan Digital Trade Agreement⁴ contain both free flow of data guarantees and traditional national security carve-outs from those obligations.

Edward Snowden’s 2013 revelations of expansive US NSA surveillance in Europe put the Safe Harbor Framework’s national security derogation into the political spotlight. Privacy activist Max Schrems then challenged its legality under EU fundamental rights law, and the Court of Justice of the European Union (CJEU) ruled it unacceptable.⁵

The 2023 EU-US Data Privacy Framework⁶ (DPF) is the latest response to this jurisprudence. In it, the United States commits to hold national security electronic surveillance of EU-origin personal data to a more constrained standard, as the European Commission has noted.⁷ The United States’ defensive goal has been to reassure Europe that it conducts foreign surveillance in a fashion that can be reconciled with EU fundamental rights law.

Now, however, the US government has begun expressly integrating its own national security considerations into decisions on the foreign destinations to which US-origin personal data may flow. It is a major philosophical shift from the prior free data flows philosophy, in which national security limits played a theoretical and marginal role.

One notable development is a February 28, 2024, executive order, Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern.⁸ The EO empowers the Department of Justice (DOJ), in consultation with other relevant departments, to identify countries “of concern” and to prohibit or otherwise regulate bulk data transfers to them, based on a belief that these countries could be collecting such data for purposes of spying on or extorting Americans. A week later DOJ issued a proposed rule describing the envisaged regulatory regime, and proposing China, Cuba, Iran, North Korea, Russia, and Venezuela as the countries “of concern.”⁹

The White House, in issuing the bulk data EO, was at pains to insist that it was limited in scope and not inconsistent with the historic US commitment to the free flow of data, because it applies only to certain categories of data and certain countries.¹⁰ Nonetheless, as has been observed by scholars Peter Swire and Samm Sacks, the EO and proposed rule are, for the United States, part of “a new chapter in how it regulates data flows” in that they would create an elaborate new national security regulatory regime applying to legal commercial data activity.¹¹

Hard on the heels of the bulk data EO came congressional passage in April of the Protecting Americans’ Data from Foreign Adversaries Act, which the president signed into law.¹² It prohibits data brokers from selling or otherwise making available Americans’ sensitive information to four specified countries: China, Iran, North Korea, and Russia. The new law has a significantly broader scope than the EO. It cuts off certain data transfers to any entity controlled by one of these adversary countries, apparently including corporate affiliates and subsidiaries. It extends to any sensitive data, not just data in bulk. It remains to be seen how the administration will address the overlaps between the new law and the EO.

Another part of the same omnibus legislation ordered the ban or forced sale of TikTok, the Chinese social media platform widely used in this country.¹³ Advocates of the law point to the government of China’s ability under its own national security law to demand that companies operating there turn over personal data, including, potentially, TikTok users’ data transferred from the United States. Critics have cast the measure as a targeted punishment of a particular company, done without public evidence being offered of national security damage. TikTok has challenged the law as a violation of the First Amendment.¹⁴

Finally, the data transfer restrictions in these measures are thematically similar to a January 29 proposed rule from the Commerce Department obliging cloud service providers to verify the identity of their customers, on whose behalf they transfer data.¹⁵ The rule would impose know your customer (KYC) requirements—similar to those that apply in the international banking context—for cloud sales to non-US customers, wherever located.

This extraordinary burst of legislative and executive action focused on the national security risks of certain types of data transfers from the United States to certain authoritarian states is indicative of how far and fast political attitudes have shifted in this country. But what of Europe, which faces similar national security data challenges from authoritarian states? Is it moving in a similar direction as the United States?

Data transfer politics in Europe

The EU, unlike the United States, has long had a systematic set of controls on personal data flows from EU territory abroad, articulated in the General Data Protection Regulation (GDPR).¹⁶ The GDPR conditions transfers to a foreign jurisdiction on the “adequacy” of its data protection safeguards—or, as the CJEU has refined the concept, their “essential equivalence” to the GDPR regime.

The task of assessing foreign legal systems falls to the European Commission, the EU’s quasi-executive arm. Article 45 of the GDPR instructs it to consider, among other things, “the rule of law, respect for human rights and fundamental freedoms, relevant legislation . . . including concerning . . . the access of public authorities to personal data.”

For much of the past decade, the central drama in the European Commission’s adequacy process has been whether the United States meets this standard. As previously noted, the CJEU invalidated first the Safe Harbor Framework,¹⁷ in 2015, and then the Privacy Shield Framework,¹⁸ in 2020. The DPF is the third try by the US government and the European Commission to address the CJEU’s fundamental rights concerns. Last year, the European Commission issued yet another adequacy decision that found the DPF adequate.¹⁹ The EU understandably has focused its energies on the United States, since vast amounts of Europeans’ personal data travels to cloud service providers’ data centers in the United States and, as Snowden revealed, offered an inviting target for the NSA.

Separately, the European Commission has gradually expanded the range of other countries benefiting from adequacy findings, conferring this status on Japan,²⁰ Korea,²¹ and the United Kingdom.²² However, the 2019 adequacy decision for the UK continues to be criticized in Brussels. On April 22, the Committee on Civil Liberties, Justice, and Home Affairs (LIBE) of the European Parliament wrote to the UK House of Lords complaining about UK national security bulk data collection practices and the prospect of onward transfer of data from UK territory to jurisdictions not deemed adequate by the EU.²³ Next year, the European Commission will formally review the UK’s adequacy status.

This past January, the European Commission renewed the adequacy decisions for eleven jurisdictions which had long enjoyed them, including, notably, Israel.²⁴ On April 22, a coalition of civil society groups published an open letter to the European Commission questioning the renewal of Israel’s adequacy decision.²⁵ The letter expressed doubts about the rule of law in Israel itself, the specific activities of Israeli intelligence agencies in Gaza during the current hostilities there, and the surveillance powers exercised by those agencies more generally.

Also delicate is the continuing flow of personal data from the European Union to Russia and China. Although neither country has been—or is likely to be—accorded adequacy status, data nonetheless can continue to flow to their territories, as to other third countries, if accompanied by contractual data protection safeguards. The CJEU established in its Schrems jurisprudence that such standard contractual clauses (SCCs) must uphold the same fundamental rights standards as an adequacy decision. The European Data Protection Board (EDPB) subsequently issued detailed guidance on the essential guarantees against national security surveillance that must be in place in order for personal data to be sent to a nonadequate jurisdiction.²⁶

In 2021, the EDPB received an outside expert report²⁷ on several foreign governments’ data access regimes. Its findings were clear. “Chinese law legitimises broad and unrestricted access to personal data by the government,” it concluded. Similarly, with respect to Russia, “The right to privacy is strongly limited when interests of national security are at stake.” The board did not take any further steps to follow up on the report, however.

Shortly after Russia invaded Ukraine, Russia was excluded from the Council of Europe and ceased to be a party to that body’s European Convention on Human Rights.²⁸ The European Data Protection Board issued a statement confirming that data transfers to Russia pursuant to standard contract clauses remained possible, but stressed that safeguards to guard against Russian law enforcement or national security access to data were vital.²⁹

Over two thousand multinational companies continue to do business in Russia, despite the Ukraine war, although a smaller number have shut down, according to a Kyiv academic research institute.³⁰ Data flows between Europe and Russia thus remain substantial, if less than previously. Companies engaged in commerce in Russia also are subject to requirements that data on Russian persons be localized in that country.³¹ Nonetheless, data flows from Europe to Russia are not subject to categorical exclusions, unlike the new US approach.

The sole reported case of a European data protection authority questioning data flows to Russia involves Yango, a taxi-booking mobile app developed by Yandex, a Russian internet search and information technology company. Yango’s European services are based in the Netherlands and are available in other countries including Finland and Norway. In August 2023, Finland’s data protection authority (DPA) issued an interim decision to suspend use of Yango in its territory because Russia had just adopted a decree giving its state security service (FSB) unrestricted access to commercial taxi databases.³²

The interim suspension decision was short-lived. A month later, the Finnish authority, acting in concert with Norwegian and Dutch counterparts, lifted it, on the basis of a clarification that the Russian decree in fact did not apply to use of the Yango app in Finland.³³ The Finnish authority further announced that the Dutch authority, in coordination with it and Norway, would issue a final decision in the matter. The Dutch investigation reportedly remains open, but it does not appear to be a high priority matter.

The day after lifting the Yango suspension, the Finnish data protection authority rushed out yet another press release advising that its decision “does not address the legality of data transfers to Russia,” or “mean that Yango data transfers to Russia would be in compliance with the GDPR or that Russia has an adequate level of data protection.”³⁴

One can interpret this final Finnish statement as at least indirectly acknowledging that continued commercial data transfers from an EU jurisdiction to Russia may raise rule of law questions bigger than a single decree allowing its primary security agency, known as the FSB, to access certain taxi databases. Otherwise, the Finnish decision could be criticized for ignoring the forest for the birch trees.

Equally striking is the limited extent of DPA attention to data transfers between EU countries and China. China maintains an extensive national security surveillance regime, and lately has implemented a series of legal measures that can limit outbound data transfers for national security reasons.³⁵ In 2023, the Irish Data Protection Commissioner³⁶ imposed a substantial fine on TikTok for violating the GDPR with respect to children’s privacy, following a decision by the EDPB.³⁷ This inquiry did not examine the question of whether Chinese government surveillance authorities had access to European users’ data, however.

Personal data actively flows between Europe and China in the commercial context, pursuant to SCCs. China reportedly may issue additional guidance to companies on how to respond to requests for data from foreign law enforcement authorities. To date there is no public evidence of European DPAs questioning companies about their safeguard measures for transfers to China.

Indeed, signs recently have emerged from China of greater openness to transfers abroad of data generated in the automotive sector, including from connected cars. Data from connected cars is a mix of nonpersonal and personal data. China recently approved Tesla’s data security safeguards, enabling the company’s previously localized data to leave the country.³⁸ In addition, the government of Germany is trying to ease the passage of data to and from China on behalf of German carmakers. On April 16, several German government ministers, part of a delegation visiting China led by Chancellor Olaf Scholz, issued a joint political statement with Chinese counterparts promising “concrete progress on the topic of reciprocal data transfer—and this in respect of national and EU data law,” with data from connected cars and automated driving in mind.³⁹

Conclusions

The United States and the European Union are, in some respects, converging in their international data transfer laws and policies. In Washington, free data transfers are no longer sacrosanct. In Europe, they never have been. Viewed from Brussels, it appears that the United States is, finally, joining the EU by creating a formal international data transfers regime—albeit constructed in a piecemeal manner and focused on particular countries, rather than through a comprehensive and general data privacy law.

Yet the rationales for limiting data transfers vary considerably from one side of the Atlantic to the other. Washington now focuses on the national security dangers to US citizens and to the US government from certain categories of personal data moving to the territories of “foreign adversaries.” Brussels instead applies more abstract criteria relating to foreign governments’ commitment to the rule of law, human rights, and especially their access to personal data.

A second important difference is that the United States has effectively created a blacklist of countries to which certain categories of data should not flow, whereas the EU’s adequacy process serves as a means of “white listing” countries with comparable data protection frameworks to its own. Concretely, this structural difference means that the United States concentrates on prohibiting certain data transfers to China and Russia, while the EU institutionally has withheld judgment about transfers to those authoritarian jurisdictions. Critics of the EU’s adequacy practice instead have tended to concentrate on the perceived risks of data transfers to liberal democracies with active foreign surveillance establishments: Israel, the United Kingdom, and the United States.

The transatlantic—as well as global—geopolitics of data transfers are in flux. The sudden US shift to viewing certain transfers through a national security lens is unlikely to be strictly mirrored in Europe. In light of the emerging differences in approach, the United States and European governments should consider incorporating the topic of international data transfers into existing political-level conversations. Although data transfer topics have thus far not figured into the formal work of the EU-US Trade and Technology Council (TTC),⁴⁰ which has met six times since 2022 including most recently in April,⁴¹ there is no evident reason why that could not change. If the TTC resumes activity after the US elections, it could become a useful bilateral forum for candid discussion of perceived national security risks in data flows.

Utilizing a broader grouping, such as the data protection and privacy authorities of the Group of Seven (G7), which as a group has been increasingly active in the last few years,⁴² also could be considered. The deliberations of this G7 group already have touched generally on the matter of government access, and they could readily expand to how its democratic members assess risks from authoritarians in particular. Eventually, such discussions could be expanded beyond the G7 frame into broader multilateral fora. The Organisation of Economic Co-operation and Development (OECD) Declaration on Government Access⁴³ is a good building block.

The days when international data transfers were a topic safely left to privacy lawyers are long gone. It’s time for Washington and Brussels to acknowledge that the geopolitics of data flows has moved from the esoteric to the mainstream, and to grapple with the consequences.

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Only enhanced air defenses can save Ukraine from winter energy collapse

Aura Sabadus — Tue, 28 May 2024 20:30:43 +0000

Politicians, diplomats, and business leaders will gather in Berlin in early June to mobilize international support for the reconstruction of Ukraine. This latest postwar recovery conference is certainly a welcome initiative, but it is also painfully clear that today’s Ukraine has far more urgent needs.

As the summer season begins, millions of Ukrainians across the country are once again getting used to the idea of rolling electricity blackouts. These power shortages are a result of Russia’s latest air offensive, which has succeeded in destroying much of Ukraine’s power grid in the space of just a few months.

Ever since the start of the full-scale invasion in February 2022, Ukraine’s civilian energy structure has been a prime target for Russian missile and drone attacks. The situation has deteriorated sharply during the first five months of 2024, with Russia exploiting growing gaps in Ukrainian air defenses caused by delays in Western aid to conduct a series of devastating strikes on critical energy targets.

This has caused levels of damage far beyond anything witnessed during previous Russian air offensives. Ukraine’s largest private power producer, DTEK, confirmed in early May that more than ninety percent of its thermal power plants had been destroyed. Meanwhile, the news from state-owned power generator Centrenergo was even grimmer, with all coal-fired units wrecked by Russian bombardment.

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For the time being, the situation is not critical. With the days currently getting longer and Ukraine basking in glorious spring sunshine, power consumption remains relatively low and can mostly be covered by the country’s remaining nuclear and renewable generation. Nevertheless, when electricity demand spikes during evening hours or when the weather turns cloudy, Ukraine is already facing shortfalls that cannot be entirely met with imports from neighboring EU markets.

In order to balance the power grid, Ukraine’s transmission system operator, Ukrenergo, has introduced a schedule of rolling power cuts that leave households and industrial consumers without access to electricity for hours on end. This is impacting the production capacity of the Ukrainian defense industry, which is expanding rapidly in a bid to reduce the country’s reliance on faltering Western supplies of weapons.

Ukraine’s current electricity shortages are relatively straightforward compared to the far more serious challenges posed by the rapidly approaching winter season. While the sun is now shining in Ukraine, within five months the country will enter a half-year period of freezing temperatures and long, dark nights with much of its energy generation capacity wrecked and demand for electricity likely to double. This is a recipe for potential humanitarian catastrophe that requires urgent international attention.

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Ukraine’s heroic energy engineers are currently hard at work mending torn transmission lines, rebuilding power plants, and attempting to fix damaged transformers. In many cases, these repairs need to be carried out from scratch. Power companies are appealing to EU countries to donate old kit from decommissioned stations or share spare stocks ahead of the coming winter season. Efforts are also underway to increase border capacity with EU countries by around one-third in the coming months.

If Ukrainian power producers succeed in restoring a large portion of damaged thermal capacity, the country will be relatively well equipped to cope with the seasonal surge in demand once winter arrives. Some small-scale generation capacity using natural gas may also be added to the system, helping to bring more flexibility during periods of peak consumption.

However, it is crucial to underline that this is a highly optimistic scenario. Without significantly enhanced air defenses, the danger of fresh Russian air strikes will remain. Any energy infrastructure repaired between now and October may well be destroyed once again on the eve of the first big winter chill.

A number of alternative solutions to Ukraine’s energy sector crisis have been pitched so far. These include building decentralized electricity clusters around urban areas that would be less vulnerable to Russian bombardment. Other proposals depend on the possibility of expanding interconnection capacity with EU countries and increasing production specifically for export to Ukraine. While such steps could play a vital role in enabling Ukraine to survive the coming winter season, they would likely require complex political negotiations.

The most immediate challenge facing Ukraine is defending the country’s remaining power grid and preventing Russia from destroying repaired facilities. This should be the top priority for all of Ukraine’s partners. While recovery and investment conferences offer hope for the future, Ukraine desperately needs additional air defenses to keep the lights on right now. If this does not happen, millions of Ukrainians will face the prospect of a rapidly deteriorating humanitarian situation as the winter season draws closer.

Dr. Aura Sabadus is a senior energy journalist who writes about Eastern Europe, Turkey, and Ukraine for Independent Commodity Intelligence Services (ICIS), a London-based global energy and petrochemicals news and market data provider. Her views are her own.

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Experts react: What to know about the latest G7 ‘progress’ on using blocked Russian assets to aid Ukraine

Atlantic Council experts — Sat, 25 May 2024 14:15:12 +0000

Interest in the interest is growing. Over the past three days, Group of Seven (G7) finance ministers met in Stresa, Italy, on the shore of Lake Maggiore, to discuss what to do with a major pile of money. Following Russia’s full-scale invasion of Ukraine in 2022, G7 nations blocked around $300 billion in Russian assets in the West, the bulk of which are in Belgium, France, and Germany. Today, G7 finance ministers said they are making “progress” on a plan to use future interest generated by the assets to issue a loan to Ukraine. Reports say this loan could be as large as fifty billion dollars, and it could move forward as soon as the June 13-15 G7 leaders’ summit in southeastern Italy. Below, Atlantic Council experts follow the money.

Click to jump to an expert analysis:

Charles Lichfield: Past the point of no return on a sovereign loan to Ukraine

Daniel Fried: Take the best deal available now and keep pushing for the rest

Olga Khakova: Money generated by Russian assets can help save Ukraine from freezing this winter

John Herbst: The US is helpfully taking the lead on the sticky Russian asset problem

Past the point of no return on a sovereign loan to Ukraine

The G7 finance ministers’ statement isn’t as noncommittal as it sounds. It now privileges one approach to mobilizing Russia’s immobilized sovereign assets for Ukraine: bringing forward the value of interest income through a giant sovereign loan, worth more than half of Ukraine’s total expenditure this year.

Earlier this year, Germany, Italy, and France (the members of the G7 that use the euro), along with Japan, stood up to pressure from the United States and other countries to consider directly seizing the assets. It is a very significant achievement that—in a relatively short amount of time—the seven have converged around an approach that delivers a very large sum without crossing anyone’s red lines.

Given the speed at which the Europeans have swung behind the proposal, it’s safe to interpret that there is goodwill on all sides to resolve the outstanding technical details. The European Union (EU) sanctions legislation that keeps the assets blocked has to be renewed by consensus every six months. The European Council is unlikely to change this to an “unless-and-until” provision, although it has committed politically to keeping the assets blocked until Russia leaves Ukraine and pays compensation. The solution is for all sides to shoulder a share of the financial risk, and it appears the United States is willing to do so too.

We should expect more progress at the G7 leaders’ summit on June 13 and 14 in southeastern Italy. It may take a few months following that for the money to start flowing, but the G7 is clearly past the point of no return on this very constructive approach.

—Charles Lichfield is the deputy director and C. Boyden Gray senior fellow of the Atlantic Council’s GeoEconomics Center.

Take the best deal available now and keep pushing for the rest

The G7 seems to be closing in on a deal to use a substantial amount of Russian money to pay for Russia’s war of national destruction against Ukraine. Though not enough, it’s a big step and needs to be nailed down fast.

Almost immediately after Russia’s full-scale invasion of Ukraine in February 2022, the G7, working fast and in stealth, immobilized close to $300 billion of Russian sovereign assets. The G7 has since considered whether and, if so, how that money could be used to benefit Ukraine. After months of deliberation and indecision, G7 finance ministers seem to be drawing close to a consensus about using twenty years’ worth of interest on the immobilized assets, which could amount to about fifty billion dollars, as collateral for a loan (possibly no interest and forgivable) to Ukraine.

Many experts (such as former US diplomat Philip Zelikow) have made a strong case for using all of the Russian assets for Ukraine. But European resistance (especially from Germany and France) has held up agreement for months, while Ukraine’s needs have grown more urgent. Biden administration officials decided to push for the best deal at hand—the fifty-billion-dollar deal. In their place, I would have done the same: Take what you can get now and keep pushing for the rest.

Moving forward with this deal would be welcome. But the delay in advancing toward a decision—and the limited nature of the tentative deal—illustrates a problem: Russia is an aggressive and dangerous nation waging war against one neighbor, threatening others, and trying to intimidate Europe into allowing the Kremlin to reassemble the Russian Empire through violence. Peacetime norms must give way to norms suited to the harsher era that is upon us, whether we like it or not. Those European opponents of using Russia’s assets to pay for Russia’s war of aggression should reconsider. Today’s announcement of progress is not yet a step commensurate with what is required.

—Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council, former US ambassador to Poland, and former US assistant secretary of state for Europe.

Money generated by Russian assets can help save Ukraine from freezing this winter

While the West is debating the feasibility of confiscating Russian frozen assets, Ukraine needs a massive influx of funds now to prepare its energy system for a brutal winter ahead, minimize debilitating blackouts this summer, and defend the remaining infrastructure from Russian bombardment. The energy sector has been a prime target of Moscow’s genocidal campaign, and these strategic attacks have intensified this spring, with a focus on central energy generation—the largest thermal power plants providing Ukrainians with essential services and keeping industry and business running despite the war.

Before the G7 finance ministers met in Stresa, the EU agreed in principle to a fifty-billion-dollar bond proposal for the blocked assets, of which up to 90 percent would be earmarked for arms and military equipment. On the surface, this may appear irrelevant to the urgent needs in the energy sector, but it’s the most effective investment for keeping the remaining energy system protected and enabling reconstruction and repairs of lifesaving infrastructure. The remaining 10 percent would go to budgetary and humanitarian support under the EU facility and can contribute toward procuring gas turbines and other equipment. This money, which could begin to arrive as early as July if G7 leaders finalize a deal next month, could also help alleviate the additional expense of having to import electricity from Ukraine’s European neighbors, which would have been generated at a fraction of the price by Ukraine’s now-destroyed power plants.

Fifty billion dollars is nowhere close to the cost of Russia’s unprovoked horror and misery on Ukrainian citizens, the natural environment, critical infrastructure, and culture. However, channeling these windfall profits from the immobilized Russian assets toward Ukraine’s most dire needs is a small but decisive step toward setting the precedent that Russia will not escape from paying for its crimes. Moreover, as appropriation of the money changes to reflect Ukraine’s priorities, a significant percentage of profits could be directed toward reconstruction efforts.

—Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

The US is helpfully taking the lead on the sticky Russian asset problem

No white smoke emerged from the meeting of G7 finance ministers in Stresa, Italy, this week in their preparations for the G7 Summit next month. The key issue on their agenda was how to deal effectively on the financial side with the greatest current threat to global security and prosperity: Vladimir Putin’s determination to dominate Ukraine. The ministerial took small, sensible steps regarding additional sanctions on Russia in, for instance, the energy area. But the big item was, of course, the roughly $300 billion in Russian state assets frozen in the international financial system. The EU took a baby step recently, allowing the use of dividends from those assets to be transferred to Ukraine. That might provide Ukraine a few billion dollars a year.

But to its credit, with White House Deputy National Security Advisor for International Economics Daleep Singh leading the charge, the United States for months has been looking for a more ambitious approach: to bundle multiple years of interest payments to allow a payment of fifty billion dollars up front. US Treasury Secretary Janet Yellen put her shoulder to this wheel in Stresa, and reports suggest that she made some progress.

With three weeks to the G7 Summit, there is time to get this deal done. But while Canada and the United Kingdom are interested in the US proposal, the rest of the G7 members are concerned about possible Russian retaliation, and there has also been unhelpful lobbying from China and Saudi Arabia against transferring the assets to Ukraine. So success at the Italy summit cannot be taken for granted. But it is good to see the United States in the lead on a key issue related to the war and, if US President Joe Biden and Yellen deliver the goods in Apulia, the United States can then take up the proposal pushed brilliantly by Philip Zelikow, Bob Zoellick, and Larry Summers to come back for the remaining $250 billion in Russian state assets.

—John E. Herbst is the senior director of the Atlantic Council’s Eurasia Center and a former US ambassador to Ukraine.

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Without tariffs, the EU faces a flood of Chinese imports of the ‘new three’

Joseph Webster — Thu, 23 May 2024 18:49:40 +0000

Washington’s recent tariffs against Chinese products all but ensure a flood of these exports to Europe, necessitating a response from Brussels. The products include China’s “new three” cleantech exports—lithium-ion batteries, electric vehicles (EVs), and solar panels—posing undeniable dilemmas for Brussels as it balances security, economic, and climate interests. To head off a deluge of Chinese products while also allowing some to support decarbonization goals, Brussels should selectively and thoughtfully apply greater tariffs and restrictions. Concurrently, European industrial policy should prioritize the development of indigenous battery and EV supply chains and manufacturing capacity.

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The European Union’s imports of the new-three cleantech export categories have skyrocketed in recent years. Over the course of 2023, China’s exports to the EU totaled $23.3 billion for lithium-ion batteries, $19.1 billion in solar panels, and $14.5 billion for electric vehicles.

Sources: PRC General Administration of Customs, Author’s Calculations

Europe’s imports of these cleantech products have fallen in recent months, partly because of the global glut in solar panels and constraints on installations. The EU’s anti-subsidy investigation into electric vehicles, launched in October, has also cooled shipments.

Europe’s most consequential tariff decisions concern EVs and batteries, as these products hold economic and strategic relevance.

With the automotive sector indirectly providing 6.1 percent of total EU employment and 7 percent of GDP turnover, EVs and batteries are a key future driver for the EU’s economy. This sector is at risk due to China’s heavily subsidized auto exports.

While transitioning to EVs from internal combustion engines will necessitate disruptions, ceding Europe’s auto industry would deliver a “second China shock” of mass economic dislocations, all but ensuring a fierce political blowback with potentially calamitous implications for the European project.

Reasonable people could disagree about the wisdom of allowing cheap Chinese imports to undercut domestic industries in the 1990s and 2000s. At the time, many believed that greater economic linkages between the West and China would produce rising living standards across the board, reduce geopolitical frictions, and potentially even lead to constructive political changes within China itself.

That didn’t happen. While trade with China led to complicated, often ambiguous impacts for Western economies, Beijing threatens global democracy more than ever, and the Communist Party continues to rule mainland China with an iron fist.

Recognizing this dynamic, various European Union bodies have characterized the Chinese government as a “systemic rival”—as well as a partner.

While European threat perceptions of Chinese exports largely center around economic and political concerns, security dimensions shouldn’t be overlooked.

China’s exports of sensor-laden connected vehicles pose potential espionage and sabotage risks. Chinese security services could use these vehicles to monitor European military and political facilities, as well as collect real-time economic and mobility data. In a worst-case scenario, these vehicles’ software systems would be vulnerable to hacking.

China’s lithium-ion battery complex also has latent military potential, as batteries are critical components for diesel-electric submarines, unmanned maritime platforms, and aerial drones. Moreover, technological advances in solid-state batteries could offer significant, potentially game-changing performance improvements for military use cases.

Given the economic and security risks, Europe should impose tariffs on Chinese exports of EVs and lithium-ion batteries. To balance decarbonization goals with these other needs, however, Europe could follow the US approach by phasing in certain tariffs, such as on Lithium-ion non-electrical vehicle batteries. These batteries are useful for grid decarbonization but pose few direct security threats.

China is unsubtly hinting it will respond to any European tariffs with countermeasures, including against wine and dairy exports.

Yet Europe is better off accepting short-term pain than allowing the formation of a clean energy cartel overseen by a systemic rival.

In other cases, such as solar panels, Chinese clean tech exports pose few economic and security risks to Europe. This industry has left Europe and isn’t coming back, especially since European solar potential is limited. Although inverters should be monitored closely, there are no known security risks for solar panels, which cannot communicate with the grid. Consequently, Europe should accept Chinese solar imports while still ensuring that global supply chains are not held hostage to a single supplier.

Importantly, the West should continue to emphasize to Beijing that it seeks to de-risk rather than decouple supply chains. While Western trade with China has not fundamentally improved ties, commercial ties nevertheless can provide ballast for the relationship, mitigate security dilemmas, and provide economic benefits.

To stop political ties from deteriorating further while maximizing trade and climate benefits, Europe and its partners should identify products where commerce can be conducted with China without damaging economic or security interests.

Still, Europe should rapidly employ tariffs and fiscal support to bolster critical industries and technologies, including EVs and batteries. Balancing decarbonization objectives with economic and security needs is no easy task, but Brussels must find sure footing on this tightrope, and quickly.

Joseph Webster is a senior fellow at the Atlantic Council and editor of the independent China-Russia Report. This article represents his own personal opinion.

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Lichfield quoted by Foreign Policy on G7 Ukraine bond proposal backed by immobilized Russian assets

rmurphy — Wed, 22 May 2024 15:30:46 +0000

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Bridging the Baltic, Black, and Adriatic seas would serve both European and NATO interests

Kaush Arha, Adam Eberhardt, Paolo Messa, and George Scutaru — Tue, 21 May 2024 16:14:30 +0000

Europe’s defense and economic interests are intertwined, especially in the face of a deepening Sino-Russian “no-limits” partnership. In response to this and other challenges, NATO, the European Union (EU), and the Three Seas Initiative (3SI) should prioritize transport corridors connecting the Baltic, Black, and Adriatic seas. These dual-purpose corridors could link major port cities in and bordering the three seas, such as Gdańsk, Constanța, and Trieste. These prospective defense/economic strategic road and rail corridors—let’s call them N3 corridors—would connect the three sides of the transportation triangle bridging the three seas. N3 corridors linking Constanța, Gdańsk, and Trieste would be transformative force multipliers for European peace and prosperity. These corridors would not only fortify Europe and NATO’s eastern front but also offer a dynamic boost to European economies, catalyzing the continent’s economic engagement with the Indo-Pacific. They would also help ensure Ukrainian sovereignty by aiding Kyiv’s European integration.

The 3SI, comprising thirteen Central and Eastern European nations from Estonia to Greece, promotes digital, energy, and infrastructure connections across the region’s north-south axis. It boasts an investment fund and 143 discrete projects across member countries. But despite an enthusiastic beginning, big and bold strategic projects to realize the 3SI’s grand vision have yet to take shape. NATO’s forward posture in response to Russian aggression and the need to bolster the Alliance’s ability to mobilize resources across its eastern front offer a strong impetus to both achieve and expand on the 3SI’s ambitions for connecting the three seas by working with the Alliance and other EU countries to build the N3 corridors.

NATO’s transport needs

At age seveny-five, NATO boasts two new members and a forward posture along its eastern front to confront a resurgent Russia with imperialist designs. The Alliance’s enhanced forward presence, aimed at achieving deterrence by denial of territory, makes it essential to be able to quickly position forces on the front lines and expeditiously move these forces along the front as needed. Most of Europe’s existing rail and road corridors run in the east-west direction. There is an urgent need to complement these latitudinal passageways with the prompt deployment of longitudinal thoroughfares for mobilizing forces along NATO’s eastern front and to deepen the economic integration of Central and Eastern Europe.

Meanwhile, Russia’s ongoing malign activity in the Black Sea subjects NATO’s southeastern front to persistent and provocative Russian aggression. Russia has long used aggression to cement its position on the Black Sea, from the de facto annexation of the Abkhazia and Tskhinvalki (South Ossetia) regions from Georgia in 2008, the annexation of Crimea from Ukraine in 2014, and advances toward Odesa since 2022. Moscow’s Black Sea power projection is further bolstered by the Russian garrison that has been stationed in Transnistria since 1992. Now, Russia is expanding its rail network across Ukrainian territory that Moscow has annexed. Given the threat Russia poses to NATO’s southeastern front, the deployment of N3 strategic corridors is essential to bolstering the Alliance’s ability to mobilize resources to the region.

EU-Ukraine economic integration

Western Ukraine’s expeditious integration—infrastructural, legal, economic, and social—into the European project offers it the most prudent and realistic security assurances in the near to medium term. An N3 strategic rail and road corridor from Gdańsk to Constanța through western Ukraine would be an opportune and impactful manifestation of Ukrainian integration into Europe. This proposed corridor would not only include highways and railways, but would also offer important rights-of-way for power and digital cables as well. Such a strategic corridor would bind the biggest NATO and EU members facing Russia and bordering Ukraine. The Gdańsk-Constanța corridor would not only connect the two major ports but also the respective capitals, Warsaw and Bucharest, via Ukrainian cities Lviv, Ivano-Frankivsk, and Chernivtsi. A short eastern spur may also connect Chișinău, the Moldovan capital, to the N3 corridor. The Ukrainian route offers substantial cost advantages over previous proposals, which would traverse the Carpathian Mountains.

Bucharest to Warsaw rail journeys at present follow a circuitous route via Budapest and Vienna. A new N3 strategic corridor, in addition to obvious economic and military dividends, would boost regional tourism by catalyzing sociocultural integration among the Polish, Romanian, and Ukrainian peoples.

Corridors of power

The N3 corridors would link the leading defense and economic port cities of Constanța, Gdańsk, and Trieste on the Black, Baltic, and Adriatic seas, respectively. Romania represents a stable and reliable anchor for NATO, the EU, and the 3SI on the Black Sea and is projected to be the largest European natural gas producer by 2027. Constanța, situated south of the Danube Delta, is both Romania’s leading commercial port and its primary naval base. Romania represents the European beachhead to the Caucasus and Central Asia as it connects the Danube, Europe’s longest commercial river, to the Black Sea.

Poland boasts the largest economy and military of the NATO/3SI countries bordering the Baltic Sea, Russia, and Ukraine. Gdańsk is Poland’s principal seaport and naval yard, and over the past decade, it has also become the fastest-growing European port. Gdańsk could act as an important junction linking the prospective N3 corridor with the underway 3SI projects Rail and Via Baltica connecting Finland and the Baltic nations.

Trieste, meanwhile, enjoys unmatched access to Europe’s industrial heartland, including northern Italy, Switzerland, Germany, Austria, and parts of Eastern Europe. Consequently, it’s the most advantageously situated seaport to be Europe’s gateway to the Indo-Pacific. It also houses Italy’s major naval yards. Italy, though not a member of the 3SI, is the dominant Adriatic-Mediterranean nation and an important member of both NATO and the Group of Seven (G7).

NATO and the EU should designate the N3 corridors as their individual and collective high priority flagship projects in their Strategic Concept and Strategic Compass planning documents, respectively. Additionally, both should closely engage with 3SI nations and Italy to make N3 corridors operational with due haste. NATO should consider directing a portion of its proposed $100 billion fund for Ukraine to N3 corridors to leverage greater investments from close allies and partners. N3 corridors may arguably offer the highest returns on the EU’s investment in Ukraine reconstruction and in its Global Gateway initiative as an alternative to China’s Belt and Road Initiative. Consequently, in addition to direct EU funds, both the European Bank for Reconstruction and Development and the European Investment Bank should accord N3 corridors preference in their respective investment portfolios. EU and 3SI nations, to further amplify the impact of N3 railroad corridors, should also apportion comparable weight to developing Danube River commercial transit to optimal levels.

The Unites States, an early and enthusiastic supporter of the 3SI, should lend its full weight behind the N3 corridors in fortifying NATO and diversifying global supply chains away from China. It should call for prompt operationalization of N3 corridors at both NATO and US-EU Trade and Technology Council meetings. It should also ensure that the G7’s Global Partnership for Infrastructure Investments accords high priority to N3 corridors. Additionally, the United States and Europe should collectively encourage partner nations in West Asia and the Indo-Pacific to invest in N3 corridors.

The United States, Europe, and NATO need to buttress their collective economic and military resilience to confront both Russia’s military aggression and Chinese economic coercion. The N3 corridors would serve both goals. They would not only better mobilize the full might of Central and Eastern Europe’s defense and military capacities but also potentially transform the region’s engagement with the global economy. No time should be spared in putting this strategic project into action.

Kaush Arha is president of the Free & Open Indo-Pacific Forum and a nonresident senior fellow at the Atlantic Council and the Krach Institute for Tech Diplomacy at Purdue.

Adam Eberhardt is the deputy director of the Centre for East European Studies at Warsaw University.

Paolo Messa is a nonresident senior fellow at the Atlantic Council and founder of Formiche.

George Scutaru is the CEO of New Strategy Center and a former national security advisor to the President of Romania.

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#BalkansDebrief – What is the US role amidst fragility in the Western Balkans? | A debrief with Gabriel Escobar

sjones — Mon, 20 May 2024 16:42:49 +0000

IN THIS EPISODE

The Western Balkans stand at a pivotal moment. Regional stability, security, and prosperity require a more robust US engagement. EU accession remains the goal but simmering ethnic tensions and resurgent nationalism demand a comprehensive US strategy that includes specific and actionable commitments.

In the light of Russia’s brutal invasion of Ukraine that has shaken European security foundations, how can the US enhance its collaboration with the EU to develop a unified approach regarding the future of the Western Balkans?

Ilva Tare, Nonresident Senior Fellow at the Atlantic Council’s Europe Center, discusses with outgoing US Deputy Assistant Secretary and Special Representative for the Western Balkans Gabriel Escobar, at the end of his term, the most pressing issues for the region’s EU prospects, the challenges with corruption and economic growth, and the main concerns for increased tension and risks for stability.

Tare asks DAS Escobar if prioritizing the Association of Serb-Majority Municipalities on the normalization dialogue between Kosovo and Serbia was the most effective strategy, and what is the path forward on this issue?

Is the US considering alternative approaches towards Serbia to achieve progress on EU alignment, especially after the composition of the new government?

Can the US prevent a fracturing of the fragile peace in Bosnia and Herzegovina?

How concerning is Russian influence in the Western Balkans? Specific questions on Montenegro, North Macedonia and Albania will also be covered in this #BalkansDebrief episode.

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NATO must ‘win up front but be ready to win long’ in modern warfare, says General Christopher Cavoli

Katherine Walla — Fri, 17 May 2024 15:09:35 +0000

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Road to Washington: General Christopher Cavoli on the NATO Summit

An #ACFRONTPAGE EVENT—General Christopher G. Cavoli, Commander of US European Command and Supreme Allied Commander Europe, discusses the 2024 Washington NATO Summit, modernizing the Alliance’s military capabilities, and destabilizing Russia’s impact on Euro-Atlantic security.

Right now, NATO’s Steadfast Defender 2024 military exercise is taking place across Europe and at sea.

The effort, the largest the Alliance has undertaken since the Cold War, is not just a demonstration of the transatlantic bond; it is also NATO’s opportunity to “rigorously test” its defense and deterrence strategy, said General Christopher Cavoli, supreme allied commander Europe (SACEUR) and commander of US European Command.

Cavoli spoke at a May 7 Atlantic Council Front Page event, which was part of the Forward Defense program’s Commanders Series (in partnership with Saab) and of the Transatlantic Security Initiative’s programming organized in advance of the NATO Summit in Washington.

The general went on to say that NATO’s 2020 defense and deterrence strategy is part of an effort to conduct a “wholesale modernization” of NATO’s collective defense to respond to today’s security challenges.

“We had previously been optimized for a very different task,” he said. Cavoli explained that after the Cold War, NATO pivoted toward conducting crisis-management missions well beyond its borders that allowed the Alliance to participate in missions on its “own terms” and on a predictable schedule.

But “all that has changed,” Cavoli said, pointing to Russia’s war in Ukraine. “It is happening all the time, 24/7, [with] no respite for more than two years.”

The war has shown that today, “you either win up front, fast, and big, or you’re in a long fight. So . . . win up front but be ready to win long,” he said.

Below are more highlights from the event, where Cavoli touched upon NATO’s plans to modernize its defenses and the intensifying threats to the Alliance.

Defending in a new era

At last year’s NATO Summit in Vilnius, allies adopted regional defense plans, which spark three changes, as Cavoli explained: First, they bring a revamped expectation for NATO’s force structure, which outlines not only the forces required but also the spending needed to resource and maintain it. “You will find that 2 percent [of a country’s gross domestic product spent on the military] is certainly not a ceiling, but a floor,” he said, adding that the plans provide a “blueprint for burden sharing.”
Second, the new regional defense plans delegate authority for operational decision making. Cavoli said that when the Alliance was primarily focused on out-of-area operations, military authorities were limited to higher, political levels. “SACEUR requires basic military authorities,” Cavoli said. “These are working their way through the new, modernized alert system.”
Third, the new plans also change systems of command and control, Cavoli said. Before, NATO focused on cyclical deployments to regions and terrains that were unfamiliar to parts of the command chain. Now, regional plans are assigning specific geographic areas to each of the Alliance’s headquarters so that each one will know “exactly what terrain it’s required to defend” and the tactical units it has to defend with.
The modernization effort will also require a ramp-up in the defense industry. “I don’t think anybody is satisfied with current levels of production,” Cavoli said. Going forward, he added, the government and industry will need to work together to increase cooperation between Allies and industry partners. “I believe we’ll get there,” he said.
“This modernization of NATO’s collective defense will not be realized immediately,” Cavoli said. “It will require relentless focus and determination from across NATO and in all member nations . . . It will be difficult, but we are well on our way.”

The threats ahead

While Beijing is far from Brussels, NATO “does have China challenges inside it right now,” Cavoli said, related to strategic infrastructure, intellectual property, and private data.
“Russia will pose a long-term threat to the Alliance,” said Cavoli, adding that the West will have a “big Russia problem for years to come,” as Moscow works to expand the size of its military and reconstitute losses.
“The Russian army in Ukraine is bigger now than it was at the beginning of the fight,” he pointed out. “Many of the troops are not as high quality . . . a lot of the equipment fielded is older: It’s refurbished, but it’s based on an older model.”
Cavoli said the question at the top of Western leaders’ minds shouldn’t be about how fast Russia can reconstitute: It should be how fast can Russia rebuild its forces compared to the West. Maintaining an advantage in speed, he explained, is a matter of maintaining “political will” and developing the “elasticity” of the defense industrial base.
Many countries facing Russian influence “are looking westward right now” in search of new security partners, Cavoli said. While the Alliance was created to defend its members, “we don’t exist in a vacuum,” he said. “We need friends and partners.”

Katherine Walla is an associate director on the editorial team at the Atlantic Council.

Watch the event

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#AtlanticDebrief – What was the outcome of Xi’s visit to Europe? | A Debrief from Valbona Zeneli

nlawler — Fri, 17 May 2024 12:20:23 +0000

IN THIS EPISODE

What were the main outcomes of President Xi Jinping’s visit to Paris, Belgrade and Budapest? How successful was President Macron in demonstrating European unity on China? How concerned should the EU be with China’s economic and bilateral relationship with Hungary? What are the implications of growing Serbia-Chinese relations for the Western Balkans and the region’s European integration?

On this episode of #AtlanticDebrief, Jörn Fleck sits down with Valbona Zeneli, Europe Center Nonresident Senior Fellow, to discuss the significance and impact of Xi’s visit and implications for EU-China relations and transatlantic cooperation on China.

You can watch #AtlanticDebrief on YouTube and as a podcast.

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The post #AtlanticDebrief – What was the outcome of Xi’s visit to Europe? | A Debrief from Valbona Zeneli appeared first on Atlantic Council.

The European Parliament is still learning its lesson from corruption scandals

Sophia Athan — Thu, 09 May 2024 19:09:26 +0000

Earlier this year, the Dutch investigative platform Follow the Money reported that 25 percent of sitting members of the European Parliament (MEPs) across twenty-two European Union (EU) member states have been involved in some type of misbehavior or scandal at the national or international level. A common thread throughout the investigation was MEPs’ entanglement with foreign state actors.

The report includes the now-infamous Qatargate scandal, in which several sitting and former MEPs were arrested in December 2022 for a cash-for-influence operation. But the report also includes lesser-known cases, such as a privately funded trip for two Irish MEPs to the headquarters of Hashd al-Shaabi, an Iranian-backed, Russian-allied militant organization in Iraq, to criticize US and European military action in Iraq.

The upcoming European Parliament elections in June amplify the urgency of defending the institution against foreign meddling. To accomplish this, EU institutions should codify stricter definitions of foreign influence and interference, and they should pass future reforms as legally binding EU regulations. At the same time, EU officials must ensure that the organization’s transparency and anti-corruption reforms are crafted so that they don’t infringe on member states’ civil society organizations.

It’s not just Qatargate

Qatargate was the most prominent recent scandal to plague the European Parliament. The scheme’s primary goal was to rehabilitate Qatar’s image before the 2022 FIFA World Cup by stifling European Parliament resolutions critical of Doha and drafting speeches for Qatari ministers at EU hearings in exchange for under-the-table payments.

The case came to a head on December 9, 2022, when authorities conducted nineteen raids with eight arrests in Belgium and Italy, complete with the seizure of more than one million euros in cash. The highest-profile arrest was Greek MEP and then Parliament Vice President Eva Kaili. Her partner, Francesco Giorgi, and his boss, former Italian MEP Antonio Panzeri, were both arrested and confessed to involvement in the scandal. Throughout the investigation, authorities uncovered evidence of three hundred alleged attempts to manipulate the European Parliament, with Qatar at the center of the influence deal, which was purportedly worth four million euros.

The Parliament continues to find its current, former, and prospective MEPs embroiled in scandals with foreign governments, often involving Russia or China, especially during election years. In March, the Parliament opened an investigation into Latvian MEP Tatjana Ždanoka, who faces accusations of operating as a Russian agent since 2004. Regional news sites published numerous emails linking Ždanoka to a handler in the Russian Federal Security Service.

Additionally, the far-right Euroskeptic party Alternative for Germany, currently polling second among German voters, has made headlines for major scandals involving its top two candidates for the European elections, Petr Bystron and Maximilian Krah.

In March, reports emerged that Bystron was linked to the Russian-backed propaganda outlet “Voice of Europe,” a platform that spreads disinformation and provides financial support to pro-Russian politicians in the EU. Czech intelligence authorities claim that Bystron received “about 20,000 euros” from the site’s Kremlin-connected operator. The Munich Public Prosecutor’s Office has announced preliminary investigations against Bystron for “possible bribery of elected officials.”

Voice of Europe’s news reports would blend in with typical Russian propaganda if not for the political legitimacy they gained by featuring sitting MEPs. Additionally, some Voice of Europe videos appear to have been filmed at VoxBox, the Parliament’s in-house studio, using the heart of the institution’s broadcast system to disseminate Kremlin talking points, including arguments against Ukraine’s accession to the EU and in favor of peace talks with Russia.

In addition to the investigation against Bystron, Krah has been involved in multiple scandals. In April, German police arrested Jian Guo, an aide for Krah, over accusations that he used his proximity to Krah to spy for China. That same week, the Dresden Public Prosecutor’s Office announced two preliminary investigations against Krah over alleged payments from Russia and China for his work as an MEP.

Can the EU defend its own democracy?

In the wake of Qatargate, the European Parliament and European Commission moved to tighten rules to protect the EU’s democratic process. Last September, the Parliament adopted new rules requiring detailed declarations on MEP private interests, reporting on external income over five thousand euros per year, and bans on engagement with paid lobbying activity that could directly impact the EU’s decision-making processes.

The EU’s executive, the European Commission, adopted the Defense of Democracy package in December 2023 in tandem with the Parliament’s reforms to prepare for the 2024 European elections. The plan includes rules designed to increase transparency and safeguard European institutions from corruption. This rollout is the most significant package of reforms at the EU level since Qatargate, but it could benefit from stronger and stricter definitions to maximize its impact.

The road to reform

First, the EU should provide stronger definitions for the most basic terms in the defense toolkit. Chapter I, Article 2 of the Directive on Transparency of Interest Representation on behalf of Third Countries (2023/0463) fails to provide working definitions for foreign “influence” versus “interference,” a critical debate in the field, nor for the concept of “transparency.” The absence of these definitions is detrimental to the EU’s enforcement efforts, as there is little consensus across the bloc on what these categories include and exclude, or whether they can be used interchangeably. This lack of clarity is understandable in the short term. Creating a narrow definition related only to commonly used tactics may be too restrictive. At the same time, creating too broad a definition could inhibit political participation. In the long term, however, the EU must stop relying on a principle akin to US Supreme Court Justice Potter Stewart’s nondefinition of obscenity—“I know it when I see it”—and instead create specific, workable definitions for the member states to enforce.

Second, the EU must keep legal precedent in mind when creating legislation relating to civil society. In 2020, the European Court of Justice (ECJ) struck down a Hungarian transparency law on nongovernmental organizations (NGOs). The law mandated that NGOs listed as recipients of foreign funding by the Hungarian government must declare their income each year to the state and include disclaimers in all publications noting their designation. The ECJ ruled that the law taken in totality had a “deterring effect” on NGOs. The decision noted that while increasing transparency is a legitimate aim, states must establish how their additional regulations contribute to increasing transparency, which Hungary failed to do. The ECJ decision demonstrates that the EU must balance its necessity for transparency legislation without overregulating, which could lead to the inhibition of civil society.

Third, the EU should pass future reforms as legally binding EU regulations, rather than as directives, which only require member states to create legislation at the national level. The Defense of Democracy package, for instance, issued directives, meaning member states have flexibility in how they interpret and enforce each of its provisions, which increases the likelihood that it will be enforced in a variety of ways throughout the bloc. Thus, to ensure that future transparency and anti-corruption polices are equitably enforced EU-wide, it is important that they be legally binding regulations.

Taken together, these reforms to corruption-fighting legislation will help the EU’s institutions defend their reputation, integrity, and accountability, particularly in an election year.

Sophia Athan is a young global professional with the Atlantic Council’s Europe Center.

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Amid competing pressures, will Ukraine quit its transit of Russian gas?

Sergiy Makogon and Daniel Stein — Tue, 07 May 2024 18:58:09 +0000

Despite Russia’s ongoing war in Ukraine, Russian gas continues to transit Ukraine on its way to European buyers. By and large, both sides continue to adhere to the 2019 EU-brokered gas transit agreement. Under that agreement, Gazprom is obliged to ship a minimum volume of gas—65 billion cubic meters (bcm) in the first year and 40 bcm in subsequent years—under ship-or-pay conditions. But there has been much speculation about what happens to transit when the 2019 agreement expires at the end of December 2024.

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Ukraine’s gas transmission system has traditionally played a major role in delivery of Russian gas to Europe. As late as 2019, transit volume was about 90 bcm, accounting for one half of Russia’s total gas exports to Europe. After Moscow’s full-scale invasion, the continuation of Russian gas transit through Ukraine provided EU member states energy security while also buying them time to arrange for alternative natural gas supplies. And by 2023, the transit volume had fallen to less than 13 bcm, with most of the gas being delivered to Austria, Italy, Hungary, and Slovakia. Other major consumers, including Germany, Poland, and the Czech Republic, have managed to end their dependence on Russian pipeline gas and Russian gas in general, although Russian LNG exports to Europe have continued to rise. But since 2022 the United States has emerged as a main LNG supplier to Europe, accounting for nearly half of total EU LNG imports in 2023 and helping to blunt Europe’s need for Russian LNG.

Of the countries most likely to be directly affected by the expiration of the 2019 agreement, Slovakia and Hungary have been the most vocal in calling for the continuation of Ukraine transit. Italy already has been able to largely replace Ukraine transit gas with LNG and pipeline gas from other sources, including Azerbaijan, and has been silent on the future transit issue. Austria presents a mixed picture. Some Austrian politicians have expressed concerns over its growing dependence on Russian gas, while others have signified their reluctance to break existing supply contracts.

For its part, the EU has expressed the view that there is no need to extend the current transit agreement, although it has not commented on the prospects for transit in the absence of an agreement. This could take the form of capacity bookings by European traders who would take delivery of Russian gas at Ukraine’s eastern border. This possibility has been discussed with little interest for many years until recently, presumably because European traders were not willing to take the attendant risk.

Meanwhile, the view from Kyiv is muddled at best. The minister of energy has completely ruled out future transit, but the prime minister has nixed an extension of the current agreement, while suggesting that transit still might continue under the right circumstances. The head of the Ukrainian gas transit company has similarly expressed willingness to continue transit at least through 2027, the proposed target date for EU countries to phase out imports of Russian fossil fuels.

The arguments in favor of Ukraine continuing to offer transit are weak, premised on the revenue Ukraine earns from transit and concerns over the availability and price of replacement gas. The first concern is overblown. Although Ukraine currently collects about $800 million per year from transit, that does not account for the costs of operating the system. Given the (EU-style) tariff methodology employed by Ukraine, the actual financial benefit is much less, and in the context of Ukraine’s economy, relatively insignificant at 0.46 percent of GDP.

Concerns about replacing Ukraine transit gas are equally overblown. Countries now dependent on Ukraine transit can easily source replacement gas, particularly LNG. Increases in US and Canadian LNG production in 2025-2026 alone would more than replace Russian gas currently being transited via Ukraine.

Meanwhile, the EU has added around 50 bcm of LNG regasification capacity since 2022. Further capacity expected to come online by the end of 2024 will result in total capacity of about 235 bcm, able to meet over 55 percent of European annual gas demand based on the gas consumption average of the last five years.

The argument that the end of transit would lead to much higher gas prices in Europe is likewise questionable. The EU gas market has currently stabilized and returned to its pre-war price range, and Ukrainian transit accounts for only 4 percent of total European demand.

So why the pressure to continue transit once the agreement lapses if Ukraine transit gas can economically be replaced with gas that doesn’t originate in Russia? In the case of Slovakia, and to a lesser extent Austria, purely financial considerations may be at work. The end of Ukraine transit could hit Slovakia hard, since most of the Ukraine transit gas also transits Slovakia through the Eustream pipeline system. However, Eustream has a ship-or-pay contract with Gazprom extending to 2028, obligating payment by Gazprom even in the absence of transit (although force majeure might excuse non-performance). The economic damage to Austria is likely smaller, since it also earns revenue from non-Russian gas transiting its Baumgarten hub.

However, Russia’s continued aggression and the war’s potential to escalate into a NATO-Russia or EU-Russia conflict underline the need for European unity and solidarity, particularly in reducing the export revenues of the aggressor. Billions of dollars in gas revenues from NATO and EU members should not be used to fuel Russia’s military capabilities. In fact, the EU is now considering a complete ban on Russian LNG imports.

Moreover, the continued reliance on Russian pipeline gas gives Russia undue political leverage and creates disunity among EU member states, weakening the West’s overall response to Russian aggression. Ending transit via Ukraine after 2024 would enhance the region’s energy security and diminish Russia’s export income with minimal disruption in gas supplies.

The Ukrainian government may face political pressure from some EU member states to maintain gas transit, with or without an agreement. To counter this pressure, the United States should: (1) discourage its EU allies from continuing to import Russian gas via Ukraine and (2) urge Ukraine to resist this pressure, while also encouraging the EU to support Ukraine in its stance.

Sergiy Makogon is the former CEO of GasTSO of Ukraine (2019-2022).

Daniel D. Stein is a former senior advisor with the Bureau of Energy Resources at the US Department of State.

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The Enrico Letta Report and the state of the EU’s Capital Market Union

Hung Tran — Tue, 07 May 2024 15:48:40 +0000

Enrico Letta, former prime minister of Italy, recently delivered his report to the European Union (EU), entitled “Much more than a market: Speed, Security, Solidarity”. The report aims to significantly upgrade the EU Single Market and discusses the unfinished project of the Capital Market Union, which aims to harmonize the flow of capital within the bloc.

The EU’s economic weight in the world has declined substantially in the past few decades and its strategic position has weakened seriously as the geopolitical rivalry between the United States and China intensifies. Against that backdrop, one of the report’s main recommendations is to transcend the Capital Market Union to promoting a Savings and Investments Union instead. The aim is to mobilize savings and investments in EU countries, and the report proposes launching a variety of investment vehicles to facilitate retail and institutional investments in the EU economy and especially its green energy transition efforts. These include an EU-wide auto-enrollment Long Term Savings Product leveraging tax incentives by member states; enhancing the Pan-European Personal Pension Product; a European Long-Term Fund; as well as a European Green Guarantee facility to support bank lending to green energy projects. Unfortunately, this well-meaning proposal fails to tackle the underlying causes of the EU’s fragmented capital markets.

While the proposed funds and products may be worthwhile, it is difficult to assess their contributions to reviving EU economic growth until more operational details are forthcoming. Meanwhile, by emphasizing the use of tax incentives and guarantees, the report has downplayed the unglamorous but crucial tasks of harmonizing laws, regulations, market structures, and practices in twenty-seven member countries to forge a seamless European capital market where savings can flow to the best opportunities without internal barriers. The harmonization job is far more complicated than it sounds—involving the development of common rules or at least common and consistent standards for corporate laws. That includes bankruptcy and reorganization provisions, creditors’ ease in seizing and liquidating loan collaterals, tax procedures, supervision of markets and entities, accounting standards, trading rules including for shorting, investment rules for institutional investors such as pension funds, insurance companies and mutual funds, listing requirements including the languages used for prospectuses, etc. Turning all these national rules and regulations into a common EU rules book has run into strong resistance from vested interests in various countries, explaining the slow progress to date in advancing the Capital Market Union. However, without making much more headway in these nuts-and-bolts issues, the proposed European Savings and Investments Union will likely be slow in taking shape as well.

The report also singles out practices which hinder the channeling of savings to investments in the EU but does not get to the root causes of the problems or suggest ways to overcome the impediments.

Firstly, the report bemoans the fact that while the EU is home to €33 trillion ($35.4 trillion) of private savings, annually €300 billion ($321 billion) are being diverted to overseas financial markets, primarily to the United States, due to internal fragmentation. However, it does not recognize, and does not suggest ways to rectify, the fundamental factor attracting European savings to the much larger US stock market, which accounts for 54.5 percent of world market capitalization compared to large European markets at 15.7 percent. Investment flows to the United States primarily because of superior returns on American equity markets compared to those of the EU. Specifically, for the period 1900-2020, the average annual nominal return on US equities was 9.6 percent compared to 7.2 percent for Europe. So long as this remains the case, savings from the EU and the rest of the world will continue to be attracted to the United States, where foreign investors own 40 percent of the stock market. So the EU need both reforms and investment: structural reforms to make the EU economy more productive and its corporations more profitable will create more investment opportunities to deploy European savings at home—while more investment now could help improve EU productivity and growth prospects. Thus, while it is wise to find ways to increase investment in the EU, the problem is more fundamental than just the efficiency of capital markets.

The Letta report also points out the fact that EU households keep 34.1 percent of their savings in bank deposits, not investing those in stock and bond markets. It is important to realize that this behavior of European households reflects their cultural and traditional preference for loss avoidance over capital gains with risk. As such, a more developed Capital Market Union may encourage somewhat more allocation from bank deposits to portfolio or direct investments, but that would not substantially change the loss-avoiding investment behavior in the near term. Instead, it is more useful for policy makers in the EU to find ways to create a business environment for EU banks which receive an important part of its funding from retail depositors to invest the proceeds more productively.

Relative to US peers, EU banks have posted very low returns on assets (ROA) (of 0.4 percent vs. 1.4 percent for the United States) as well as low returns on equity (ROE) (fluctuating between 2-6 percent, about half of the US level). Consequently, market valuation of EU banks has been much lower than that of US banks: the price to book ratio of EU banks in 2014-2021 averaged 0.79x compared to 1.53x for US banks. In short, helping EU banks become more efficient and profitable—for example by launching the European Deposit Insurance Scheme (EDIS) to complete the Banking Union—would probably do more to support EU economic growth than trying to get EU households to change their investment behavior from bank deposits to market investments.

In conclusion, in highlighting the inefficiency of EU capital markets and proposing several products and policies for improvement, the Letta report has focused attention to the need to complete and upgrade the Capital Market Union, and the Single Market in general, to help the EU improve its economic performance in an era of geopolitical rivalry. However, much of the work requires attention to the detailed harmonization of economic and financial rules and regulations across the membership to promote a seamless market for savings and investments. These are unglamorous and painstaking tasks, but they need to be done.

Hung Tran is a nonresident senior fellow at the Atlantic Council GeoEconomics Center, a former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.

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Webster quoted in Recharge News on Chinese wind power dominance

smeadows — Thu, 02 May 2024 14:46:30 +0000

original source

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#BalkansDebrief – Why do North Macedonia’s elections matter for its EU future? | A debrief with Aleksej Demjanski

sjones — Wed, 01 May 2024 14:47:44 +0000

IN THIS EPISODE

On May 8, voters in North Macedonia will go to the polls in a pivotal parliamentary election that will chart the nation’s course towards European Union integration, alongside the decisive second round of the presidential election. The outcomes are anticipated to signal a shift in the electorate’s mood, reflecting their discontent with the stalled EU accession progress since the 2019 name change and the tensions with Bulgaria over demanded constitutional amendments.

Nonresident Senior Fellow Ilva Tare and political analyst Aleksej Demjanski, editor of the MacedonianMatters newsletter, discuss in this episode of #BalkansDebrief the significance of these elections for North Macedonia’s European aspirations.

They explore what Gordana Siljanovska-Davkova’s lead in the presidential election’s first round, securing 40.1% of the votes, reveals about the public’s appetite for change. The conversation will also cover the core messages and strategies of the incumbent SDSM party’s campaign, as well as the resonating themes of the opposition VMRO-DPMNE’s efforts, and how they align with the citizen’s concerns.

Furthermore, the conversation covers the potential post-election alliances. Could we witness a coalition between VMRO-DPMNE, ZNAM, and VLEN, or will the SDSM and DUI maintain their coalition? How will the political landscape and impact North Macedonia’s EU path?

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The case for Mario Draghi as the next European Council president

Mario De Pizzo — Tue, 30 Apr 2024 07:00:00 +0000

The European Union (EU) is at a crossroads: It must choose either to enact significant reforms or accept its impending decline. One of the few leaders willing to make much-needed reforms is Mario Draghi, the former president of the European Central Bank and former prime minister of Italy. As European Central Bank president from 2011-2019, Draghi is widely credited with having deftly handled the European debt crisis and preserving the euro. Having saved Europe once before, he could be the one to help Europe face today’s geopolitical crises.

It starts with Draghi’s forthcoming report on EU competitiveness, at the request of European Commission President Ursula von der Leyen, to be published after the June 6-9 elections for the European Parliament. According to a source close to Draghi, who shared early details on condition of anonymity, the report will likely include a frank appraisal of Europe’s weaknesses. Brussels should pay close attention, and lawmakers should elevate Draghi to be the next European Council president to help make his report’s prescriptions for a more integrated and competitive EU a reality.

Time to compete

The most important things that happen in the world don’t happen in Europe; this is especially true regarding the economy and technological innovation. Draghi is strongly convinced of this, and the competitiveness report will likely dive into Europe’s limited creative and productive capacities.

Draghi is set to deliver a cold, hard dose of reality: Right now, Europe lacks both the resources and the will to compete with the rest of the world, especially considering the capacity of the United States and China to stimulate the economy through government spending. But the report will also likely highlight the fact that Europe has tremendous opportunities to correct for these shortcomings.

One reform that the document will promote is the establishment of interconnections between national production systems, with a view toward creating a single European system of integrated continental supply chains—an ambitious aim, to say the least. “The geopolitical, economic model upon which Europe has rested since the end of the second world war is gone. The European Union has to become a state,” Draghi said at the end of November. His vision for Europe entails the establishment of public debt, fiscal policy, and defense as the pillars of the new EU. He is also convinced that the EU needs five hundred billion euros per year to lead environmental and digital transitions and to provide social protection to its citizens.

As Draghi said in Washington in February, European countries will require “more investment even at the cost of higher public deficits to stimulate growth and fight inequality without forgetting the importance of raising productivity and to assign a new role of budgetary policy that reaches where monetary policy alone cannot reach.”

Draghi is widely regarded as, above all, a defender of European interests and an Atlanticist. As Italian prime minister, he was a key player in aligning Europe with Ukraine. Moreover, he personally developed the system of sanctions placed on Russia’s central bank. This demonstrates a strong track record for defending the EU’s freedom and democracy against any threats.

Draghi’s vision could be the source of inspiration for a government program for the EU for the next five years. And Europe needs his engagement to realize these aims.

The next Council president?

How might Draghi engage with the European institutions? Many observers in Brussels and across the continent think that he could be the next president of the European Council. Even though this institutional office is often criticized for being largely symbolic and lacking a cabinet, it’s the person that makes the office. The president sets the agenda of the Council and could be more than an honest broker between national leaders. A president with Draghi’s vision could truly lead. For example, as European Council president, Draghi would be able to start the process of reforming the EU’s founding treaties by proposing items in formal and informal discussions, as well as crafting plans to realize the policies he will suggest in his report. As he said in Brussels at the High-level Conference on the European Pillar of Social Rights on April 16, “we will need a renewed partnership among member states—a re-defining of our union that is no less ambitious than what the founding fathers did seventy years ago with the creation of the European Coal and Steel Community.”

The problem is that, for now, Draghi has said publicly that he is not interested in assuming any European office, and no political leaders are asking him to get involved.

The campaign for European Council president will start after the elections in June. The new balance of power between the European parties will be determined, together with their agreement on who will hold the main European offices. Three parties that are likely to contend for a leading role in the EU institutions are the European People’s Party (EPP), the Socialists and Democrats (S&D), and Renew Europe (Liberals).

The EPP is expected to be the largest group in the European Parliament. Draghi has a strong influence on the EPP’s leader, von der Leyen, who could ask him at the very least to go on with his work on competitiveness. However, the EPP—mainly the northern European members—are not too keen on the idea of “good debt” that Draghi proposes.

S&D is likely to nominate former Portuguese Prime Minister Antonio Costa as president of the European Council, but he might not be proposed by his country, in which case the nomination would not move forward. During the Socialist Congress in Rome, one of the main leaders, secretary of the Italian Democratic Party Elly Schlein, publicly supported Draghi’s plan to spend five hundred billion euros per year for environmental and digital transitions. And the former Italian prime minister is highly respected by two other influential S&D members: Spanish Prime Minister Pedro Sánchez and German Chancellor Olaf Scholz.

In addition, Draghi has a strong relationship with French President Emmanuel Macron, the leading voice of the Renew Europe group. According to a source close to Macron, his support for Draghi will depend on the outcome of French president’s talks with other European leaders after June 9. The sense is that Macron considers von der Leyen a good choice for a second term as commission president, despite the two campaigning against one another and having disagreements on specific issues. And if von der Leyen backs Draghi, that will bring Macron along, too.

Concerning the other parties, it looks like it will be difficult for the Conservatives and Reformists Party (ECR) to enter into a coalition together with the Socialists. But ECR leader and Italian Prime Minister Giorgia Meloni already has a strong relationship with von der Leyen, and proposing the pro-European Draghi for president of the European Council might be a way to strengthen her accountability with EU partners. Whatever happens after June 9, Europe will need, to paraphrase a quote often attributed to Henry Kissinger, a leader able to carry the European Union from where it is to where it has not been. Draghi could provide that kind of leadership as president of the European Council.

Mario De Pizzo is a nonresident senior fellow at the Atlantic Council’s Europe Center. He is currently a journalist at TG1, Italy’s flagship television newscast program produced by RAI, Italy’s national public broadcasting company.

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‘Our Europe is mortal. It can die.’ Decoding Macron’s Sorbonne speech.

Gérard Araud — Mon, 29 Apr 2024 21:08:00 +0000

In 2017, just after being elected, French President Emmanuel Macron delivered a speech at the Sorbonne to push for an ambitious European agenda. It was centered around the concept of a “sovereign Europe” in different fields. While hardly any of its proposals have come to fruition, it is remarkable that, seven years later, all the issues it raised are still on the table. Obviously, the speech was not off the mark. Nevertheless, the world has changed a great deal since 2017. There was Brexit, the COVID-19 pandemic, and Russia’s full-scale invasion of Ukraine. So, the speech Macron delivered, again at the Sorbonne, on April 25 was an opportunity to set out his vision of how to actualize his previous pronouncements.

This speech may also be read as a signaling exercise to shape the agenda of the next European Union (EU) political cycle of 2024-2029, the term of the next European Commission and European Parliament.

On economic issues, after the grim diagnosis that the EU is “falling behind,” Macron used his speech to develop four types of proposals:

The deepening of the single market, with a reference to the report former Italian Prime Minister Enrico Letta presented to the Commission a week earlier, but also with a call for the loosening of competition rules in some cases;
An EU industrial policy to support research and development, nuclear energy, and strategic sectors, supported by a Buy European Act;
Reform of EU trade policy on the basis of strong environmental and social standards, with an expression of support for the Comprehensive Economic and Trade Agreement (CETA) with Canada but opposition to the agreement with the South American trade bloc MERCOSUR;
The mobilization of private investments through new financial instruments, including new resources and mutualized EU debt.

It’s a very French agenda, especially with its protectionist and anticompetition undertones. It will be contested and limited by northern European countries, but the Letta report and what is known of the upcoming report on competitiveness by former Italian Prime Minister Mario Draghi show that the tone of the conversation within the EU about trade and competitiveness is changing. Macron’s argument that the “two leading international powers have decided to stop respecting the rules of trade”—which put China and the United States on an equal footing—is meeting a growing echo in Europe. Former US President Donald Trump’s protectionism and current President Joe Biden’s 2022 Inflation Reduction Act, along with the dramatic Chinese breakthrough in the car industry, have made an impact in public opinion and the business community in Europe. In Brussels, the free-trade diehards still have the upper hand but are on the defensive.

On security issues, Macron said that “the days of Europe . . . relying on the US for security are over.” He added that

“the rules of the game have changed. And the fact that war has returned to European soil, and that it is being waged by a nuclear-armed power, changes everything. The very fact that Iran is on the verge of acquiring nuclear weapons changes everything.”

Macron has no illusions about the future of US commitment to European security. Therefore, he thinks Europe should be prepared for US disengagement—brutal with Trump, gradual with Biden. He described Europe’s dire strategic environment and the fact that the EU has only started to adjust to it. He has been announcing it for seven years without much result among EU member states or in French public opinion. What he calls for now is for Europe to dramatically increase European military capabilities with common borrowing, which is a quasi-taboo topic in some northern European countries. “This is why,” Maron explained, “in the coming months, I will be inviting all our partners to help build this European defense initiative, which must first and foremost be a strategic concept from which we will then derive the relevant capabilities.” He added several low-key proposals, including common training of officers and a small rapid reaction force, based on ideas that have been floating around for some time (and which in no way change the current paradigm).

Macron went on to explain that “nuclear deterrence is at the heart of France’s defense strategy. It is therefore an essential element in the defense of the European continent. It is thanks to this credible defense that we will be able to build the security guarantees expected by all our partners.” In saying this, however, he didn’t break new ground, since the European dimension of French nuclear deterrence has appeared in French doctrine as far back as 1972.

In all, Macron captured the essence of the issues, but he elicited expectations that he will never meet. In a sense, he is a Cassandra doomed to fail. France has limited means and other member states have different visions, especially in economic and financial matters. Indeed, Macron’s speech clearly was a French agenda for Europe—more defense, more investment and innovation, fewer regulations, different competition rules. Furthermore, it set Europe out as a partner but also, repeatedly, as a competitor of the United States. He underscored that the EU shouldn’t be “the vassal of the United States,” and that “Europe is not just a piece of the West, but a continent-world that thinks about its universality.” This won’t be greeted positively in some European capitals.

In the end, it might not have been a new vision but, in a sense, the speech’s most important message was a tone of urgency, also with a view to the upcoming EU elections. “Our Europe is mortal,” Macron said. “It can die, and it all depends on our choices.” With this urgency, Macron encouraged the EU to stop being naïve and take risks. The world has become more competitive and ruthless, and the EU is the only power still playing by the book. The EU has lagged in adapting to the ongoing paradigm shifts in growth, trade, defense, security, climate, and regulation. “The awakening is too slow, too weak in the face of the generalized rearmament of the world.” He warned that “uninhibited regional forces” are demonstrating their capabilities—mentioning Russia and Iran, but not China—and that “Europe is surrounded.”

As usual with Macron, the nearly two-hour speech was too long and too French in its tone and in its abstraction. It touched on too many issues, and it lacked implementation specifics. In this sense, it may feed some irony and skepticism. But in today’s EU, Macron is the only leader capable of giving a speech that is ambitious and comprehensive. He is setting the coming EU agenda, but he knows he will not get everything he wants. Far from it. In a sense, he is fulfilling the traditional French role in the EU, arrogantly ruffling feathers and providing ideas.

Gérard Araud is a distinguished fellow with the Atlantic Council’s Europe Center, where he works on the future of Europe, EU politics, and the future of statecraft. He served as ambassador of France to the United States from 2014 to 2019.

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US takes big step toward making Russia pay for Ukraine invasion

Kira Rudik — Sun, 28 Apr 2024 23:13:22 +0000

The landmark US aid bill signed by President Biden on April 24 has visibly boosted morale in Ukraine. Many analysts believe the $61 billion package will significantly improve Ukraine’s military outlook, easing months of critical supply shortfalls and creating new opportunities to strike back at the invading Russian army.

While most attention has so far focused on the military aspects of this new US aid package, the bill passed in Washington DC also includes an important step toward holding Russia financially accountable for the invasion of Ukraine. The Rebuilding Economic Prosperity and Opportunities for Ukrainians Act, or REPO Act, paves the way for seizures of Russian Central Bank holdings that have been frozen in the United States for more than two years, while also setting the stage for a more global approach to confiscating Russian assets.

Western countries froze approximately $300 billion in Russian assets following the onset of Russia’s full-scale invasion of Ukraine in February 2022. The Kremlin has been unable to access these assets ever since, but they still technically belong to Russia. The REPO Act could now make it possible to seize Russian assets and use them for the benefit of Ukraine. Only around $5 billion of the overall $300 billion is located in the US, but the United States is setting an important precedent by taking a leadership position in the confiscation of Russian state funds.

We should not expect any immediate action. The REPO Act obliges the White House and US Treasury Department to identify Russian assets in the US within a 90-day period and report back to Congress in 180 days. After a further month, the president is then authorized to “seize, confiscate, transfer, or vest” any Russian state sovereign assets located within the United States.

The US is unlikely to act unilaterally. Instead, United States officials have indicated they wish to move forward in conjunction with other Western governments. The issue is set to be high on the agenda during the next G7 summit, which is scheduled to take place in Italy in June. “The ideal is that we all move together,” commented US National Security Advisor Jake Sullivan on April 24. This would send a message to Moscow that the democratic world is united in its commitment to make Russia pay for the largest European invasion since World War II.

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In order to appreciate the significance of the REPO Act, it is helpful to track Russia’s reaction. Since the aid bill passed, there has been plenty of outrage in Moscow. Former Russian President Dmitry Medvedev expressed his wish for the United States to be “plunged into a new civil war,” and threatened to seize the assets of US citizens in Russia. Kremlin spokesman Dmitry Peskov warned that Russia would make the United States answer for the confiscation of frozen assets.

Meanwhile, Russian Duma Speaker Vyacheslav Volodin said Russia could now pass “symmetrical” legislation allowing Moscow to confiscate Western assets located inside the Russian Federation. Volodin was one of many Russian officials to claim that the US step was intended to “provoke” the adoption of parallel measures in EU countries. He predicted that this would be “devastating” for the European economy.

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Skeptics in the West have voiced concerns that the seizure of Russian assets could undermine the global financial system and weaken Western economies. European Central Bank President Christine Lagarde is one of numerous senior figures in Europe to express unease over the confiscation of Russian assets, arguing that it could mean “breaking the international legal order that you want to protect, that you would want Russia and all countries around the world to respect.”

This caution ignores the fact that Russian state assets in Western jurisdictions have now been frozen for more than two years without sparking any noticeable negative consequences for the international financial system. If measures against Russian assets were sufficient reason to trigger a loss of confidence in the existing financial system among other authoritarian states, they have already had ample time to react.

The statements coming out of Moscow over the past week underline the sensitivity within the Kremlin to the confiscation of frozen Russian money. While the REPO Act represents a meaningful milestone in the debate over Russian assets, it is not decisive. Nevertheless, this aspect of the aid package has attracted almost as much attention as the very significant additional military support that is now being sent to Ukraine.

It would certainly seem that members of Russia’s ruling elite are more concerned about the security of their own financial resources than the safety of the Russian soldiers fighting in Ukraine. Indeed, many observers have long argued that Putin’s top priority is safeguarding his own ill-gotten wealth and that of his inner circle. If the West is serious about defeating Russia in Ukraine, it should seek to exploit this apparent vulnerability.

Following the adoption of the REPO Act, the next stage in the process should be the promotion of similar draft laws by the European Union and G7 countries. The recent US decision on Russian assets can provide the impetus others have been waiting for. Russia only understands the language of strength, and views hesitation as an invitation to go further. Western leaders can now demonstrate their resolve by acting together to make Russia pay for its criminal invasion of Ukraine.

Kira Rudik is leader of the Golos party, member of the Ukrainian parliament, and Vice President of the Alliance of Liberals and Democrats for Europe (ALDE).

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Since late 2023, the negative impact of delaying military aid to Ukraine has been all too apparent. With Ukrainian troops often at a ten-to-one disadvantage in terms of artillery firepower, Russia has been able to advance at various points along the approximately 1000 kilometer front line of the war, capturing the town of Avdiivka in February and pushing further forward in recent weeks. Russian commanders have also taken advantage of growing gaps in Ukraine’s air defenses to launch a new bombing campaign targeting the country’s cities and civilian energy infrastructure. This has led to the destruction of multiple power plants, sparking fears of a looming humanitarian catastrophe.

As soon as it begins to arrive in the coming days, US aid will go some way to addressing the most immediate challenges facing Ukraine. The package approved this week in Washington DC includes air defense systems and interceptor ammunition that will help protect residential areas and vital infrastructure from further Russian bombardment. Likewise, the delivery of artillery shells and long-range missiles should make it far more difficult for the Russian army to advance and occupy additional Ukrainian territory. Russian dominance of the skies above the battlefields of eastern and southern Ukraine will also soon become increasingly contested.

At the same time, this new US military aid package will not provide Ukraine with anything like the quantities it needs to defeat Russia. This has been a problem ever since the start of the Russian invasion in February 2022. While the West has provided significant amounts of military aid, weapons have consistently been delivered to Ukraine after extended delays and in insufficient quantities. The first meeting of the Ukraine Defense Contact Group, which brings together more than 50 countries in support of Ukraine, did not take place until more than two months after the onset of Russia’s invasion. It would be almost a year before NATO member countries agreed to supply Ukraine with a modest number of modern tanks. With the invasion now in its third year, Ukraine is still waiting for the arrival of the first F-16 fighter jets.

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The underwhelming international response to Russia’s invasion has led to accusations that Ukraine’s partners seek to provide Kyiv with sufficient weapons to avoid defeat but not enough to actually win. This cautious approach is primarily due to the West’s well-documented fear of escalation. It also reflects widespread concerns over the potentially destabilizing geopolitical consequences of a Ukrainian victory.

Many in the West seem to sincerely believe that if confronted by the prospect of imminent battlefield defeat, a desperate Vladimir Putin may be prepared to use nuclear weapons. Putin himself has skillfully exploited these fears, intimidating Western leaders into self-deterrence with his frequent and thinly-veiled nuclear threats. Meanwhile, if Russia does lose the war, there is considerable anxiety that this could lead to the collapse of the Putin regime and the breakup of the Russian Federation into a series of smaller successor states. Faced with these nightmare scenarios, Kyiv’s Western backers have repeatedly shied away from bold decisions that could have turned the tide of the war decisively in Ukraine’s favor.

Russia’s war effort suffers from no such uncertainty or indecision. On the contrary, Putin has succeeded in mobilizing the entire country in support of his invasion. He has moved the Russian economy onto a war footing, and is now comfortably outproducing the far wealthier West in key categories such as artillery shells. The Kremlin-controlled Russian media and the Russian Orthodox Church have led efforts to consolidate popular backing for the invasion of Ukraine, which has been presented to the Russian public as a “holy war” and an existential struggle against the West. With no sign of domestic opposition and ample supplies of both men and equipment, Russia is clearly preparing for a long war.

There are growing indications that Europe now recognizes the scale of the threat posed by Russia. This week, Britain confirmed its largest Ukrainian military aid package to date. In recent months, French President Emmanuel Macron has acknowledged that Ukrainian victory is vital for European security, and has refused to rule out sending French troops. Across Europe, initiatives to boost armament manufacturing are gradually gaining momentum and will lead to far greater production volumes by the end of the current year. This is encouraging but it is not enough.

The recent scare over US aid has underlined the fragility of the current Western approach to arming Ukraine. With the future of US support for Ukraine still uncertain, European leaders must accept a far greater share of the burden. This means taking the necessary steps to move toward a wartime economy capable of supplying the Ukrainian military for years to come. Such a shift is likely to prove politically unpopular with domestic European audiences, but the alternative is even more unpalatable. Unless Putin is stopped in Ukraine, he will go further. Europe can either support Ukraine today or face a resurgent Russia tomorrow, with all the additional costs this would involve.

Peter Dickinson is editor of the Atlantic Council’s UkraineAlert service.

Tech companies should prioritize transparency obligations such as disclosing AI system use, clearly indicating AI-generated content, maintaining detailed technical documentation, and reporting serious incidents or malfunctions. These transparency measures are critical for ensuring AI systems’ trustworthiness, accountability, and explainability, which are the Act’s primary goals.

More peripheral requirements exist, such as registering the classified high-risk AI systems in a public EU database or establishing specific compliance assessment procedures. Prioritizing these key obligations allows tech companies to demonstrate their commitment to responsible AI development while also ensuring compliance with the most important aspects of the EU AI Act.

The Act strictly prohibits certain high-risk AI practices that have been deemed unacceptable. These prohibited practices include using subliminal techniques or exploiting vulnerabilities to materially distort human behavior, which has the potential to cause physical or psychological harm, particularly to vulnerable groups such as children or the elderly. The Act prohibits social scoring systems, which rate individuals or groups based on social behavior and interactions. These systems can be harmful, discriminatory, and racially biased.

Certain AI systems are classified as high-risk under the EU AI Act due to their potential to have a significant or severe impact on people and society. These high-risk AI systems include those used in critical infrastructure like transportation, energy, and water supply, where failures endanger citizens’ lives and health. AI systems used in educational or vocational training that affect access to learning and professional development, such as those used to score exams or evaluate candidates, are also considered high-risk. The Act also classifies AI systems used as safety components in products, such as robot-assisted surgery or autonomous vehicles, as high-risk, as well as those used in employment, worker management, and access to self-employment, such as resume-sorting software for recruitment or employee performance monitoring and evaluation systems.

Furthermore, AI systems used in critical private and public services, such as credit scoring or determining access to public benefits, as well as those used in law enforcement, migration, asylum, border control management, and the administration of justice and democratic processes, are classified as high-risk under the EU AI Act.

The Act set stringent requirements for these systems include thorough risk assessments, high-quality datasets, traceability measures, detailed documentation, human oversight, and robustness standards. Companies running afoul of the new rules could face fines of up to 7 percent of global revenue or $38 million, whichever is higher.

The Act classifies all remote biometric identification systems as high-risk and generally prohibits their use in publicly accessible areas for law enforcement purposes, with only a few exceptions. The national security exemption in the Act has raised concerns among civil society and human rights groups because it creates a double standard between private tech companies and government agencies when it comes to AI systems used for national security, potentially allowing government agencies to use these same technologies without the same oversight and accountability.

The EU AI Act has far-reaching implications for US AI companies and policymakers. Companies developing or deploying AI systems in or for the EU market will have to navigate the Act’s strict requirements, which requires significant changes to their AI development and governance practices. This likely would involve investments to improve risk assessment and mitigation processes, ensure the quality and representativeness of training data, implement comprehensive policies and documentation procedures, and establish strong human oversight mechanisms. Besides significant penalties, noncompliance with the Act’s provisions may result in reputational damage which can be significant and long-lasting, resulting in a severe loss of trust and credibility, as well as widespread public backlash, negative media coverage, customer loss, partnerships, investment opportunities, and boycott calls.

The AI Act’s extraterritorial reach means that US companies will be impacted if their AI systems are used by EU customers. This emphasizes the importance for US AI companies to closely monitor and adapt to the changing regulatory landscape in the EU, regardless of their primary market focus.

As Thierry Breton, the European Commissioner for Internal Market, said on X (formerly Twitter), “Europe is NOW a global standard-setter in AI”. The EU AI Act will likely shape AI legislation in other countries by setting a high-risk-based regulation standard for AI governance. Many countries are already considering the EU AI Act as they formulate their AI policies. François-Philippe Champagne, Canada’s Minister of Innovation, Science, and Industry, has stated that the country is closely following the development of the EU AI Act as it works on its own AI legislation. A partnership that is already strong with the boost of their joint strategic digital partnership to address AI challenges by implementing the EU-Canada Digital Partnership.

Similarly, the Japanese government has expressed an interest in aligning its AI governance framework with the EU’s approach as Japan’s ruling party is expected to push for AI legislation within 2024. As more countries find inspiration in the EU AI Act, similar AI penal provisions are likely to become the de facto global standard for AI regulation.

The impact of the EU AI Act on the technology industry is expected to be significant, as companies developing and deploying AI systems will need to devote resources to compliance measures, which raise costs and slow innovation in the short term, especially for startups. However, the Act’s emphasis on responsible AI development and protecting fundamental rights is the region’s first attempt to set up guardrails and increase public trust in AI technologies, with the overall goal of promoting long-term growth and adoption.

Tech giants, like Bill Gates, Elon Musk, Mark Zuckerberg, and Sam Altman have repeatedly asked governments to regulate AI. Sundar Pichai, CEO of Google and Alphabet, stated last year that “AI is too important not to regulate”, and the EU AI Act is an important step toward ensuring that AI is developed and used in a way that benefits society at large.

As other countries look to the EU AI Act as a model for their own legislation, US policymakers should continue engaging in international dialogues to ensure consistent approaches to AI governance globally, helping to ease regulatory fragmentation.

The EU AI Act is a watershed moment in the global AI governance and regulatory landscape, with far-reaching implications for US AI companies and policymakers. As the Act approaches implementation, it is critical for US stakeholders to proactively engage with the changing regulatory environment, adapt their practices to ensure compliance and contribute to the development of responsible AI governance frameworks that balance innovation, competitiveness, and fundamental rights.

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Webster quoted in Recharge on how the ‘revolutionary’ new EU trade weapon aims to blunt Chinese wind power

nsinha — Wed, 17 Apr 2024 14:49:48 +0000

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Ukrainian nuclear energy can fuel country’s recovery and power Europe

Suriya Evans-Pritchard Jayanti — Tue, 16 Apr 2024 13:42:13 +0000

Even while recent Russian attacks on energy infrastructure have once again thrust Ukraine’s besieged energy sector into the headlines, the country’s energy potential remains undiminished. Ukraine’s competitive advantage in clean power including wind, solar, and especially nuclear, is extraordinary. This capacity can play a leading role in funding the country’s reconstruction and could also help carve out a future place for Ukraine in Europe.

The cost of rebuilding Ukraine is currently estimated by the World Bank at $486 billion. Some of this, hopefully, will be paid for by Western governments and with seized Russian assets, but private investment and Ukrainian ingenuity will have to foot a large portion of the bill. However, with no end in sight to hostilities, global investors are more likely to put their money into longer term projects, of which large energy infrastructure is a prime example. Nuclear power is among the most promising options.

Ukraine has been a nuclear energy country since 1977. With the very high-profile exception of the 1986 Chornobyl nuclear disaster, which was much more a failure of Soviet bureaucracy and politics than of Ukrainian nuclear energy management, the country actually boasts a strong record of nuclear power success. Before Russia’s full-scale invasion forced the shutdown of the Zaporizhzhia Nuclear Power Plant in 2022, Ukraine had 15 reactors running, constituting approximately 54% of its baseload power generation.

Ukraine has a well developed nuclear energy industry including a national regulator and a large nuclear workforce. It also has a bilateral civilian nuclear power agreement with the US, known as a 123 Agreement, which means it is authorized to receive most US civilian nuclear technology. With US and European nuclear ambitions bogged down by over-regulation, spiraling construction and commodity costs, a limited nuclear labor force, underdeveloped supply chains, and a near irrational fear of nuclear accidents, Ukraine’s nuclear sector has a number of clear advantages.

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Ukraine’s nuclear agility is unparalleled. Now that it is a fully integrated member of ENTSO-E, the potential for the country to export nuclear-generated clean power to Europe is huge. While building new nuclear power plants in Ukraine is hardly a quick option, once full commercial power exports are authorized, Ukraine could make many billions per year on electricity sales to the rest of Europe.

With its preexisting nuclear industry, Ukraine could also potentially expand its nuclear capacity much faster than any newcomer to nuclear power generation. In the West, nuclear power plants can take 8-15 years to build, depending on regulatory approval times. They can cost approximately $2-3 billion for a single small modular reactor and as much as $15 billion for a large plant. In the past, Ukraine has been able to build nuclear power plants with significantly lower costs and in shorter time frames.

By purchasing Ukrainian power, Europe could save billions and reinforce its energy security. The EU’s energy transition plan is mostly focused on renewables, but a baseload is required to make renewable power sources usable as peak load. With war in the Middle East shutting down the Red Sea and Suez Canal shipping routes, new EU sanctions under consideration targeting Russian liquified natural gas (LNG), Russia bombing Ukrainian gas storage facilities holding European gas supplies, and the end of the Gazprom-Naftogaz transit contract in December 2024, nuclear power is the only scalable baseload available that is secure and zero emission.

Ukraine can also offer much cheaper power than other European countries. Although current Ukrainian prices are regulated according to wartime restrictions, and while Russian devastation of Ukrainian power generation capacity in March and April 2024 has affected markets, Ukraine will remain extremely competitive with the rest of Europe even once controls are lifted.

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The path forward will not be straightforward. In addition to the obvious challenges presented by Russia’s ongoing invasion, the biggest obstacles Ukraine faces in expanding its nuclear power capacity are investor fears and the need for reform at the country’s state-owned nuclear power company, Energoatom.

The possibility of private nuclear power plants is a huge opportunity for Ukraine’s economy and thus reconstruction, because the private sector almost invariably moves faster and more efficiently than the public sector. Many countries have privately owned and operated nuclear power plants, including the US and UK. This model makes it possible to raise funds quickly. It also brings security and rule of law benefits, along with operational benefits and the anti-corruption protections of Western business standards. Moreover, private companies can get started now, potentially years before state-owned entities.

As to public nuclear development, meaning with and through Energoatom, success will depend on achieving de-monopolization and reform of the state-owned company. Despite its nuclear power prowess and ownership and operation of all four of Ukraine’s nuclear plants, Energoatom is hampered in its nuclear expansion plans by a legacy Soviet corporate culture based on monopoly status. Its monopoly position in Ukraine has eliminated any internal incentive to adopt Western corporate standards, including anti-corruption norms.

In recognition of this, Ukraine’s parliament enacted a law in February 2023 requiring the corporatization of Energoatom in order to “open up additional opportunities for attracting significant investments in the industry and development of domestic nuclear energy, which is the key generation in the country,” according to Ukraine’s Minister of Energy German Galushchenko. This corporatization process is currently underway.

Intended to bring the nuclear behemoth into line with international corporate governance and structure standards, the reform of Energoatom requires the selection of an independent international supervisory board and the implementation of numerous internal policies and standards. It is seen as so important that its completion is a requirement for Ukraine to receive up to $100 million in financial support from the US under the recently signed Ukraine-US Memorandum of Understanding regarding Collaboration on Ukrainian Energy System Resilience.

Once the reform of Energoatom advances and possibilities for private nuclear power open up, Ukraine could lead the rest of Europe in constructing new nuclear power plants. Energy is one of Ukraine’s great strengths, as are an educated labor force and technological skills. Taken together, these assets can help fuel Ukraine’s reconstruction and power Europe’s energy transition through new nuclear development.

Suriya Jayanti is a nonresident senior fellow at the Atlantic Council’s Eurasia Center.

These elections matter for two reasons. For one, they will be an important test of how the EU populace judges Europe’s overall trajectory, even if national political debates wind up dominating the ballots. Second, the outcome can influence the makeup of the next European Commission and ease or complicate the EU’s legislative agenda.

First, the Parliament, while institutionally weaker compared to the other EU institutions, still plays an important role in advancing the EU’s agenda. Regulations and legislation travel through the over-seven-hundred-member Parliament, and the Parliament works with the Commission and European Council to enact the EU’s rules. The Parliament also holds sway over the approval of the European Union’s budget—controlling where billions of euros go across the bloc and the world—and over the approval of trade agreements such as the now-moribund EU-China Comprehensive Agreement on Investment. The European Parliament has historically relied on an informal coalition of the center-right and center-left to form a consensus that supports greater powers for the EU legislature. A shift along the political spectrum may add more variation in how coalitions are formed to pass legislation.

This is all to say that the preferences of voters from Madrid to Milan and from Dublin to Dubrovnik will impact how the European Union takes forward critical policies on issues that have come to dominate the agenda, including, for example, the Russian invasion of Ukraine, democratic backsliding, climate change, agriculture, trade, migration, and relations with China.

The elections will also influence the makeup of the European Commission, the bloc’s powerful executive arm. The EU’s heads of state nominate the Commission president—via a system of horse trading—but the Parliament must approve the nomination and the makeup of the larger Commission leadership. This will matter for current Commission President Ursula von der Leyen’s shot at a second term. The Commission has grown in stature and importance in recent years, but it still requires buy-in from the Parliament.

These elections also matter for Washington. The Biden administration has treated the EU as a partner of first resort, and the administration is perhaps the most pro-EU in US history. Von der Leyen specifically has been one of US President Joe Biden’s closest partners. His administration has relied on a strong EU partner on issues including its approach to Russia, the green transition, and cooperation on technology and digital issues—notwithstanding bilateral irritants that have largely been contained. The Commission under a second von der Leyen term would continue to have general freedom to pursue coordination with Washington, but a new Parliament with its own priorities may indirectly shift how the Commission is able to deal with Washington.

—Jorn Fleck, senior director of the Atlantic Council’s Europe Center

What is the electoral process?

The European Parliament is the bloc’s only directly elected democratic body, connecting EU citizens to the decisions made in Brussels. Meanwhile, the European Council and Council of the European Union are made up of EU member heads of state and ministers, respectively, and the college of European Commissioners is chosen by consent from the Council and Parliament.

Elections for the European Parliament are held every five years and are run at the national level. Countries are granted seats broadly based on population. In its current makeup, for example, Germany has the largest number of members, with ninety-six. Cyprus, with a much smaller population, has six members. Voting rules and procedures also differ in each country. The minimum voting age, for example, differs across the continent—sixteen in countries like Austria, Belgium, and Germany and eighteen in others. Voting systems—proportional, first-past-the-post, or others—also vary across the twenty-seven countries.

Voters pick candidates from national parties to be members of the European Parliament, and domestic politics play a massive role in the elections. In effect there are twenty-seven different elections across Europe over the course of the three days—each with their own flavor and core issues that combine European and national priorities. National parties across the bloc organize themselves into pan-European party groups based on their alignment with their respective European party family—such as the center-right European People’s Party or the center-left Party of European Socialists. The national parties affiliated with each European party will generally campaign with a coherent message across Europe. The group that receives the largest share of members is considered the winner of the elections. Once elected, members sit in the European Parliament in European political groups, which correspond to European parties, and these groups form the core building blocks of European Parliament voting blocs.

What is the connection between the European Parliament and the European Commission?

The European Parliament is a unique legislative body. Unlike national legislatures, the Parliament does not have the right of legislative initiative, meaning it cannot introduce legislation—that is a power reserved by the European Commission—and is otherwise a co-legislator with the Council of the European Union on most areas of EU policy. The Parliament, however, does play a role in shaping the Commission.

The president of the Commission is nominated by the European Council, the bloc’s heads of state, following the elections. The Commission president must then be approved by a majority in the Parliament. The Parliament also approves the appointment of commissioners—equivalent to US cabinet secretaries—following a series of hearings.

Since 2014, the European Commission president has been chosen through a Spitzenkandidat, or “lead candidate,” system in which each party group picks one lead candidate for the elections. The lead candidate for the largest party in the Parliament elections typically is put forward as the Commission president. But this is not always the case in practice. In the most recent elections, von der Leyen was a last-minute and unexpected pick for president even though she did not run as a candidate for the presidency.

What priorities are driving voters to the polls?

Click on a square on the map below to read a brief overview of each election.

Which are the key parties?

European People’s Party (EPP)

Composition: Center-right parties such as Christian-democratic, liberal-conservative, and conservative parties

European Parliament party group: European People’s Party Group

2019 results: 182 seats

2024 elections projection: Slight gain, from 182 to 186 seats

Group leader: Manfred Weber (Christian Social Union in Bavaria, Germany)

Lead candidate: Ursula von der Leyen (Christian Democratic Union, Germany)

Priorities: The EPP prioritizes making the euro more stable—through what the party calls sustainable economic policies—and emphasizes the importance of free trade in creating jobs, reducing poverty, and strengthening relations with other countries. It aims to help small and medium-sized enterprises thrive, especially because of the role these businesses have in fostering innovation and developing the European workforce. More broadly, the EPP takes a strong stance on security, arguing for a defense commissioner position, a European Security Council, and “Single Market for Defense.” The party calls for a migration policy that makes clear the distinction between asylum seekers and irregular migrants and that puts in place greater external border controls; the EPP also backs EU support for national antiterrorism efforts. On climate, the EPP also supports efforts to reduce greenhouse gas emissions and secure the bloc’s energy supply.

Party of European Socialists (PES)

Composition: Center-left and social-democratic parties

European Parliament party group: Progressive Alliance of Socialists and Democrats (S&D) Group

2019 results: 154 seats

2024 elections projection: Substantial loss, from 154 to 135 seats

Group leader: Iratxe García Pérez (Spanish Socialist Workers’ Party, Spain)

Lead candidate: Nicolas Schmit (Socialist Workers’ Party, Luxembourg)

Priorities: PES prioritizes social and labor rights by advocating for a living wage, affordable housing, and equal pay, as well as broader gender-equality initiatives such as efforts to counter gender-based harassment and improve women’s healthcare. After strongly backing efforts to fight the COVID-19 pandemic and support Ukraine following Russia’s illegal invasion, PES advances work on improving European resilience and self-sufficiency. With an eye toward future challenges, the group views climate change as a complex issue requiring a just transition and robust sustainability efforts and seeks to mitigate the social impacts of rapidly evolving digital technology.

European Conservatives and Reformists (ECR)

Composition: Center-right and far-right parties

European Parliament party group: European Conservatives and Reformists Group

2019 results: Sixty-two seats

2024 elections projection: Slight gain, from 62 to 73 seats

Group Leader: Ryszard Legutko (Law and Justice Party, Poland) and Nicola Procaccini (Brothers of Italy, Italy)

Lead candidate: Refusing to announce a lead candidate

Priorities: ECR has proclaimed itself a “Eurorealist” group and argues for a decentralized EU that relies more on national governments and focuses on transnational issues such as migration, terrorism, and European competitiveness. The group argues for countering the EU’s centralization and reforming the EU as a “community of nations cooperating in shared confederal institutions.” Furthermore, ECR wants to cut spending it considers wasteful by EU institutions and promote efficiency by protecting whistleblowers. On migration, ECR believes the EU needs to support member states in securing the external border and work with other countries to prevent migration.

Alliance of Liberals and Democrats for Europe Party (ALDE)

Composition: Center-left and center-right political parties

European Parliament party group: Renew Europe (Renew) Group

ALDE and associated parties in the Renew group are running under a common campaign platform for the 2024 elections. Subsequent content therefore represents the group instead of the party position.

2019 results: 108 seats

2024 elections projection: Significant loss, from 108 to 79 seats

Group Leader: Valérie Hayer (Renaissance, France)

Renew Lead candidate: Valérie Hayer (Renaissance, France)

Priorities: Renew is a pro-European group that promotes the integration of all European countries and believes in European solutions to challenges ranging from climate change to security and defense. Economically, Renew believes the single market is the path toward bolstering competitiveness and funding broader social initiatives such as health and education. The group aims to protect democracy, ensuring rule of law is respected, and countering populism and nationalism.

European Green Party

Composition: Left-leaning green and regionalist political parties

European Parliament party group: Greens-European Free Alliance (Greens-EFA)

2019 results: Seventy-four seats

2024 elections outcome: Significant loss, from 74 to 53 seats

Group leaders: Terry Reintke (Alliance 90/The Greens, Germany) and Philippe Lamberts (Ecolo, Belgium)

Lead candidate: Terry Reintke (Alliance 90/The Greens, Germany) and Bas Eickhout (GreenLeft, Netherlands)

Priorities: As an environmentally focused, pro-European group, the Greens argue for stronger climate regulations to meet ambitious emission reductions targets, for affordable green energy, and for greater environmental stewardship. More broadly, the Greens call on the EU to protect civil society, push for the installation of a minimum tax across the EU, and promote feminist policies and equal rights. The EFA subgroup focuses on self-determination and seeks to represent stateless nations, emerging states, and minority regions.

Identity and Democracy (ID)

Composition: Far-right nationalist and populist parties

European Parliament party group: Identity and Democracy Group

2019 results: Seventy-three seats

2024 elections outcome: Slight loss, from 73 to 58 seats (Note: this includes the loss of the German AfD)

Leader: Marco Zanni (League, Italy)

Lead candidate: Anders Vistisen (Danish People’s Party, Denmark) was named a token lead candidate to participate in the spitzenkandidat debate

Priorities: ID is a Euroskeptic group that argues for national governments having greater control over policy and disapproves of the EU imposing taxes or budgets. They also say that they want to preserve European national identities and are strongly opposed to immigration or Turkey joining the EU.

Party of the European Left

Composition: Left parties including democratic socialist, left-wing populist, and communist parties

European Parliament party group: The Left in the European Parliament (GUE/NGL)

2019 results: Forty-one seats

2024 elections outcome: Slight loss, from 41 to 36 seats

Leader: Manon Aubry (La France Insoumise, France) and Martin Schirdewan (The Left, Germany)

Lead candidate: Walter Baier (Communist Party, Austria)

Priorities: The Left is a pro-Europe group that seeks to use the EU to secure equal rights, counter economic inequality by wealth redistribution, and commit Europe to sustainable practices to tackle climate change and uphold animal rights. The group wants the EU to promote human rights globally and build its foreign policy based on peace. More broadly, the Left believes in “dignity, equality, and solidarity” in reference to civil liberties and therefore works towards reducing sexism, homophobia, racism, and xenophobia.

While the vast majority of Members of the European Parliament associate with one of these groups, a small handful do not belong to any group. These MEPs are called “Non-Inscrits.”

What is the makeup of the new European Parliament?

*Other includes newly elected MEPs that are not yet affiliated with any party group.

For more content on elections taking place around Europe in 2024, check out our Transatlantic Horizons project.

The state of de-risking is strong . . . on paper

Europe’s de-risking is a work in progress, but it is still progress. Speeches don’t translate into immediate policy change, least of all in Brussels, with its complex consensus- and compromise-based decision making. But at both the European Union (EU) and the member state level, de-risking has moved up the policy agenda.

At the EU level, the European Commission has grown increasingly proactive in strengthening Europe’s economic defenses against Chinese influence and leverage. In June 2023, the Commission published its Joint Communication on a European Economic Security Strategy. This strategy began to build out the tools to convert von der Leyen’s speech into policy, including setting in motion reviews of the EU’s foreign direct investment screening and a proposal for new outbound investment rules. The Commission followed up this strategy in January 2024 with the release—delayed though it was—of five new proposed initiatives, including stronger export controls, further research on the dual-use potential of technologies, and assessments on risks from outbound investments.

In late 2023, the European Commission launched a probe into unfair subsidies to China’s electric vehicle (EV) manufacturers with the potential to impose punitive tariffs. The EU’s anti-coercion instrument (ACI), which allows the bloc to leverage tariffs or restrict trade and investment in light of economic coercion, also finally entered into force in late December. While the ACI was announced without explicitly naming China, the tool was outlined in concept by French President Emmanuel Macron following China’s attempts to pressure Lithuania over Vilnius’s growing relations with Taiwan.

De-risking also applies to the bloc’s reexamination of its state aid rules and industrial policy. The Net Zero Industry Act and Critical Raw Materials Act—introduced before von der Leyen’s de-risking speech, in part in reaction to Europe’s uproar over the United States’ 2022 Inflation Reduction Act—have been folded into the bloc’s de-risking thinking.

The de-risking approach has also become the adopted framing of the West’s coordination on China. US National Security Advisor Jake Sullivan endorsed von der Leyen’s de-risking approach in his remarks on Washington’s relations with Beijing in April 2023. The term also made its way into the G7 leaders’ pledge at the Hiroshima Summit in May.

All that said, most of the EU’s measures and policies primarily exist on paper. Many of the policy instruments are still in the assessment phase. And the Commission’s proposals will only have staying power if they are used. Should the Commission find evidence of unfair competition from Chinese EV production but fail to take action against EV imports, it would weaken the credibility not only of the economic security package but also of the Commission’s will to stand up to China.

The de-risking is in the details

Europe’s relationship with Beijing was changing before von der Leyen’s de-risking speech, but Europe will face more challenges in its de-risking—especially with China’s centrality in the green transition.

While European imports from China are falling, Brussels has much more to do. Average imports of manufactured goods are down by around ten billion euros from their peak in late 2022. Imports of machinery and transportation equipment are down four billion euros over the same period. This, however, has only begun to resolve the COVID-19 pandemic import surge that swept across the EU and other advanced economies as countries began to reopen. For example, if the average monthly growth of EU imports from China between 2017 and 2019 had continued at the same rate, without this post-pandemic surge, then the expected monthly EU imports from China would be around four billion dollars less than the actual current amount.

Can Europe do much more to reduce its reliance on China? For a continent that has prioritized the clean energy transition, the challenge will be de-risking from clean energy technologies, which is where China dominates supply chains. The EU imports around 29 percent of its wind turbines and component parts and approximately 68 percent of its heat pumps from China.

The biggest challenge both for green and traditional goods will come on four wheels. China has long been a crucial export market for the EU and member states such as Germany, but recently it has become a large importer of cars from China, too. The EU still maintains a positive trade balance with China in cars, but surging Chinese exports suggest that, without new protectionist measures, the EU may become a net importer. While EU exports have remained flat since 2019, the bloc’s imports from China have skyrocketed by over 3,000 percent, with average monthly imports growing from $33 million in 2019 to $1.07 billion in 2023. Imports of Chinese EVs, including from Chinese automotive giant BYD and the formerly British, now Chinese company MG, have contributed some 75 percent of that growth.

It’s also important to look within the EU. The bloc is not a monolith, after all. The EU has internal divergences on car sales, which will likely be a divisive issue in internal EU debates over de-risking. Berlin will need to decide if it can stomach potential retaliation from Beijing to its auto manufacturers in the name of protecting EU automakers writ large. So, while de-risking is more realistic than decoupling, and in fact is taking place in some form, the hardest work is yet to come.

China’s anti-de-risking campaign

Meanwhile, Beijing has lambasted the de-risking terminology as a disingenuous reframing of decoupling—“there is a sense that ‘de-risking’ might be ‘decoupling’ in disguise,” as Chinese state-run media put it—and underscored that Brussels’s economic security push is a capitulation to Washington’s desire to enlist allies in its efforts to undercut China’s growth.

Beijing recognizes the importance of economic engagement with Europe to boost China’s increasingly sluggish economy, particularly given the recent precipitous drop in foreign direct investment. Chinese leaders are thus intent on preventing implementation of the EU’s de-risking plans. Rather than undertake meaningful action to address Europe’s concerns about structural dependencies on China, however, Beijing is betting that EU member states’ disunity, and the enduring draw of the Chinese market, will stall economic security measures.

Beijing has plenty to point to. Chinese Ambassador to Germany Wu Ken recently cheered German businesses’ continued investment in China and claimed the two countries’ resilient trade ties reflected the “unpopularity” of the EU’s de-risking approach. German business leaders have cautioned against perceived EU “protectionism” stemming from de-risking, with Mercedes-Benz CEO Ola Källenius pushing greater investment in China as his personal definition of de-risking. Von der Leyen is also well out in front of many of her member state colleagues. The Commission already had to water down proposals on outbound investment rules and export controls after some member states voiced concerns over an increased regulatory burden. Earlier divisions between Berlin and Paris on engagement with China will likely continue.

China’s flurry of diplomatic engagement in Europe earlier this year hit the same notes. Foreign Minister Wang Yi warned at the Munich Security Conference in February that, “Those who attempt to shut China out in the name of de-risking will make a historical mistake.” Scholz and Macron will hear similar messaging when they each meet with Chinese leader Xi Jinping during Scholz’s visit to China in April and Xi’s visit to France in May. Dutch Prime Minister Mark Rutte likely heard the same on his trip to China in March, along with a push for Dutch chip company ASML to continue servicing Chinese chip machines critical to Beijing’s production of advanced semiconductors.

In that vein, there are no signs that Beijing will earnestly address European concerns driving the de-risking push. Chinese subsidies will likely continue to distort the European market, and Chinese goods will threaten to flood Europe as overcapacity looms in China. Beijing will double down on diplomatic overtures and positive messaging on the “complementarity” of the Chinese and European economies while taking every opportunity to create wedges between member states. Meanwhile, Beijing will continue to “de-risk” its own economy, investing in self-sufficiency in manufacturing and advanced technology supply chains in ways that deepen existing challenges for European industry. In fact, the latest light dip in Europe’s trade deficit with China might be the result of that de-risking through import substitution on China’s part.

However, Beijing would be mistaken to conclude that Europe isn’t serious about de-risking. Brussels’s decision making is slow and bureaucratic. Europe may not appear united, and debate among member states will inevitably spill into the open. But European attitudes are not trending in Beijing’s favor. European member state leaders have become much more hawkish on China. European public opinion on China may not be as negative as their US counterparts, but it is not overly positive, either. China’s “no limits” partnership with Russia and perceived support for Moscow’s full-scale invasion of Ukraine have not gone unnoticed. Even in member states with conflicting views on China, public opinion polling notes apprehension of Chinese ownership of infrastructure or technology, for example. Combined with concerns about Europe’s overall competitiveness and geopolitical vulnerability, these dynamics might just give rise to enough political will and ambition to drive forward a more aggressive de-risking agenda.

The future of de-risking

Europe’s de-risking will also rely on what Washington does.

While there are some differences within the US administration, the United States and the EU seem broadly aligned in how they view the issue. Most European leaders could probably sign up to some version of Sullivan’s “small yard, high fences” paradigm of narrow-but-significant restrictions in trade in key sectors.

In practice, the US-EU Trade and Technology Council (TTC), the main artery of transatlantic coordination, has focused attention on aligning their approaches to nonmarket policies and economies—code for Beijing. The joint statement from the most recent TTC meeting in Leuven on April 4 and 5, for example, included new pledges by the United States and EU to develop their own 6G networks, while jointly pushing third countries to avoid high-risk vendors from China. The joint statement also announced plans for dialogue with third countries on the dangers of dependence on semiconductors from non-market economies like China.

But important differences remain. US-China relations are marked by mounting security competition in the Indo-Pacific, China’s challenge to the US-led global order, and a complex bilateral commercial relationship. Europe’s relations with China revolve almost entirely around European trade interests. Consequently, European political will and ambition regarding China is shaped less by conventional security concerns or great power competition, and more by concerns surrounding the potential disruption of the European economy. This means that it may face fewer internal pressures to go as far as the United States in de-risking key technology and critical mineral supply chains, although this could be at least partially addressed by more frequent transatlantic coordination on de-risking, such as through the TTC.

Complicating matters further is how well Europe can cultivate stronger trade relations and “friend-shore” manufacturing capabilities with emerging economies in the Global South to diversify away from dependence on China. If these countries feel that the United States and Europe are forcing them to choose between trade with China or with the United States and its allies, there may be a backlash against this approach that would push these states closer to China instead. This trend is already noticeable in some critical mineral-rich states such as Zimbabwe, which is under sanctions by Washington and has chosen to deepen its trade relations (especially in lithium) with China.

Lastly, European—and US—policymakers need to maintain realistic expectations. Europe will not be able to achieve de-risking in the short term. Nor will European de-risking go as far as many in Washington would want. De-risking will entail large-scale industrial development within Europe to build a more competitive economy that will have to occur over the medium to long term, across multiple European Commission terms. The von der Leyen Commission will therefore need to develop a roadmap for future European Commissions to follow to ensure the eventual success of such a strategy. Like the entire de-risking exercise, this will be easier said than done.

Jörn Fleck is the senior director of the Atlantic Council’s Europe Center.

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center.

David O. Shullman is the senior director of the Atlantic Council’s Global China Hub.

James Batchik, Matthew Geraci, Niels Graham, and Francis Shin contributed research to this article.

The post Ursula von der Leyen set Europe’s ‘de-risking’ in motion. What’s the status one year later? appeared first on Atlantic Council.

Putin is weaponizing corruption to weaken Europe from within

Francis Shin — Tue, 02 Apr 2024 19:09:02 +0000

Corruption has long been a favorite weapon in Vladimir Putin’s arsenal. He used it extensively against Ukraine over a number of years to help prepare the ground for the full-scale invasion of February 2022. The Russian leader now appears to be employing the same weaponized corruption tactics honed earlier in Ukraine to undermine Europe and weaken the continent’s democratic institutions from within.

Czech and Belgian law enforcement agencies reported in late March 2024 that Kremlin-linked Ukrainian oligarch Viktor Medvedchuk was behind a Prague-based Russian propaganda network centered around the Voice of Europe outlet. Medvedchuk is accused of masterminding the distribution of anti-Ukrainian narratives in the European media and paying European Parliament members to promote Russian interests in their legislative activities.

This latest corruption scandal is a painful reminder that the EU and US remain at significant risk of Russian electoral interference in the lead-up to elections later this year. For the EU specifically, the scandal further demonstrates that it must put its own house in order if it is to credibly demand Ukraine do the same during the latter’s ongoing EU accession negotiations.

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The oligarch at the center of the scandal, Viktor Medvedchuk, has close ties to Russian President Vladimir Putin, who is godfather to Medvedchuk’s daughter. Throughout the three decades following Ukrainian independence in 1991, Medvedchuk was a prominent figure in the country’s political life and a vocal advocate of Russian interests.

Medvedchuk’s personal relationship with Putin helped earn him a reputation as the Kremlin’s unofficial representative in Ukraine. This led US intelligence agencies to identify Medvedchuk as one of Moscow’s top choices to head a puppet Ukrainian administration in the event of a successful invasion.

When Russian troops crossed the border in February 2022, Medvedchuk initially went into hiding. However, he was detained by the Ukrainian authorities two months later, and was eventually traded for a large number of Ukrainian POWs in one of the most controversial prisoner exchanges of the war.

Regardless of his exile and loss of Ukrainian citizenship, Medvedchuk remains an important ally to Putin. His leadership of the Voice of Europe influence operation indicates Europe’s continued vulnerability to the Kremlin’s weaponized corruption. Whereas Ukraine, the US, UK, Canada, Australia, and New Zealand all imposed sanctions on Medvedchuk and his associates some time ago, the European Union did not do so. As a result, Medvedchuk was still able to do business in Europe.

As a result of this apparent oversight, several of Medvedchuk’s EU-based assets are thought to have remained untouched until his involvement with Voice of Europe was uncovered. This gave him a degree of maneuverability with his EU-based financial assets that appears to have facilitated his allegedly illicit activities.

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In the wake of the recent revelations, the Czech authorities have imposed sanctions on Medvedchuk and other Kremlin-linked associates. Meanwhile, Belgian law enforcement agencies have opened probes into alleged bribes paid to serving MEPs from France, Germany, Belgium, the Netherlands, Poland, and Hungary, with the Polish authorities also launching an investigation.

While these measures are welcome, it is not clear why EU authorities did not act earlier to counter the Kremlin’s weaponized corruption. Many now fear the current scandal is just the tip of the iceberg in terms of Russian efforts to infiltrate democratic institutions and the media throughout the Western world. Looming elections on both sides of the Atlantic have added a sense of urgency to this debate.

In theory, the European Commission’s “freeze and seize” task force is meant to coordinate with the rest of the Russian Elites, Proxies, and Oligarchs (REPO) task force, which features the relevant national sanctions authorities from G7 member states and Australia. The fact that the EU’s sanctions listings still do not fully align with that of its REPO allies, especially on somebody as prominent as Medvedchuk, raises serious concerns over the effectiveness of this coordination.

The European Union should be setting an example when it comes to combating corruption. When recommending that the European Council open official EU accession negotiations with Ukraine in late November 2023, Commission Vice President Věra Jourová cautioned that Ukraine still had a long way to go in developing anti-corruption regulations, even as she praised the significant progress made by the Ukrainian authorities so far. Inevitably, questions are now being asked about the credibility of the EU’s own anti-corruption policies.

Recent claims of a major Russian influence operation operating in the heart of the EU should serve as a wake-up call for policymakers throughout the West. With the Kremlin clearly preparing for a long-term geopolitical confrontation, the need for vigilance will only grow. In response to this threat, transatlantic institutions should prioritize bolstering their ability to resist Russia’s weaponized corruption, while making sure the Kremlin’s agents are subject to the maximum available restrictions.

Francis Shin is a Research Assistant at the Atlantic Council’s Europe Center.

How China could respond to US sanctions in a Taiwan crisis

Logan Wright, Agatha Kratz, Charlie Vest, and Matt Mingey — Tue, 02 Apr 2024 01:00:00 +0000

Executive summary

Introduction

Chinese economic statecraft in a Taiwan crisis: Tools and applications

Access to Chinese markets

China i n the global economy

China’s capacity to circumvent financial sanctions and G7 economic statecraft

Using international Renminbi networks to circumvent sanctions

Current scope of Renminbi internationalization

P olicy constraints on expansion of Renminbi financial networks

Responding to G7 economic statecraft in a crisis

Assessing China’s capacity to respond to G7 statecraft

The impact on trade and FDI

Financial statecraft and consequences

Preventing escalation in economic warfare

Appendix 1: China’s formal economic statecraft toolkit

Authors

Acknowledgment

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Executive summary

Beijing has watched carefully as Western allies have deployed unprecedented economic statecraft against Russia over the past two years. Our report from June 2023 modeled scenarios and costs of Group of Seven (G7) sanctions in the event of a crisis in the Taiwan Strait. However, that report largely left unanswered a critical question: How would China respond?

This report examines China’s ability to address potential US and broader G7 sanctions, focusing on its possible retaliatory measures and its means of sanctions circumvention. We find that reciprocal economic statecraft measures would exact a heavy financial toll on the G7, China itself, and the global economy. Crucially, however, we also find that China is developing capacities that are making its economy more resilient to Western sanctions.

We consider the use of economic statecraft tools in two main scenarios: a moderate escalation over Taiwan limited to the United States and China that remains short of military confrontation, and a more severe scenario with G7-wide restrictions targeting Chinese firms and financial institutions. For each, we consider China’s potential responses to adversarial economic statecraft in terms of retaliatory action (including restrictions on economic activity within China and China’s potential actions abroad) and attempts to circumvent G7 sanctions.

We arrive at seven key findings:

China’s economic statecraft toolkit is quickly expanding. In the past five years, China has used a range of formal and informal statecraft tools, including tariffs, import bans, boycotts, and inspections, to punish firms and countries for their stances on Taiwan and other sensitive issues. In anticipation of the potential for more extensive foreign sanctions, China has also been legislating to equip itself with an expanded toolkit to respond. This scope of options distinguishes China from Russia, which had prepared for additional sanctions in a less organized fashion, and presents a significantly more difficult challenge for Western economic statecraft.
China’s statecraft toolkit is heavily weighted toward trade and investment rather than financial statecraft. We assess that in a moderate scenario where US exports to China are curtailed, more than $79 billion worth of US goods and services exports (such as automobiles and tourism) would be at risk. In a higher-escalation scenario involving G7-wide sanctions against China, around $358 billion in G7 goods exports to China could be at risk from the combination of G7 sanctions and Chinese countermeasures. On the imports side, we estimate that the G7 depends on more than $477 billion in goods from China which could be made the target of Chinese export restrictions. Regarding investment, at least $460 billion in G7 direct investment assets would be at immediate risk from the combined impact of G7 sanctions and retaliatory measures by Beijing. By comparison, China has limited financial tools available to directly influence G7 economies. What restrictions China imposes on capital outflows are likely to be driven more by financial stability concerns rather than attempts to coerce.
China will face steep short- and medium-term costs if Beijing deploys economic statecraft tools. China would face high economic and reputational costs from using economic statecraft tools, especially in a high-escalation scenario. While export restrictions would be one of China’s most impactful economic statecraft tools, it would also be among the costliest options for China. Over 100 million jobs in China depend on foreign final demand, and nearly 45 million of these jobs depend on final demand from G7 countries. In a high-escalation scenario, most of these jobs would at least temporarily be put at risk. Even in a moderate-escalation scenario, China’s viability as a destination for foreign investment would dramatically decline, with implications for China’s exchange rate and domestic financial stability.
China may prefer to avoid tit-for-tat retaliation for strategic reasons. As a result of the major costs to its citizens, China is unlikely to follow a tit-for-tat approach but will target sectors where it can inflict asymmetric pain, particularly through the use of export controls or trade restrictions on critical goods such as rare earths, active pharmaceutical ingredients, and clean energy inputs (e.g., graphite). China’s political objectives in a Taiwan crisis are unlikely to be served with a completely reciprocal response to G7 sanctions.
China will likely attempt to divide the G7 and thereby limit the impact of sanctions. In scenarios where the United States alone imposes sanctions on China, Beijing has more opportunities to circumvent sanctions using targeted retaliatory measures against the United States, but not other G7 countries. The G7 has varied relations with and commitments to Taiwan, and a significant proportion of firms, particularly in Europe, continue to see China as a critical export destination. In addition, China may use positive inducements to encourage countries across the Group of Twenty (G20) to stay neutral. Beijing may also leverage its large bilateral lending with a range of emerging and developing economies to attempt to circumvent or not implement G7 sanctions.
China is seeking to create resiliency to sanctions by developing alternatives to the dollar-based financial system, including renminbi-denominated transaction networks. Renminbi-based networks are never likely to replace the US dollar-denominated global financial system. However, the gradual expansion of these networks can help Beijing find alternative mechanisms for maintaining access to financing and trade transactions even in the event of far reaching Western sanctions or trade restrictions. A rapidly growing number of domestic and cross border payment projects are being designed with the possibility of Western sanctions in mind.
The timing of any crisis can significantly alter the impact of statecraft tools, for both the G7 and Beijing. Western efforts to de-risk and shift supply chains in the next five years may reduce Beijing’s “second strike” statecraft capacity over time. At the same time, China’s renminbi-based financial networks will expand in scope and liquidity, providing Beijing with more options to mitigate Western sanctions.

Introduction

The prospect of a crisis over Taiwan has generated intense discussion in recent years, as other unthinkable scenarios in global affairs have become depressingly manifest. Russia’s invasion of Ukraine presented the United States and its allies with a need to quickly escalate economic sanctions and other tools of statecraft against Russia as part of a broader political response. As tensions in the Taiwan Strait have risen, the policy community began asking whether similar tools could be used to deter China in a Taiwan crisis scenario. Senior leaders in China increasingly reference risks from Western sanctions in policy remarks, and Beijing has reportedly conducted its own assessments of China’s vulnerabilities to Western economic sanctions.¹

As tensions have risen within the US-China bilateral relationship, policymakers and analysts have started to actively discuss the potential use of sanctions, export controls on critical technologies, and China’s retaliatory responses. These economic statecraft tools are now being considered as options within a broader multilateral strategy toward China, without fully considering the consequences for cross-strait stability or the global economy. Over the last two years, economic warfare has become more plausible, even if military engagement still seems remote.

In June 2023, Rhodium Group and the Atlantic Council GeoEconomics Center published a report that found that the Group of Seven (G7) would likely consider a wide range of economic measures to deter or punish China in a Taiwan-related crisis scenario.² While that report highlighted what tools might be considered and their direct costs to the global economy, it largely set aside questions about China’s own economic statecraft tools and responses. This report aims to fill that gap and discuss China’s potential responses to G7 sanctions or other tools of statecraft.

While still extremely costly in economic terms, these tools are nonetheless likely to be considered in a crisis since the costs of war are far higher. But unless the US-China political tensions over Taiwan can be managed, these lines between economic and military warfare will be blurred in any crisis scenario, with economic statecraft tools appearing as plausible and manageable responses.

This is exactly why understanding China’s potential responses to US and allied statecraft is so important. Understanding China’s capacity for economic coercion and circumvention can help refocus policy debate around credible and effective deterrence of both broader military conflict and the steady escalation of tensions from more limited crisis scenarios. Just as theories of nuclear deterrence account for the concept of second-strike capabilities, so too must we consider economic retaliatory measures in assessing the deterrence character of sanctions.³ Recent actions by Beijing to establish export controls on critical raw materials and other critical inputs reveal that Beijing is practicing and refining its use of economic leverage, but the contours of China’s ability, willingness, and channels for action are not well understood.

A February 2024 Atlantic Council policy brief by a senior US official (at the time out of government) with deep experience in this domain outlined seven principles for the effective use of economic statecraft.⁴ While these principles focus on US options, the framework can also be used to evaluate the effectiveness of China’s policy instruments.

Designing and implementing a set of economic statecraft instruments in a Taiwan crisis scenario to achieve political objectives requires clarity on the trade-offs involved among these principles, and where benefits will outweigh costs. In a Taiwan crisis, decisions will need to be made quickly, making it critical to understand China’s potential response. While China’s retaliatory tools can inflict significant short-term economic pain, and China’s leaders may not be considering the same principles as outlined in the table below, Beijing will also struggle to mount an economic statecraft strategy that is both sustainable and effective in limiting G7 policy choices toward China. This study aims to improve understanding of the uses and limits of China’s statecraft tools, as well as the potential costs of escalation, in order to make the commitments from both sides to deescalate in a crisis far more credible.

For the purposes of this report, we are limiting the measures discussed to explicitly economic tools and sources of economic power, even as we are aware that any crisis scenario would also include consideration of other nonmilitary options such as cybersecurity-related measures or disinformation campaigns, as well as military coercion below the threshold of war. Conventional wisdom assumes that China’s response would be coordinated and centralized, free from the democratic factors that constrain US and G7 action, including rule of law and separation of authorities across different branches of government and agencies. This study questions some of those assumptions, as Chinese bureaucratic interests are likely to clash on the question of the country’s need for US dollar inflows in the event of economic sanctions, as well as China’s economic interests in imposing restrictions on trade.

Author analysis

In chapter one, we build a framework to categorize the channels of economic interaction at risk from Chinese economic statecraft. In chapter two, we explore how each of these tools might be used at different levels of escalation, up to the level of retaliation against a major G7 sanctions program. In chapter three, we review China’s capacity to circumvent sanctions and statecraft using financial networks outside of the US dollar system.

This paper, and our prior work on sanctions options in a Taiwan crisis, focuses primarily on China and the G7. A forthcoming paper will explore the role of the G20 in a Taiwan contingency.

Chinese economic statecraft in a Taiwan crisis: Tools and applications

No country has ever tried to sanction an economy of China’s size and importance to the global economy. The use of economic statecraft against Russia following its invasion of Ukraine was exceptional in its breadth and its level of international coordination, but Russia was only the world’s eleventh-largest economy before the war began and had few economic countermeasures available aside from energy export denial.

As the world’s second-largest economy and premier manufacturing powerhouse, China has a far larger toolkit of economic policy instruments. It also has a history of using economic leverage assertively to achieve foreign policy objectives, though with mixed success. That experience means retaliatory efforts are nearly certain in ways the Western powers did not experience after imposing sanctions on Russia in 2014 and 2022 onward. In past work we took stock of economic statecraft tools available to the G7 and the costs and limitations of their use. In this chapter we catalogue China’s economic statecraft tools and applications, and assess the likeliness of their use in moderate or high Taiwan scenario escalations.

Drawing on past case studies and China’s growing legal and regulatory toolkit, we identify a range of economic statecraft actions that China could use in a Taiwan Strait escalation scenario. Scholars of economic statecraft typically subdivide statecraft tools into categories based on their direction (i.e., inbound or outbound flows) and on their channel (i.e., trade or capital flows).⁵ In the first section of this chapter, we look at access to China’s markets—i.e., the potential use of statecraft tools against economic flows into China, looking respectively at trade, foreign direct investment (FDI), and portfolio flows. In the second section, “China in the Global Economy,” we look at the use of statecraft tools aimed at these flows from an outbound perspective.

There is substantial debate within Chinese expert circles on the use of these tools. Academics and experts affiliated with China’s financial and economic bureaucracy often argue that defending against economic sanctions starts by building a strong financial system to improve domestic resilience and by deepening China’s global economic ties to increase the economic and diplomatic costs on the sanctioning economy. Zhang Bei, an economist at the People’s Bank of China’s (PBOC) Financial Research Institute, has argued that although China needs to strengthen countersanctions tools such as the Unreliable Entity List and Anti-Foreign Sanctions Law, it also needs to strengthen management of domestic financial risks and deepen global economic engagement through renminbi internationalization and international financial cooperation.⁶ Chen Hongxiang, another PBOC-affiliated researcher, describes the anti-sanctions policy toolbox as a “last resort strategy.”⁷ Chen notes that the United States faces limitations in the use of financial sanctions given the risks to the attractiveness of the US dollar as a global currency and the diplomatic and economic costs of sanctions.

Author analysis

Other scholars have discussed China’s use of retaliatory measures and the legal foundations for responses in the future. For example, Yan Liang of Nankai University has described trade controls on strategic resources as having played an important role in China’s sanctions toolkit in the past, noting the 2010 export controls on rare earths.⁸ Cai Kaiming, a Chinese cross-border compliance lawyer, has written about the newly developed legal foundations of Chinese economic statecraft tools, including the Anti Foreign Sanctions Law, the 2021 blocking statute, the Unreliable Entity List, and the reciprocal measures of China’s Export Control Law, Data Security Law, and Personal Information Protection Law (see Appendix 1).⁹ Throughout this paper, we consider the use of these new formal tools in a Taiwan crisis scenario, as well as the range of informal tools available, such as phytosanitary inspections and administrative orders, to China’s customs department. Given the range of both formal and informal tools available for the purpose of statecraft, the focus of this paper is on the ends, rather than the means. These tools span many different bureaucratic jurisdictions, but it is likely that, as in past instances of major statecraft actions where major costs to China’s economy are involved (such as China’s retaliatory tariffs against the United States in 2018), the decision to use these tools will come from China’s senior-most leadership.

Author analysis

Scenarios

While China’s past use of economic statecraft is instructive, Beijing may not necessarily respond to future escalations with the same old tools, or with the same intensity. In recent years, China showed a willingness to use economic statecraft more explicitly and intensely than in the past, albeit in a concentrated fashion (e.g., trade bans against Lithuania). China has also created new legal frameworks to justify future retaliatory or punitive actions.¹⁰ In short, we need to make predictions of future use cases beyond the range of China’s past actions.

To explore how China might use economic statecraft tools in the future, we consider two scenarios:

Moderate-escalation scenario: China responds to the United States taking an escalatory diplomatic action in the Taiwan Strait, such as a substantial deepening of the political relationship with Taiwan, a step-change in military aid, or a limited sanctions package in response to Chinese aggression toward Taiwan. In this scenario, China reacts with economic statecraft measures targeting the United States designed to impose relatively higher costs on the United States than China. In this scenario, China’s willingness to use statecraft is constrained by the necessity to maintain a strong business environment amid high geopolitical tensions.

High-escalation scenario: China retaliates to a maximalist G7 sanctions package that includes full blocking sanctions on China’s major banks and the PBOC, sanctions on senior political figures and business elites, and trade bans with relevance for China’s military.¹¹ China adopts a much stronger and broader set of economic statecraft measures against the entire G7, with an intent to impose costs as high as possible on the sanctioning economies.

Both scenarios stop short of war between China and the United States or other G7 countries, and are meant to provide a context to evaluate the potential use of China’s statecraft tools. We consider only economic statecraft responses in a Taiwan escalation scenario, although China is also likely to consider military and quasi-military actions that are outside the scope of this paper, such as undersea cable cuttings, cyberattacks, or blockades. Where we highlight costs in dollar terms, they should be understood as the assets and annualized economic flows at risk of disruption unless otherwise specified.

Access to Chinese markets

One of China’s primary methods of exercising economic statecraft in the past has been to restrict access to its markets, either through trade barriers or disruptions to the operations of foreign companies and investors in China. In this section we consider the use of these tools in the past and in moderate- and high-escalation future scenarios.

Chinese imports

One of China’s primary methods of exercising economic statecraft in the past has been to restrict access to its markets through tariffs and nontariff barriers. In a moderate escalation with the United States over Taiwan, China could scale up these tools to restrict imports across a range of noncritical goods such as consumer products, easily substitutable goods, and goods where the United States is heavily dependent on China as an export market. In a higher-escalation scenario involving a maximalist G7 sanctions program, China could impose import bans on a broader range of goods, although the main initial disruptions to imports would likely come from sanctions against Chinese banks and importers. A total ban on G7 imports, with exceptions for critical agricultural and medical imports, would put $358 billion in exports to China at risk.

Author analysis

Past uses of statecraft

Restrictions on market access have been one of China’s most common forms of coercion in past geopolitical incidents. In most cases, these tools have been narrowly targeted—either against single companies or narrow product categories—to minimize the impacts on China’s economy and to act as a warning rather than full-blown punishment mechanism. Yet they have the potential to be scaled up in response to higher levels of escalation, especially as many G7 companies depend heavily on the Chinese market for revenue and growth.

Tariffs – In numerous past cases, China has increased tariff rates on imported products in an apparent response to political actions taken by other countries. China retaliated against the Trump administration’s imposition of across-the-board tariffs on Chinese exports to the United States, resulting in a 21% average tariff rate on goods imported from the United States.¹² After members of Australia’s cabinet called for independentinvestigations into the origins of COVID-19 in April 2020, China imposed economic restrictions on a range of Australian products. China’s Ministry of Commerce (MOFCOM) announced tariffs as high as 218 percent on Australian wine and 80.5 percent tariffs on barley.¹³ In these cases, China provided the justification for higher tariffs on the basis of anti-dumping action against Australian exporters, but the timing and character of the tariffs led to speculation that the tariffs were retaliatory action by the Chinese government.¹⁴ Notably, China targeted goods where the costs to China’s economy would be lower than products like natural gas and iron, for which Australia also depends on China as an export market. In the Australia case, MOFCOM was responsible for raising tariffs, but the State Council itself also has powers to increase tariffs, as it did in imposing retaliatory tariffs against the Trump administration’s June 15, 2018, Section 301 tariff announcement.¹⁵
Inspections and import bans – China also exerts economic pressure through inspections and informal bans on imported goods. In 2010, China effectively banned salmon imports from Norway on the pretense of a violation of sanitary regulations after the Norwegian Nobel Committee awarded the Nobel Peace Prize to dissident Liu Xiaobo.¹⁶ China banned banana imports from the Philippines on health grounds in 2012 amid tensions in the South China Sea.¹⁷ The most recent major case followed the opening of a Taiwanese Representative Office in Lithuania in 2021.¹⁸ China imposed a de facto ban on imports from Lithuania through a range of measures, including denials of trade finance, revocation of import permits, the removal of Lithuania from China’s customs system, and cancelation of freight shipping to Lithuania by a Chinese rail shipping operator. Given that Lithuania only accounts for 0.003 percent of Chinese imports and its goods are primarily agricultural, the immediate cost to the Chinese economy from the import bans was limited. However, the diplomatic blowback from targeting a European Union (EU) member state with a full trade ban was arguably quite high. Coercion against Lithuania led the EU to raise a trade case in the World Trade Organization against China, and it likely strengthened support for the creation of the Anti-Coercion Instrument. It is a matter of debate whether China took these actions against Lithuania accepting these costs, or whether it underestimated the harshness of the EU’s reaction.
Boycotts – China uses its state media to foment and support boycotts of foreign brands during crises. In 2022, Chinese consumers boycotted H&M for its refusal to use cotton from Xinjiang with backing from state media and party organizations.¹⁹ In February 2017, the Lotte Group approved a land swap with the South Korean government to place a Terminal High Altitude Area Defense (THAAD) missile defense system on its former property. In response, China forced the closure of 74 Lotte supermarkets for supposed fire safety violations and published news articles urging consumers to punish South Korea “through the power of the market.”²⁰ In both cases, China focused on companies that had ample local competition and low import dependence to mitigate the costs to China’s economy. South Korean companies in petrochemicals and semiconductors, by contrast, saw limited or no effect on their performance during the THAAD incident.²¹
Preferential treatment of competitors – Beijing’s direct and indirect control of state-run procurement provides leverage over foreign firms hoping to capture a slice of China’s market. Companies fear that officials can manipulate the bidding process to hurt their sales and exert influence on their home countries. One example came in 2021 after Swedish authorities implemented a ban on Huawei and ZTE 5G technology in late 2020. In subsequent bidding for state-owned China Mobile in June 2021, Ericsson’s share of 5G equipment awards dropped by nearly 80 percent. Ericsson had previously lobbied against the ban in Sweden, fearing it would be targeted for retaliation in China,²² and an editorial in the state-run Global Times later tied the bidding results to Sweden’s policy decision.²³

Potential use in moderate-escalation scenario

How countries choose which imports to restrict is a central question of economic statecraft. In China’s retaliation against US tariffs in 2018, China’s tariffs tended to target US exports produced disproportionately in counties that leaned Republican and voted for then president Donald Trump in 2016, suggesting a political influence logic to China’s tariff targets.²⁴ More broadly, policymakers are likely to think about the effectiveness of tariffs: Is the sender country able to bear the cost of sanctions while imposing enough damage to compel the other side to make concessions?²⁵

Past instances of China’s restrictions on imports have typically been targeted in ways that limit costs to China’s economy: single firms, narrow sectors, or smaller economies. In a scenario involving the United States in a moderate escalation over Taiwan, China might accept elevated costs if it felt that sanctions on the United States were necessary to signal resolve, punish US behavior, or deter further action. In such a circumstance, China could target a range of sectors where costs to the US economy are high and costs to the Chinese economy, though elevated, are still relatively low. The tools used are likely to be the same as in the past: some combination of higher tariffs and both formal and informal import restrictions. The key question facing Chinese policymakers would be which sectors and goods to target.

First, China could target consumer discretionary products such as imported cars and cosmetics. While consumers would face higher costs and fewer choices, a ban on these products would have a far lower impact on the Chinese economy than a ban on intermediate goods or capital goods that China depends on for industrial production. If restrictions were expanded to US-branded products made in China (Tesla cars made in Shanghai, for instance), China would face some employment impacts, but in general these would likely be the easiest goods to target.

Second, China could target products where it has diversified imports and the United States has limited market power. China imports commodities such as crude oil, coal, polyethylene, and copper ore from the United States, but in small quantities relative to other exporters. China could likely impose high tariffs or bans on such goods from the United States, and procure them from other countries (albeit at higher costs). While not included in the table below, China might also include products where import dependence is still high but where China is actively pursuing self-sufficiency and strong local players are emerging, such as medical devices. China would likely avoid targeting critical inputs to its supply chains that would be difficult or costly to replace quickly, such as integrated circuits.

Finally, China could target areas based on how much the United States depends on China as an export market. In 2022, over half of US exported soybeans went to China, as did 83 percent of its exported sorghum. US dependence on China for its agricultural goods informed China’s decision to target these goods in response to the Section 301 tariffs. Yet the costs to China for imposing tariffs on these products would also be high: the United States supplied 31 percent of China’s imported soybeans and 64 percent of its imported sorghum. China would likely tailor the strength of its import restrictions depending on global agricultural conditions and whether alternative supply could be found elsewhere.

Tariffs or bans on US imports could also provide China with an opportunity to drive wedges between the United States and other countries. Sustained demand from Chinese consumers amid higher restrictions on US imports would increase demand for imported goods elsewhere. As a group of advanced industrial economies, the G7’s exports overlap substantially with US exports that could be at risk from Chinese trade barriers. Table 5 shows the top ten exports from the United States to China by value, and the export rank of those products from other G7 countries and Europe to China. For every product that ranks among the United States’ top ten exports to China, at least one other G7 country (and often multiple countries) also have that product ranked in their top exports to China. While these products are often diverse and not completely substitutable, the overlap in the export baskets of G7 countries to China points to the potential for China to exploit competitive dynamics between the United States and other G7 countries.

Potential use in high-escalation scenario

In a maximalist-escalation scenario, the initial disruptions to foreign exports to China would stem from G7 sanctions themselves rather than Chinese retaliation. As we argued in our June 2023 study on G7 sanctions toward China in a Taiwan crisis, many goods such as chemicals, energy, and electrical equipment would likely fall under a strengthened G7 export control regime, putting hundreds of billions of dollars of trade at risk.²⁶ Sanctions on China’s banking system would limit exporters’ ability to settle transactions with importers.

Over time, however, foreign businesses could shift their transactions to unsanctioned importers and banks. Despite sanctions on much of Russia’s economy, at least 101 multinational companies from G7 countries are continuing operations in Russia as of January 2024, according to Yale researchers.²⁷ While some of these firms are operating in sectors that may be considered humanitarian exceptions— such as agriculture and healthcare—most are not.

G7 trade with Russia fell by more than half in 2022. One quarter of the remaining trade is in agricultural commodities, medicine, and medical devices, which are explicitly authorized under a general license from the US Office of Foreign Assets Control.²⁸ But despite sanctions on many major Russian firms and banks, G7 countries exported almost $25 billion in non-agriculture and non-medical products to Russia in 2022, regardless of the reputational and logistical challenges of exporting even permitted goods to Russia.

The resilience of G7 exports to Russia after sanctions suggests that trade with China, though diminished, could continue even in a maximalist sanctions regime. Broadly speaking, there are three groups of exports in a maximalist sanctions program: (1) goods at higher risk of G7 export restrictions, (2) goods at higher risk of Chinese import restrictions as retaliation, and (3) goods at lower risk of either G7 or Chinese restrictions.

It is impossible to know a priori what sectors G7 countries would agree to impose strict export controls upon, given the substantial costs to their own economies from these sanctions. But for the sake of this analysis, we assume that energy, machinery, chemicals, electrical equipment, trains, planes, and metals are at higher risk of G7 sanctions, making Chinese import restrictions in these sectors less relevant.

What’s left? China imported $92.4 billion in automobiles, plastics, textiles, and rubber from G7 countries in 2022. Losing these imports would certainly be costly to the Chinese economy, but not fatal, making them possible candidates for Chinese retaliation in a maximalist scenario.

Finally, China imported $79.5 billion in agricultural goods, pharmaceuticals, and medical devices from G7 countries in 2022. Agricultural and medical goods were exempt from G7 sanctions in the Russia case as part of humanitarian carveouts present in all sanction regimes. It is likely they would be exempt from G7 sanctions against China as well. While China is likely to impose some restrictions on agricultural products (as it has in the past against French wine and US soybeans), a total ban on agricultural products from the G7 would be extremely costly to the Chinese economy, even if some of those imports could be backfilled by greater imports from non-G7 countries like Brazil. Medicine and pharmaceuticals would be even more so. In this instance, it seems likely that agricultural and medical goods would face lower risks of a total trade ban from either China or the G7.

Import-related statecraft tools have been a part of China’s economic statecraft toolkit in the past and would likely be featured in a moderate- and high-escalation scenario in the future. In a moderate-escalation scenario, the tools would remain more or less the same, but could target a broader range of sectors where Chinese dependence is low (consumer discretionary goods and substitutable goods) or where US dependence on China as an export market is high. Targeted import restrictions against the United States would also create opportunities for China to weaken G7 unity by importing more from other G7 countries.

In a high-escalation scenario, the initial disruption to foreign market access in China would stem primarily from G7 sanctions and market turbulence more broadly, rather than Chinese countersanctions. China is more likely to be judicious in imposing import bans on agricultural goods and pharmaceuticals against the full G7. Excluding those products, the full range of G7 exports to China at risk from G7 sanctions and Chinese countersanctions is around $358 billion.

Foreign direct investment in China

During past geopolitical crises, China has used investment-related tools such as audits, inspections, and antitrust rules, typically either to punish a specific firm for its own actions (such as perceived support for Taiwanese independence) or to pressure firms to lobby their home governments. In a Taiwan escalation scenario, these tools could be used more expansively, potentially affecting up to $460 billion in G7 investment in China and an estimated $470 billion in annual revenue, but at the cost of undermining investor sentiment and accelerating capital flight from China.

Past uses of statecraft

China’s past use of statecraft against foreign firms domiciled in China indicates the wide range of tools available:

Forced shutdown of online platforms – China’s cyberspace regulator has in the past used its authorities to force companies to adhere to China’s conception of “One China” on their websites and branding materials. In 2018, the Cyberspace Administration of China (CAC) forced Marriott to temporarily shut down its website in China due to an email questionnaire that listed Hong Kong, Macau, Tibet, and Taiwan as separate countries.²⁹
Merger/antitrust reviews – China has used its antitrust authority, the State Administration for Market Regulation (SAMR), as a powerful extraterritorial tool to block mergers between foreign companies during times of geopolitical tension. It is widely believed that China blocked the $44 billion merger of Qualcomm and NXP in 2018 in retaliation for US Section 301 tariffs on Chinese goods.³⁰ The deal had been approved by eight other jurisdictions but was ultimately called off, as China’s refusal to approve the deal would have prevented the merged companies from operating in China. SAMR refused to approve the merger of Intel and Israeli firm Tower Semiconductor in 2023 amid escalating US tech controls on Chinese semiconductor firms.³¹
Inspections, audits, fines, and permit delays – China has often used health, safety, environmental, and quality inspections, tax audits, and other routine regulatory actions to punish firms (or the firm’s home country) for their stances on crossstrait issues. In 2021, the Chinese subsidiaries of Taiwan-owned conglomerate Far Eastern Group were fined $13.9 million for a range of violations, including breaches of environmental protection rules. Far Eastern had been a major donor to Taiwan’s Democratic Progressive Party (DPP), a party that Beijing views as advocating for Taiwan’s independence. In the leadup to the 2024 Taiwan general election, Foxconn’s Chinese subsidies became the subject of tax audits and land-use investigations. The investigations were believed by some to be meant to force Foxconn’s founder, Terry Gou, out of the presidential race to avoid splitting votes away from Beijing’s favored party, the Kuomintang.³² And in 2017, China used fire safety and health code inspections to force the closure of Lotte supermarkets during the THAAD incident.³³
Personnel disruptions – In some cases, China has imposed restrictions on personnel traveling in or out of China for geopolitical reasons. ³⁴ China’s aviation regulator in 2019 ordered Hong Kong carrier Cathay Pacific to ban airline staff who supported the Hong Kong protests from traveling to China.³⁵ In March 2023, China detained five local staff of Mintz Group, a corporate due diligence firm.³⁶ In October 2023, China detained and then arrested a Japanese employee of Astellas Pharma on suspicion of espionage.³⁷

Author analysis

Table footnotes³⁸ ³⁹

Potential use in moderate-escalation scenario

Past methods of disrupting multinational corporation (MNC) activities in China could be scaled up in a moderate-escalation scenario, but the use of these tools runs the risk of accelerating MNC diversification away from China and impairing China’s economy. These tools are more effective when firms believe that, despite short-term tensions, China still holds promise for their business operations and sales.

The CAC could use its powers to shut down US companies’ websites in China, disable their apps, or close their app stores. China could impose these restrictions through a variety of legal and regulatory tools, including revoking a firm’s Internet Content Provider (ICP) filing license or by blocking their Internet Protocol (IP) address within China’s Great Firewall.⁴⁰ Through merger reviews, authorities can force companies to choose between abandoning the Chinese market or what can be years-long, multibillion-dollar deals. Inspections, audits, and fines could be scaled up against US firms in a crisis. Personnel disruptions, including tacit hostage-taking as in the cases of Michael Kovrig and Michael Spavor, is extremely worrisome for firms. Put together, these instruments may create a strong incentive for businesses to lobby their home governments for more amicable relations that would allow a deal to go through, but they would also accelerate plans to move operations from China, particularly if it looks like relations will be tense for the long term. Previously unused tools could also be used at higher levels of escalation. China could initiate investigations into a firm’s handling of data or revoke certifications for cross-border data handling. Rules around data, personal information, and cybersecurity ranked second on the list of US companies’ top 10 challenges in China in 2023.⁴¹ Already many companies are working to minimize their regulatory risk by partially or completely localizing their data storage, information technology, human resources, and software solutions in China.⁴² Data issues are particularly acute in the automotive, healthcare, and financial services sectors, making retaliatory data audits and investigations a possibility in a moderate escalation scenario.⁴³ Chinese authorities could also restrict how firms repatriate earnings. In past times of macroeconomic stress, China has restricted remittances for MNCs moving money abroad, although there is no evidence suggesting these restrictions were geopolitically motivated.⁴⁴ Foreign companies in China often repatriate income by issuing dividend payments to their overseas parent companies, which requires certain tax documents and processing by a Chinese bank. Chinese authorities could initiate tax audits targeting US companies to delay repatriation, or order banks to delay or reject processing requests. However, even in a moderate-escalation scenario, China would face macroeconomic pressures that would constrain how aggressively it targeted foreign companies. High geopolitical tensions would likely increase capital outflows and put depreciation pressure on the Chinese currency. Although China has substantial foreign reserves and strong capital controls, China’s reserves are finite and its capital controls are imperfect. Aggressive moves against foreign companies in China could exacerbate capital outflows in ways that Beijing would want to avoid.

Beijing would also seek to avoid moves that make it appear “uninvestable” to foreign firms more broadly. China’s long-term economic and financial stability depends in part on the willingness of foreign investors to continue investing in China, both to offset inherent outflow pressures and to drive productivity through partnerships with world-leading MNCs. Actions taken against MNCs, even if targeted against only one country, could undermine China’s narrative that it is a safe and attractive place for foreign investors to do business.

Potential use in high-escalation scenario

In a high-escalation scenario, China’s willingness to use aggressive economic statecraft actions against MNCs would likely be much higher. G7 sanctions on China’s major banks would immediately make China appear “uninvestable” for many investors, and many MNCs would be executing plans to exit the market even before considering Chinese retaliatory action. At this point, China would have little to gain from holding back on retaliatory actions on a pretense of maintaining “investability.”

Firms selling their assets in China would likely do so at a steep discount given a limited number of buyers and intense pressure to move quickly. Even once assets are sold, it would not be guaranteed that sellers could repatriate the proceeds of the sales to their home countries given strict capital controls on foreign reserves.

Tools used at lower levels of escalation could be used at greater scale. Local staff and visiting executives would likely face higher risks of travel delays and, potentially, exit bans or detentions amid heightened concerns over espionage. Restrictions on personal information protection and cross-border data transfers would likely be tightened considerably, adding to the logistical challenges of operating a Chinese subsidiary. Strict capital controls would likely prevent MNCs from repatriating any earnings in dollars whatsoever.

Companies would also be exposed to risks of asset seizure. G7 companies in strategic sectors such as chemicals and pharmaceuticals could face the risk of immediate expropriation. Within months of Russia’s invasion of Ukraine, for instance, Russia took control of German and Finnish utility assets in Russia.⁴⁵ In China, companies that stayed, even in nonstrategic sectors, would face the risk of seizure as retribution in kind for G7 asset seizures or freezes or to ensure continued employment at firms that suspended their operations due to G7 sanctions.⁴⁶

Estimating the FDI stock and revenues of G7 firms in China is hamstrung by a number of methodological challenges. China’s total inward FDI stock in 2022 was $3.6 trillion, according to the International Monetary Fund’s (IMF’s) Coordinated Direct Investment Survey.⁴⁷ However, because the IMF compiles data based on the immediate investing country, rather than the ultimate beneficial owner of the investing firm, it is difficult to identify what FDI ultimately comes from G7 countries. For instance, only $460 billion of China’s FDI stock comes directly from G7 countries, according to Chinese reporting to the IMF as of 2022, while $2.5 trillion (70 percent of the total) is attributed to Hong Kong, the Cayman Islands, and the British Virgin Islands, some of which is G7 investment channeled through these intermediaries. Complicating matters further, a substantial portion of China’s inward FDI stock is actually China-origin investment that is routed back through Hong Kong or other tax havens. Here we use the most conservative estimate of G7 FDI—that which is directly attributable to G7 countries. The full value of the G7 FDI stock in China is likely much larger.

Similarly, it is difficult to assess the total revenue and profit exposure from MNCs in China. Annual filings of listed companies do not systematically break out revenue by region. Data from China’s MOFCOM estimate that the total revenue of foreign-invested enterprises above designated size in China in 2022 was $3.9 trillion.⁴⁸ China does not individually report business revenues from foreign-invested enterprises by country, although MOFCOM does report the amount of realized inward FDI by country. Assuming that business revenues are proportional to overall business revenue, we estimate that G7 foreigninvested enterprises earned $470 billion in revenues in China in 2022 and $33 billion in profits—all of which would be put at risk from the combined impact of G7 sanctions and Chinese countersanctions in a high-escalation Taiwan crisis scenario.

Author analysis

Portfolio investment and other capital flows

China could use restrictions on its equity markets to limit outflows of foreign portfolio capital from China. While these tools have not been used in the context of economic coercion in the past, China has restricted activity in its equity markets in an attempt to stabilize market conditions. In a moderate- or high-escalation scenario, China will likely consider imposing restrictions on market activity or outbound portfolio flows.

Past uses of statecraft

To our knowledge, China has not restricted trade orders or imposed capital controls in equity markets during disputes with other countries in an effort at coercion. However, China has intervened heavily in equity markets in the past in an attempt to steady markets during times of financial instability. In July 2015, a speculative bubble in China’s equity markets burst, with the Shanghai Composite Index falling by 32 percent from a peak the month prior. To stem the decline, China ordered brokerages not to process sell orders while using state funds to buy stocks.⁴⁹

Potential use in moderate-escalation scenario

In a moderate-escalation scenario, it is probable that China would impose some capital controls and restrictions on equity markets to stanch capital flight stemming from a heightened sense of geopolitical risk among investors. Rather than a tool of economic statecraft per se, capital market controls should be seen as a likely response to financial instability during a crisis. In a more moderate scenario, where tensions with the United States and China trigger a stock market rout, for instance, China might turn to administrative controls on equity markets, as in 2015, that de facto restrict foreign investors selling Chinese stocks and repatriating funds. Given that the objective of such controls would be to ward off financial instability rather than impose costs on other countries, these restrictions would likely affect all financial investors in China rather than any one country.

Potential use in high-escalation scenario A higher-escalation scenario would likely see China impose capital controls across the board, including on capital flows through Hong Kong and Macao, to limit destabilizing outflows. Theoretically speaking, some of these tools could be targeted at G7 investors, but in practice, it would be difficult even for Chinese authorities to identify which portfolio assets belong to which investors. As with direct investment flows, portfolio investment is intermediated through tax havens, obfuscating the ultimate owners of capital. Efforts to estimate the holdings of Chinese securities on a nationality basis (rather than the typical residency basis) suggest that official data significantly understate holdings of Chinese securities.⁵⁰ Chinese authorities in a crisis would likely be hard-pressed to systematically identify G7 countries’ portfolio assets in China, let alone block them in a targeted fashion. If they did pursue this strategy, it is more likely that only a few high-profile investment firms would be targeted.

Instead, the more likely outcome is a comprehensive set of controls aimed at preventing a financial crisis. The IMF’s Coordinated Portfolio Investment Survey provides estimates of total portfolio assets and liabilities by economy.⁵¹ Based on this data, if full capital controls were put in place, an estimated $2.5 trillion worth of foreign equity assets in China, Hong Kong, and Macao would be at risk.

China in the global economy

China’s central place in global supply chains means that disruptions stemming from actions in a Taiwan escalation scenario would have far-reaching consequences. The previous section considers Chinese economic statecraft actions on flows and assets into China. This section considers the use of China’s statecraft toolbox on the global economy outside China: exports, outbound investment, and interactions with global financial markets.

Chinese exports

In an escalation over Taiwan, China could use its central position in global supply chains to exercise leverage against other countries. Because weaponizing supply chains may accelerate diversification away from China, these tools have been used sparingly in the past. However, new legal and regulatory tools have created a pathway for their use in a future scenario where China is more willing to bear the economic and reputational costs of disrupting supply chains.

Past examples of statecraft

Export restrictions on critical goods – China has used export restrictions in past geopolitical incidents to exert leverage over other countries. In September 2010, after a collision between Japanese coast guard ships and a Chinese fishing vessel and Japan detained its captain, China imposed an informal export ban on rare earths to Japan.⁵² In October 2010, industry officials reported that China expanded the export restrictions to the United States and Europe amid a trade dispute. China resumed exports in November of that year.⁵³

In July 2023, China announced it would require export permits for Chinese gallium and germanium, elements used in chip production and solar panels among other products.⁵⁴ China’s announcement came as the United States imposed restrictions on high-end chip and chip equipment exports to China. China announced in October 2023 it would require licenses for export of graphite products used in electric vehicle batteries.⁵⁵ In both cases, demand for the products shot up immediately in advance of the license requirement, as importers stockpiled goods, and then fell, as the license regime was put in place. Gallium and germanium exports returned to pre-control levels by December. Rather than an export ban as in the past, the imposition of an export regime around gallium and germanium appeared to be an effort to formalize the legal foundation of export controls on a new set of critical goods. While Chinese authorities denied that the measures were retaliatory and aimed at any particular country, the announced measures did highlight China’s economic leverage in a period of heightened geopolitical tensions.

Author analysis

Potential use in moderate-escalation scenario

Export restrictions on critical goods – In a moderate-escalation scenario, China could limit exports to the United States across a range of products through export tariffs, informal restrictions, or full export bans. The United States is China’s largest export destination, with $583 billion in goods exported to the United States in 2022 (16 percent of China’s total exports).⁵⁶ Export trade to the United States is an important source of employment, with an estimated 21.6 million jobs in China supported by exports to the United States.⁵⁷ China’s dependence on the United States as an export market suggests that Chinese policymakers will be cautious when imposing export restrictions, aiming to reduce the impacts on the Chinese economy while still imposing meaningful costs on the United States.

For this reason, initial export restrictions would likely focus on select intermediate goods where trade volumes and Chinese export-dependent employment is low, but the lack of which would have compounding effects on US industry. Past supply chain analyses have identified some of the main dependencies on imports from China (see Table 9).

Author analysis

Table footnotes⁵⁸ ⁵⁹ ⁶⁰ ⁶¹ ⁶²

Restrictions on overseas IP and licensing – In addition to restricting goods exports, China may also change its posture on technology exports to the United States. Since 2008, China has maintained a technology catalogue that regulates what technologies may be exported from China.⁶³ The technology catalogue contains twenty-four technologies prohibited for export and 111 technologies requiring an export license. The latest revision issued in December 2023 added LiDAR systems, used in autonomous driving applications, to the list of technologies requiring a license. Other technologies covered requiring licenses under China’s technology control regime include advanced materials processing (e.g., chemical vapor deposition) and underwater autonomous robot manufacturing and control technology, among others. As China reaches the cutting edge in some of these technologies, the ability to grant or revoke export licenses to companies in the United States and elsewhere represents an additional statecraft tool.

Potential use in high-escalation scenario

In a high-escalation scenario, Chinese policymakers may decide to impose as high costs as possible on the sanctioning G7 countries by imposing export restrictions on all goods where import dependence on China is high. Such an approach would cover a broad range of consumer and industrial goods, and would be aimed at disrupting the economies of the targeted countries and increasing costs for consumers. However, this would come at tremendous cost to the Chinese economy and its ability to withstand sanctions.

Author analysis

Import dependence is contingent on a range of factors, including not only how much a country depends on another for a particular good, but also how widely available that good is in the global market. While a true accounting of import dependence requires a sector-by-sector approach, we roughly estimate the value of goods where the G7 nations are highly dependent on China by summing up G7 imports at the HS 6-digit level where (1) over 50 percent of G7 imports come from China, and (2) China accounts for over 50 percent of global exports. This encompasses all products where both initial dependence on China is high and where substitutes from other countries may be expensive or hard to find given how dominant China is in that product category, at least in the short run. Based on this approach, the G7 is highly dependent on $477.5 billion in goods imported from China. This is a highly conservative measure, since losing access to intermediate goods would disrupt downstream manufacturing and incur costs much greater than their import value alone.

While export restrictions would be one of China’s most impactful economic statecraft tools, it would also be among the options costliest to China itself. First, an estimated 101.2 million jobs in China depend on foreign final demand, 44.8 million of which depend on final demand from G7 countries.⁶⁴ Any measures that disrupted these factories would exacerbate structural issues in employment and wages. Secondly, a major source of China’s resilience against sanctions is the fact that it runs a persistent trade surplus, which could be put at risk from export restrictions. Even under a full-scale G7 sanctions regime against Chinese banks, it would be very difficult to trigger a balance of payments crisis in China so long as the country continues to run a strong trade surplus. Trade restrictions from China that undermine its own trade surplus would work against China’s ultimate objective of maintaining macroeconomic stability in a moment of crisis. Finally, sanction regimes face the challenge of preventing transshipment of goods from third countries into the targeted economy. To effectively cut off the United States and other G7 economies from these products would require China’s non-sanctioned trading partners to agree not to transship controlled products to the G7, and for China to be willing to impose punishments on third countries that refuse to comply. China is unlikely to have the bureaucratic breadth even to monitor potential sanctions evasion on this scale, and may be loath to punish other countries in a moment where it is diplomatically isolated.

Chinese investment abroad

China has typically used overseas investment as a positive inducement rather than a coercive tool. In a moderate-escalation scenario, China could pair promises of outbound investment to friendlier countries with limitations on new outbound investment to other countries, although this would be likely driven less by a statecraft agenda and more by geopolitical realities in the host countries. In a highescalation scenario, China could potentially force the shutdown of Chinese-owned subsidiaries abroad, but this would be extremely costly and of limited effectiveness.

Past uses of statecraft

State-backed overseas investment – Overseas investment is a key part of China’s economic diplomacy.⁶⁵ Although it is debatable how much investment is driven by state versus commercial interests, major investment projects are often marked by both governments as opportunities to demonstrate a constructive relationship. In many cases these projects bring tangible economic benefits to the host country, making them an important part of China’s statecraft toolkit.⁶⁶

Author analysis

Table footnote⁶⁷

Administrative control on outbound FDI flows – China maintains administrative controls on outbound investment, limiting or approving investment when it meets political and economic goals. In the early 2010s, China began liberalizing its strict controls on outbound FDI to encourage Chinese firms to invest abroad.⁶⁸ In 2016, a surge in capital outflows led Beijing to reimpose restrictions on outbound FDI in an attempt to mitigate balance of payments pressures. While this is not a direct application of statecraft, the tools exist for China to selectively restrict outbound investment in a future escalation scenario.

Potential use in moderate-escalation scenario

In a moderate-escalation scenario, Beijing could use promises of investment as positive inducements to align with China diplomatically, or use threats to cut off ongoing or future investments as a form of coercion.

The perceptions of China and its role in a moderate-escalation scenario would matter significantly to the effectiveness of these tools. Where the escalation exacerbates national security concerns toward China, Chinese promises of outbound investment or threats to cut off ongoing or new projects will likely have little effect. Similarly, if the geopolitical environment contributes to capital outflow pressure, China will be less likely to greenlight much new outbound investment.

Potential use in high-escalation scenario

In an escalation over Taiwan, China could theoretically halt all outbound investment to G7 countries as a form of coercion, although geopolitical conditions would likely make the point moot. G7 countries would be unlikely to welcome new investment from China in a major Taiwan escalation. The wave of new and updated inbound investment screening regimes across the G7 over the past decade give G7 governments the capacity to block many types of investments on national security grounds.⁶⁹ China would likely limit outbound investment regardless to stem capital outflows, and Chinese project developers would likely struggle to find overseas lenders willing to finance their projects at the risk of getting caught up in G7 sanctions.

China could hypothetically impose restrictions on the activities of Chinese-owned businesses abroad, with the aim of disrupting the domestic economy of the sanctioning countries. Chinese authorities could theoretically pressure Chinese firms in the United States to slow down operations or lay off workers. Chinese ownership of critical infrastructure — including State Grid Corporation of China’s 40 percent stake in the Philippines’ national grid and COSCO’s proposed 24.99 percent stake purchase in a port terminal in Hamburg — has raised concerns among policymakers over the national security risks of Chinese ownership of critical infrastructure in a crisis.⁷⁰ To our knowledge, there have been no documented cases of Chinese firms shutting down their operations in other countries amid a geopolitical dispute with the intent to disrupt the local economy.

In a moderate- or high-escalation scenario, it is unlikely that China would or could compel Chinese-owned firms in the United States or G7 countries to disrupt their operations as part of an economic statecraft campaign. First, except in the most extreme circumstances, China would avoid pressuring its firms abroad to disrupt their own operations for fear of reputational blowback that could undo years of efforts to expand the global footprint of Chinese companies. Second, a large share of Chinese direct investment abroad is held in minority stakes, and China-based board representation would be too small to unilaterally force a work disruption. Finally, in the event of a deliberate slowdown or disruption, it is likely that G7 governments would nationalize the assets of the Chinese firms, as Germany preemptively did when it nationalized Gazprom’s German subsidiary after Russia’s invasion of Ukraine.⁷¹

Altogether, China holds an estimated $61 billion in FDI assets in G7 countries that could be theoretically put at risk from disruption, although the likelihood of China turning to such tools—even in high-escalation scenarios—seems low. China invested $13 billion in G7 economies in 2022. The most substantial disruptions to Chinese outward investment to G7 economies would likely be China’s own capital controls and defensive investment restrictions from G7 countries toward China in a moment of high escalation over Taiwan.

Portfolio investment and other capital flows

In addition to restrictions on market access or manipulation of operating conditions for multinational companies in China, Beijing could potentially use some of its financial policy tools to achieve certain political signals in response to G7 economic statecraft. However, China would struggle to use these tools aggressively without creating corresponding costs for its own economy and financial institutions. Most of the tools of financial leverage that China can use, including currency swap lines, are likely to be directed against borrowers from Chinese institutions. That volume of lending or the terms of lending could be adjusted in response to political developments. Selling foreign assets in large volumes (particularly US Treasuries) has never been a particularly viable policy option for Beijing. Similarly, using a policy-led depreciation of China’s currency as a tool of statecraft to pressure other countries would have significant implications for China’s own financial stability.

Author analysis

Past uses of statecraft

Official lending (in the form of subsidized concessional or preferential loans) and foreign aid are some of China’s primary economic diplomacy tools with developing and emerging market countries. These programs rarely take the form of explicit quid pro quos, but instead build long-term bilateral relationships that China can later activate to obtain political support on controversial Chinese “core issues,” including Taiwan, Hong Kong, and Xinjiang.

Aid and lending pledges are also key elements of the unofficial financial packages that China uses to induce diplomatic recognition switches from Taiwan to China. Recent examples include Nauru, the Solomon Islands, and Panama. Diplomatic relations with China (rather than Taiwan) are a prerequisite for the receipt of official aid (including concessional loans). Importantly, pledged lending may be just as important as the receipt of actual funds. Past cases suggest China can effect some control over the timing of these recognition switches to maximize their potential political impact on Taiwan, including Gambia (2016, after the DPP’s electoral victory in Taiwan), the Solomon Islands (2019, ahead of the People’s Republic of China’s 70th anniversary), and most recently Nauru (2024) (and likely Tuvalu), to coincide with adverse political events.

China has also offered bilateral swap lines to provide liquidity to developing countries. Although these are nominally intended to facilitate renminbi-denominated trade and investment, most swap agreements are never activated. Yet they are increasingly critical to a handful of countries, including Argentina, Pakistan, and Egypt, providing several billion dollars in emergency liquidity. Swap agreements typically last three years; countries may request the line be activated for a specific amount, and in practice that amount is simply rolled over at the end of a year. It is very rare for China to refuse to activate a swap line or to roll over any outstanding amounts, which would put pressure on any country relying on the swap line as a foreign exchange backstop. One (unconfirmed) counterexample came in December 2023, when China allegedly refused a request from Argentina to activate additional funds under the swap in response to Argentine President Javier Milei’s criticism of the China-Argentina relationship during the 2024 elections.⁷² The implications of China’s bilateral swap agreements with G20 countries will be covered in our forthcoming paper on the role of the G20 in a Taiwan crisis.

Potential use in moderate-escalation scenario

None of the G7 countries receive foreign aid or (official) loans from China in any significant amounts. In a moderate-escalation scenario, China could be expected to approach major recipients of development finance to ask for statements of diplomatic support or voting support in international forums like the United Nations General Assembly. China could look to accept a recognition switch from a country where discussions were already underway, to ratchet up additional pressure on Taiwan’s incumbent administration.

Most likely, China’s financial statecraft would not immediately increase in scope in a scenario of escalating tension over Taiwan. Financial pressures on China during a moderate escalation would likely constrain China’s ability to rush additional development finance to woo new allies. Rather, China would likely leverage the results of past financial statecraft measures to constrain Taiwan’s diplomatic space.

China would also benefit from deep economic and financial relationships with emerging market and developing countries itself to prevent alignment with the United States. China would also be unlikely to immediately begin punitive measures by formally cancelling or conditioning financial flows with existing partners. We are not aware of any examples of negative statecraft involving official lending or aid, where China either outright canceled existing aid projects or called in outstanding loans in response to a diplomatic or policy dispute. Such moves would be not only diplomatically counterproductive, but would also be restricted by Chinese aid and lending agreements and contracts, and a desire to avoid harming Chinese contractors, exports, and financial institutions for relatively limited marginal diplomatic gains. Rather than cancel existing projects, there is evidence that China instead has delayed or cancelled upcoming aid projects in past disputes. One example came in the Philippines in 2012. During a flare-up around the Scarborough Shoal, China continued to execute on existing aid and loan contracts, but does not appear to have undertaken new work until the election of Rodrigo Duterte in 2016.

Similarly, even in a moderate-escalation scenario, it is unlikely that Chinese lenders would cancel or otherwise call in existing projects or loans. As most of China’s project finance is funded on commercial terms, governed by commercial legal contracts, there are few instances where Chinese lenders could accelerate payment outside of clear events of default. One potential channel that could be deployed would be escrow accounts. China’s loans often require the use of escrow or other special accounts in China (either funded directly or through commodity sales to Chinese purchasers), which must be funded at certain levels. In an escalation, China in theory could raid these existing escrow accounts and demand replenishment. One recent example is Suriname, where in 2023 China EXIM Bank tapped an escrow account for payment while Suriname had halted debt service during multilateral debt renegotiations, a major breach of international debt protocol. Additionally, China would be more likely to halt lending (not yet committed or disbursed) in specific countries, as recent reports indicate it has done in Pakistan and Kenya. In an escalation scenario, bilateral swap lines would likely serve as an implicitly threatened target where they have been activated. This could constrain diplomatic support for any G7 sanctions or additional action. However, as very few countries have drawn upon swaps in significant volumes, China may find this tool of leverage limited.

Although China is unlikely to impose punitive measures with loans and aid, it has other options available to gain leverage. China accounts for 6 percent of the IMF’s voting share. An 85 percent majority is required for major decisions at the IMF such as quota increases and allocations of Special Drawing Rights (SDR). In partnership with a small number of other countries, China could disrupt processes (or threaten to do so) at the IMF to gain negotiating leverage.

In a moderate-escalation scenario, China might consider turning to other financial statecraft tools such as competitive devaluation of the renminbi. Facing persistent capital outflows for much of the last decade, China’s central bank frequently intervenes in currency markets to maintain the value of the renminbi, by selling US dollars and buying domestic currency. China could slow down that intervention, allowing the renminbi to depreciate, which would also likely trigger competitive devaluations and capital outflows in other emerging markets, particularly if the depreciation was seen as a policy signal. While this tool benefits from plausible deniability, Beijing runs the risk of undermining confidence in domestic monetary policy, encouraging additional capital outflows from both domestic and foreign investors, and antagonizing other countries with whom Beijing competes for export share. For G7 countries, a weaker renminbi would result in lower demand for G7 goods due to the weaker purchasing power of Chinese consumers, and greater competitive price pressure from Chinese exports.

Potential use in high-escalation scenario

In a high-escalation scenario, China would have limited capacity to harass G7 economies through financial statecraft without drastically undermining its own financial stability. Instead, China’s financial statecraft would be more effectively deployed at developing and emerging market countries to prevent a cohesive response outside of the G7.

Ever since China began to accumulate foreign exchange reserves in the 2000s, analysts have questioned whether China would sell its holdings of foreign assets to retaliate against the United States for political reasons. China officially held $782 billion in Treasuries at the end of November 2023, and likely holds around twice that level including holdings by state banks. The implied threat of a selloff would be to raise US interest rates and tighten US financial conditions. However, this threat has been somewhat overstated, as China could not sell these assets all at once, and US officials could take measures to respond well before significant volumes of assets could be sold. For example, if the Federal Reserve were to issue a statement claiming that it was noticing politically motivated disruptions in financial markets and would purchase securities as necessary to maintain stability, it would likely counteract any aggressive selloff. In March 2020, amidst COVID-19- related disruptions in markets, several foreign reserve managers began aggressively selling Treasuries and other US assets to repatriate funds and manage financial risks, and the Federal Reserve was still able to purchase assets and steady financial markets.

Even if China were able to sell significant volumes of its holdings of Treasuries, at the end of the day Beijing would still be holding US dollars, and would need to invest them in something, which would likely indirectly result in additional Treasury purchases. The withdrawal of China from new Treasury market purchases is also likely to have a limited impact, as Beijing has not been a significant net buyer of Treasuries for many years now. Ultimately, Treasury sales are an unlikely vehicle for Chinese economic statecraft, even in the case of a significant escalation in tensions.

Rather, Beijing would be likely to focus financial statecraft on preventing emerging and developing economies from aligning with G7 sanctions. Under high-escalation conditions, those countries would already feel acute macroeconomic pressure in the form of increased global finance and debt servicing costs (brought on by a stronger dollar), fluctuating commodity prices, and disruptions to global trade. This would increase developing countries’ potential susceptibility.

Even under high-escalation conditions, certain channels would still have constraints. Official lending and aid offers relatively little direct leverage against the G7. China would also be unlikely to be able to convince G20 or developing countries to impose their punitive measures against the G7, beyond pariah states like Iran, Russia, or Venezuela. But other channels would provide more room for maneuver. China has far greater ability to deliberately sell non-US dollar foreign assets in specific markets, as these are more discretionary purchases, and not the result of China’s decision to manage its exchange rate against the US dollar. China does hold significant proportions of non-US dollar currencies in its foreign reserves, and could potentially liquidate those holdings rapidly in response to political events. This may have an outsized impact on currency valuations and interest rates in certain emerging markets that are heavily reliant upon foreign demand for government bonds, such as Indonesia or Malaysia.

Additionally, more aggressive steps could be taken with outstanding loan agreements with developing countries. Publicly disclosed lending contracts from China’s policy banks allow for the lender to declare default—and immediately demand repayment—in response to certain political events, including a switch in diplomatic recognition to Taiwan (or China severing relations with a foreign country). Similarly, under “illegality clauses” common to commercial loans, China’s policy banks could immediately cancel disbursements or call in outstanding amounts due to changes in law that impact their ability to perform their obligations. G7 financial measures (like currency or banking restrictions) could, at least under a theoretical expansive reading, qualify. Yet invoking these clauses would come with bureaucratic risks for China Export-Import (EXIM) Bank and China Development Bank, which would be hard-pressed to collect any outstanding amounts and would likely be reluctant to acknowledge any debt as unrecoverable, especially at a time when China is seeking diplomatic support among other borrowing countries.

China’s capacity to circumvent financial sanctions and G7 economic statecraft

The previous section was concerned with China’s capacity to retaliate against US and G7 economic statecraft, but this is not Beijing’s only option. There have been long-running efforts in Beijing to not only develop tools to respond to foreign economic restrictions, including sanctions and export controls, but to circumvent or bypass them as well. Primary among those tools has been the development of alternative national-level and international financial networks using China’s own currency, the renminbi, rather than the US dollar. These have included bilateral currency swap arrangements for trade settlement, the designation of specific clearing banks in third countries, and the gradual expansion of China’s own interbank payment networks, the Cross-border Interbank Payment System (CIPS). The development of China’s central bank digital currency (CBDC) can be viewed in the same context, although the current structure is focused far more on domestic retail transactions than cross-border interbank financing.

At the same time, China’s reliance upon the US dollar is a major source of friction between different camps in Beijing. Security-minded officials have always viewed the dollar as a source of risk and vulnerability for China, given the potential threats posed by sanctions and other restrictions. However, financial technocrats in China have led the charge to integrate China’s economy more closely with the global financial system, precisely to attract foreign capital inflows. China faces a significant problem with the world’s largest single-country money supply at $40 trillion, which generates new pressures for Chinese savers to actively diversify into foreign assets, as the money supply continues growing by around $3.5 trillion in new renminbi every year. This outflow can create financial instability inside China and weaken the exchange rate and the global influence of China’s economy, unless it is counterbalanced by capital inflows via foreign direct investment or flows into China’s bond and equity markets, meaning purchases of renminbi-denominated assets. While the outflows from China’s financial system are inevitable, the inflows to stabilize conditions are contingent upon the state of China’s economy, interest rates, and the reform of the financial system.

As a result, throughout the past decade, even though the political climate in China has turned more hostile to foreign influence and interests, China has persistently attempted to attract foreign investment and capital inflows, denominated in foreign currency. This has also meant prioritizing policy choices and reforms favored by foreign investors and governments. Maintaining access to US dollar inflows has required deepening China’s access to the global financial system, and therefore exposing China’s financial institutions to potential restrictions on those dollar inflows. China has consistently made compromises when necessary to maintain foreign inflows, most recently including permitting audits conducted under the imprimatur of the US Public Company Accounting Oversight Board (PCAOB) in order to prevent the delisting of Chinese companies on US stock exchanges.

Beijing will continue to prioritize maintaining access to foreign capital and inbound investment, despite concerns about the vulnerability of Chinese institutions to US sanctions. Should China lose access to US dollar inflows, the renminbi’s value globally would depreciate over time, and China’s influence and throw weight in the global economy would similarly diminish. Any credible claim that China could catch the United States in economic prowess would evaporate. As a result, even as China’s overall policy environment has become obsessed with security, this has not fully extended to the financial system, where technocrats have been able to push back against the concerns of security-oriented officials.

At the same time, it is not a credible threat that outside of a wartime or similar scenario, the United States would completely cut off China’s access to US dollars, or take actions against China’s financial system as comprehensive as those against Russia. First and foremost, China remains a sizable exporter and global manufacturing center, at an estimated 14 percent of global exports. While there are alternative sources of exports, disrupting China’s capacity to use US dollars would necessarily interrupt China’s $5.9 trillion in annual trade flows as well. Other more extreme options, such as freezing significant proportions of China’s $3.22 trillion in foreign exchange reserves, as was done to Russia’s central bank following the invasion of Ukraine, would similarly not be credible because the primary impact would be on China’s capacity to defend its currency, producing a sharp depreciation of the renminbi and ironically making China’s exports even more competitive in the global economy. The disruptions of global supply chains during the COVID-19 era created significant economic dislocations, which only moderately eased after China’s rapid return to production and exports in April and May 2020. Suspending China’s overall access to US dollar financing and its impact on trade would generate immediate political opposition in the United States and other allied and like-minded democratic states.

Moreover, Beijing is very aware that wholesale restrictions on financing channels for all of its banks are improbable and difficult to maintain. As a result, China’s methods for avoiding broader sanctions have focused on channeling transactions through individual banks that typically have limited cross-border business. Therefore, when these smaller banks are inevitably sanctioned themselves, the net impact on the rest of the financial system is minimal. This was the playbook that China used in designating the Bank of Kunlun as a preferred vehicle for transactions with Iran after sanctions were imposed in 2012, even though the sanctions did force the bank to shift its behavior as well. Banks in Hong Kong have similarly been forced to juggle overlapping sanctions threats from the United States and China in recent years, but no bank in Hong Kong has completely lost access to US dollar clearing facilities because of secondary sanctions imposed by the United States. And as long as some banks within the Chinese system maintain access to dollar clearing facilities, then it is probable that Beijing and Chinese firms will be able to channel transactions through these institutions. It remains highly unlikely that all Chinese banks will suddenly find themselves unable to access or trade in US dollars in a situation similar to some Russian financial institutions, given China’s importance in the global trading system. Beijing’s awareness of these limits similarly conditions China’s attempts to develop alternative financial networks that do not involve the US dollar. These can serve as alternative channels to be expanded in case of temporary need and limited purposes, rather than alternatives for everyday usage.

Using international Renminbi networks to circumvent sanctions

Obviously, one method China can use to avoid economic sanctions on US dollar-denominated transactions is to conduct business in China’s own currency, the renminbi. (Here, we are assuming that China’s efforts would be designed to avoid or circumvent an explicit secondary sanctions package from the United States or the G7.) Over time, China has sought to both encourage the development of offshore pools of the Chinese currency as well as denominate trade transactions in renminbi. At first, this was primarily a mechanism to avoid the disruptions to US dollar-denominated trade transactions caused during the global financial crisis in 2008. Later, and particularly following the Russian invasion of Ukraine, China’s efforts to promote the international use of its currency carried greater geopolitical significance, as a potential tool of sanctions avoidance, and to reduce the scope of Chinese financial transactions potentially exposed to US economic statecraft. Former Chinese officials such as Yu Yongding, who served on the PBOC’s Monetary Policy Committee, has pointed to the G7’s freezing of Russian foreign exchange reserves as proof of US “willingness to stop playing by the rules” and have suggested sitting Chinese officials are exploring new alternatives to safeguard its foreign assets.74⁷³

Russia itself started invoicing a far higher proportion of its own imports in renminbi in 2022 and using renminbi as a “vehicle currency” for transactions with third countries as well.⁷⁴ Overall, however, the potential for renminbi-denominated transactions to bypass or circumvent economic sanctions depends upon:

The liquidity and availability of renminbi to conduct economic transactions
The capacity of Chinese international interbank payments systems to accommodate these transactions
The ability of financial institutions to conceal those transactions from Western regulators, who could still impose secondary sanctions upon Chinese institutions should the transactions circumventing sanctions be discovered

Among these three requirements, the first one is likely the most difficult for Chinese authorities to control. It is always easy enough to provide financing in renminbi, but it is difficult to find counterparties willing to accept renminbi as payment or in borrowing, unless they have no other alternatives (as in Russia’s case). Setting up the institutional infrastructure to accommodate renminbi-denominated interbank transactions can occur largely within China’s borders, although it does require approvals of several international banks to facilitate these transactions. Beijing’s difficulty in avoiding detection of sanctions-busting financial transactions stems from the fact that China’s banks are also likely to maintain large volumes of dollar-denominated business, particularly for trade settlement. Beijing can always play a game of chicken regarding the imposition of secondary sanctions on China’s larger banks if certain sanctions-busting transactions are discovered, but it still runs the risk of retaliation from the United States and its allies.

Current scope of Renminbi internationalization

The term “renminbi internationalization” is often used to describe multiple phenomena, not all of which are relevant for China’s avoidance of Western economic statecraft. The most conventional definition involves the holdings and usage of renminbi outside of China’s borders, including for trade settlement. Other definitions include foreign holdings of renminbi-denominated assets within Chinese markets, which are less important in the context of sanctions avoidance. Sometimes “renminbi internationalization” incorporates the use of bilateral currency swaps extended by China’s central bank, or the usage of renminbi in outbound lending. But in terms of sanctions avoidance using renminbi-denominated transactions, the primary threat is the usage of Chinese financial networks by third parties to bypass US financial and regulatory surveillance. The most important consideration in that context is the liquidity and availability of renminbi itself, and trade and financial activity involving China’s currency, particularly wholesale transactions between banks.

One of the methods Beijing attempted to use to improve the attractiveness of renminbi-denominated assets was to have China’s currency included in the IMF’s SDR basket of currencies, which would provide an official designation that the renminbi was a currency that the IMF agreed was acceptable for holding within foreign exchange reserves. In addition, any transaction with the IMF would need to include renminbi, so this designation would produce a certain volume of purchases of renminbi. In addition, it would reduce a perceived obstacle to other investors, including central banks, acquiring renminbi-denominated assets. Beijing was required to demonstrate that the currency was “freely usable” in international financial markets. Because the renminbi was not fully convertible, and there were still capital controls in place on the currency, attesting to the currency’s usability was difficult. Instead, Beijing argued that the offshore currency, or the international renminbi (the Chinese yuan traded in the offshore market, or CNH) traded primarily in Hong Kong, fulfilled those criteria, since these transactions were subject to more limited capital controls. The IMF ultimately accepted the argument when it admitted the renminbi into the SDR currency basket in 2015, which helped to expand the range of investors who could readily invest in renminbi-denominated assets.

However, the accumulation of offshore renminbi and improving liquidity in financial markets for China’s currency is far from a straightforward process. Because China runs a global trade surplus, even if 100 percent of China’s trade was denominated in renminbi, no Chinese currency would necessarily accumulate outside the country’s borders, while foreign currency would come into the country. A portion of China’s trade could be denominated in renminbi—primarily China’s imports—which would result in third countries accumulating renminbi payments from Chinese companies. Then they would be forced with the choice of what to do with the Chinese currency: trade it for dollars or domestic currency, invest in renminbi-denominated assets, or deposit it in an overseas or Chinese bank. Chinese consumers could carry renminbi outside the country, but would need to find merchants to accept it. Capital outflows, including overseas investment and lending, could hypothetically increase the pools of available renminbi outside the country, assuming there were third parties willing to hold the currency or invest it in Chinese assets. This is one reason China’s central bank has encouraged currency swap deals to expand liquidity in offshore renminbi markets, but the actual utilization of these swap lines has been very limited. Simply put, there is no easy mechanism for Beijing to encourage foreign investors and central banks to hold the Chinese currency, as this depends upon public perceptions of the currency’s utility, liquidity, safety, and long-term value.

China’s currency is generally considered the fifth-most commonly used currency in the world, and is used for 3.6 percent of global transactions by value, according to SWIFT data. It still falls behind not only the US dollar and the euro, but the Japanese yen and pound sterling. Excluding payments within the eurozone, according to SWIFT’s data, the renminbi is sixth, falling behind the Canadian dollar. (And this may be low, given that SWIFT’s data will more heavily sample transactions in Western financial markets.) In terms of offshore holdings of renminbi, the PBOC’s own data shows that foreign holdings of renminbi-denominated assets totaled 9.76 trillion yuan ($1.36 trillion) as of June 2023, down from a peak of 10.8 trillion yuan in 2021. Naturally, the change in US interest rates starting in 2022 reduced the attractiveness of renminbi-denominated assets to foreign investors, along with geopolitical risks tied to China’s alignment with Russia.

Most relevant for sanctions avoidance is the liquidity of renminbi-denominated trading, or the ability of third parties to use renminbi in transactions outside of US and Western surveillance. However, the vast majority of renminbi-denominated financial transactions still take place in Hong Kong (79 percent), followed distantly by the United Kingdom (5 percent) and Singapore (3 percent). While this is logical given Hong Kong’s role as the gateway between China and international financial markets, the importance of Hong Kong within the offshore renminbi market raises the question of how “international” offshore renminbi trading really is. Most likely transactions involving offshore renminbi that are used to avoid sanctions would transact via Hong Kong, using institutions that would also maintain business in the US dollar, and would therefore also be subject to US sanctions or other economic statecraft.

As of 2023, the renminbi share of allocated global foreign currency reserves stood at around 2.4 percent, a decline from 2022 (2.6 percent) and 2021 (2.8 percent).⁷⁵ According to the PBOC, more than 80 foreign central banks or monetary authorities have held renminbi in their foreign currency reserves.⁷⁶ Many of the countries publicly committed to holding renminbi in their foreign currency reserves have a significant trade relationship with China (Table 13). China is the top trading partner of Russia, Australia, Brazil, Bangladesh, and Kazakhstan. At 13.1 percent, Russia holds the largest disclosed share of renminbi reserves (although the effective share of Russian reserves may be higher given the impact of sanctions). US sanctions on the use of US dollar assets have added pressure on Russia to diversify into other currencies, and Russia’s share of trade invoiced in renminbi increased from 3 percent in 2021 to 20 percent by the end of 2022.⁷⁷ Around 2018, several European countries, including France, Belgium, Germany, Slovakia, and Spain, as well as the European Central Bank, began announcing the inclusion of renminbi in their reserves, likely a result of the renmimbi’s inclusion in the IMF’s SDR currency basket. However, these countries do not publicly disclose the current composition of reserves, and more recent reporting on the quantity of renminbi reserves is sparse. African countries such as Rwanda and South Africa primarily mention trade settlement and investment promotion as motives for diversifying assets with renminbi holdings.

Author analysis

Because the currency remains subject to capital controls and is not fully convertible, choosing to hold foreign exchange reserves in renminbi is not necessarily as straightforward as holding other currencies. But during periods when interest rates on US Treasuries and other traditional reserve currencies are low, higher return on Chinese government bonds may offer an attractive alternative to diversify reserve holdings.

Trade settlement in China is also increasingly denominated in renminbi. Naturally, it is easier for China to impose payment terms upon its own imports from foreign companies, as the customer. As a result, along with foreign exchange reserves, countries that tend to denominate more trade in renminbi tend to be significant exporters to China, and run trade surpluses with China, primarily in raw materials or commodities. The overall volume or proportion of trade settlement in renminbi is a far less significant gauge of renminbi internationalization than other metrics such as the accumulation of renminbi assets or the volume of cross-border financial transactions in renminbi. Nonetheless, the proportion of trade denominated in renminbi has increased notably since the Russian invasion of Ukraine, and has hit all-time highs above 35 percent in recent months.

In the past, when renminbi-denominated trade settlement surged from 2013 to 2015, this reflected strong demand for renminbi in offshore markets, because the Chinese currency was appreciating against others, and against the US dollar. As a result, exporters to China were more likely to be willing to hold renminbi if Chinese importers paid in the currency. The recent surge also corresponds with a change in the currency’s value, but the renminbi has depreciated against the dollar since early 2022. The rise in renminbi-denominated trade settlement in recent years has occurred alongside the rise in US and global interest rates relative to Chinese interest rates. The lower Chinese rates can make trade credit denominated in renminbi more attractive to firms, relative to more expensive US dollar-denominated trade finance. The renminbi’s share of global trade finance increased to 5.12 percent in November 2023, from only 2 percent in December 2020, according to SWIFT data, and it is probable that lower Chinese interest rates can explain the recent rise in overall trade settlement.

Financial infrastructure: CIPS

Central to Beijing’s efforts to build resilience and circumvent potential G7 sanctions is CIPS. Launched by the PBOC in 2015, CIPS is a large-value renminbi payments system designed to facilitate and settle domestic and cross-border renminbi transactions.⁷⁸ Built to resolve the inefficiencies of China’s legacy payments system, including the China National Advanced Payment System (CNAPS), CIPS promises to integrate its participants into the existing global financial architecture, while allowing for onshore renminbi clearance and settlement services.⁷⁹

Structured like the Clearing House Interbank Payments System (CHIPS), the US-led interbank payments system, financial institutions are either direct participants, which maintain an account within CIPS, or indirect participants, which engage with the system through relationships with a direct participant. As of December 2023, CIPS boasts 139 direct participants, with foreign participants concentrated within China’s trading partners, and 1,345 indirect participants.⁸⁰ Direct participants have to be incorporated in China. However, direct participants can be located abroad if they are a subsidiary of a Chinese financial institution In total, CIPS participants span across 113 countries and regions around the world.⁸¹

CIPS’ stated goal is to improve efficiency and reduce costs associated with international renminbi settlements. Beijing aspires to make it an integral part of the world’s existing financial infrastructure. Unlike CNAPS, CIPS is directly interoperable with SWIFT and uses the ISO 20022 international payments messaging standard. However, CIPS’ potential as a replacement to the US-led global financial plumbing has not gone unnoticed. Experts in China noticed US efforts to disconnect Iran from SWIFT in 2012 and threats to take similar action against Russia in 2014. Fearful that the United States may eventually consider similar actions against China, some have argued CIPS may be more important as a tool to protect Beijing’s national and economic security.⁸² Recent actions by the G7 against Russia to follow through and disconnect ten Russian banks from SWIFT have amplified these fears.⁸³ As a result, while CIPS does reportedly utilize SWIFT for around 80 percent of the transactions it processes,⁸⁴ among CIPS’ direct participants, it does maintain an alternate communications channel.

Due to its capacity to operate independently with its direct participants, even in a maximalist-sanctions scenario similar to G7 actions against Russia or US sanctions against Iran, CIPS can continue to function and process bank-to-bank transfers. CIPS provides meaningful insulation for the Chinese financial system as well as means to easily engage with willing partners abroad either through CIPS’ current roster of direct participants or by onboarding new ones.

There is also little question CIPS can scale to meet China’s needs in the face of Western sanctions. When looking at CIPS’ support for renminbi internationalization efforts, especially in the context of sanctions, it’s critical to disaggregate Chinese goals to encourage international use of the renminbi from building resilience against potential G7 sanctions. At the end of 2023, CIPS processed around 3 percent of the total value that passes through CHIPS.⁸⁵ This transaction volume is well short of what Beijing would need to legitimately challenge the dollar as the dominant currency of international commerce. However, taken along the far narrower goal of building a payments network that remains operational for trade and basic financial transactions in the face of economic sanctions, Beijing has succeeded.⁸⁶ CIPS has the capacity and resilience to manage and onboard China’s global economic relationships in the event of maximalist G7 sanctions. While CIPS processes a fraction of the total value that passes through CHIPS, this is already adequate capacity to cover China’s total goods trade in the event Beijing is removed from SWIFT. In Q3 2023, CIPS processed, on average, $51 billion in transactions a day. Chinese total imports and exports over the same period amounted to an average of around $17 billion a day. Restrictions and transitional pain points will primarily stem from Chinese trading partners’ willingness to engage with the system.

Digital currency and e-CNY

In 2017, China established the digital yuan project, a CBDC, with the stated goal of facilitating cross-border transactions and reducing reliance on traditional payment systems. Mu Changchun, the director of the Digital Currency Research Institute at the PBOC, discussed expanding the scope of Project mBridge to eventually “formulating a road map to develop an influential cross-border payment infrastructure.”⁸⁷ In the context of a Taiwan crisis, policymakers should consider China’s advancements and ambitions in both retail and wholesale CBDCs and how these platforms could be leveraged to mitigate the effect of potential Western sanctions.

China’s retail CBDC project focuses on enabling Chinese individuals and businesses to use the digital currency for everyday domestic transactions and creating a network of state-enabled payments.⁸⁸ Common use-cases of the retail e-CNY include public transportation, integrated identification cards, school tuition payments, tax payments, and refunds.⁸⁹ Currently, the domestic pilot project has 13.61 billion renminbi in circulation with 260 million digital wallets.⁹⁰ However, this project has limited ability to help internationalize the yuan and serve as a means of sanctions evasion given its domestic focus.

China’s wholesale CBDC projects are different. Phase 1 of Project mBridge started in 2021 as a joint experiment with the central banks of China, Thailand, the United Arab Emirates, and the Hong Kong Monetary Authority (HKMA), and select commercial banks within these jurisdictions, as well as the Bank for International Settlements (BIS) Innovation Hub.⁹¹The project was initially designed to create a common infrastructure that enables real-time crossborder transactions using CBDCs. In the current version, the project connects over twenty banks across the four jurisdictions, reducing the reliance on the correspondent networks utilizing the dollar.⁹² mBridge can be understood as an upgrade to the current cross-border payments technology, and if implemented at scale could deliver efficiency, speed, and security to international payments outside of dollar-based networks. In October 2022, the project successfully conducted 164 transactions, settling a total valued at $22 million, with almost half of all transactions in e-CNY.94⁹³ This was the first successful test of a wholesale CBDC with actual funds and concluded Phase 1 of the project.⁹⁴

In Phase 2 of the project, China and the BIS will expand the mBridge participants. As of January 2024, twenty-five central banks have joined the project as observing members and additional countries are interested in joining this expanding network.⁹⁵ mBridge is organized in a three-tier participation structure.⁹⁶ The first level is the project’s founding members: China, Thailand, Hong Kong, and the UAE. The second level consists of eleven anonymous central banks engaged in mBridge’s sandbox testing; notably, the Central Bank of Türkiye has announced its involvement in testing. mBridge’s sandbox offers a secure environment for central banks to experiment with simulated nodes and transactions. The third tier consists of observing members, which includes the IMF, the World Bank, and fourteen additional central banks. The value of a payments infrastructure lies in the network effects it generates for participants. As more central banks join, this infrastructure becomes increasingly efficient.⁹⁷ China has also announced plans to integrate traditional payment systems like real-time gross settlement systems or fast payment systems with mBridge, so that central banks can issue their own CBDC on mBridge without creating their own CBDC infrastructure.⁹⁸

Transactions on this payment infrastructure are conducted outside of the US dollar and therefore outside of US sanctions influence. As a result, mBridge can offer an alternative cross-border settlement system to jurisdictions looking to bypass US sanctions or compliance with US anti-money laundering/countering the financing of terrorism regulations. Therefore, mBridge could serve as an alternative financial channel that could be leveraged in the event of a Taiwan crisis—especially as an option for jurisdictions that may be reluctant to join Western sanctions and/or “fence-sitting” economies that rely significantly on Chinese import and export markets. In a crisis scenario, China could also evade secondary sanctions and still maintain access to critical commodity markets and energy products.

There have been changes in technology that also reflect Beijing’s influence on the cross-border project. Until recently, mBridge was running on a proprietary blockchain based on Ethereum’s Solidity language and developed by “central banks for central banks,” unlike other CBDC initiatives that run on blockchains built by third parties.⁹⁹ However, in November 2023, Chinese media reported that mBridge will be transitioning to the Dashing protocol, which was developed by the PBOC’s Digital Currency Research Institute and Tsinghua University.¹⁰⁰ The specific program language has not been announced, but the protocol could achieve higher scalability and lower latency. This shift underscores how much China remains the center of mBridge as the project designer, manager, and main trading partner.

There is also a lack of US- or dollar-based alternatives to mBridge. Despite the dollar comprising more than 70 percent of SWIFT messages worldwide in 2023, there is currently no equivalent Western or G7 digital currency or platform to counterbalance the advantages presented by mBridge, including faster settlement and reduced transaction costs. This is a significant gap in the emerging digital financial ecosystem, which provides China with an opportunity to use this infrastructure to encourage more countries to opt for faster and more cost-effective transactions, and then turn to this system during a sanctions scenario.

While mBridge has significant potential to serve as a cross-border payments alternative for China, it is currently in the experimental stage—its scalability and wider adoption in real-world scenarios remains uncertain. Experts have projected that mBridge’s current capabilities are limited to facilitating roughly $190 million in transactions annually, which limits Beijing’s ability to shift flows in the event of a crisis in the short term.¹⁰¹ In the medium term (three to five years), the project can potentially be leveraged to shield China’s financial system. In 2022, the total trade volume between the four founding mBridge members was $540 billion—if China moves just 5 percent of these flows to mBridge it could facilitate trade up to $27 billion.¹⁰² Moving the mBridge consensus protocol to Dashing would also improve the efficiency of the project by increasing the number of transactions per second. However, liquidity remains a major concern for the scalability of mBridge. To facilitate large-scale cross-border transactions daily without dollars or euros would require a change in the current currency settlement system. However, at least for a shortterm crisis and for specific transactions that would fall under sanctions, mBridge can help the Chinese financial system and its commercial banks maintain liquidity.

mBridge, along with CIPS (see below), can potentially augment China’s ability to respond in a Taiwan crisis scenario. Despite its growth over the last two years, CIPS’ capability is limited by its reliance on SWIFT. Participants can message each other through the CIPS messaging system, but 80 percent of transactions on CIPS rely on the SWIFT infrastructure for translation.¹⁰³ As a result, China might pivot toward strengthening the role of digital yuan and mBridge in its international payment networks, hoping to maintain transactional flows and mitigate the impacts of any restrictions on CIPS. Ultimately, China is likely to rely on both networks in a crisis to mitigate sanctions through multiple avenues.

One way to understand China’s goal with CIPS and its linkages with SWIFT is that by adding more banks to both networks China is making it more difficult to sanction the Chinese banking system without enormous repercussions to trading partners all over the world. Instead of a sanctions shield, like mBridge, CIPS expansion can be thought of as a leverage point to discourage sanctions.

There is growing interest around the world in finding alternatives to the dollar-based messaging and settlement systems. China is meeting this demand while also serving its own goals of internationalizing its currency and providing a hedge against sanctions. The development of the e-CNY and mBridge project provide Beijing with new options to circumvent a potential international sanctions regime in a Taiwan crisis. This makes the timing of a crisis critical. Without a change in current dynamics, the impact of sanctions today on China’s economy could be far more significant than the impact in three to five years when mBridge has become fully operational with additional countries as partners.

Prospects for future expansion of international Renminbi

While China has struggled to increase the attractiveness of the renminbi in overseas markets, there are certain political initiatives Beijing can take to increase the currency’s utility to third parties, and to expand participants in mBridge and CIPS. One of these is the use of currency swap arrangements to administratively offer pools of liquidity in renminbi for trade settlement or financial transactions in other countries. Another would be to offer concessionary lending to third countries in renminbi, for overseas infrastructure or Belt and Road Initiative-related projects, which can improve liquidity in overseas markets but may also require the borrower to spend or convert many of the proceeds back in China or with Chinese firms who can accept the renminbi.

Other options for Beijing include more ambitious concepts such as the use of a BRICS currency, which emerged as a topic of discussion during the last BRICS summit in South Africa in August 2023 and will continue to be a key area of policy exploration under the Russian BRICS presidency in 2024.¹⁰⁴ Any creation of a BRICS currency would necessarily require China’s participation, and given China’s economic weight within the group of countries, a BRICS currency would be almost equivalent to an offshore renminbi. The basic challenge persists, though, in that a BRICS currency could not provide any meaningful insulation from Western economic statecraft. Most of the BRICS countries, including China, run trade surpluses, so unless China dramatically increased imports from these countries, these countries would continue to export to Western economies, most likely using US dollars, and accumulating US dollars that would need to be cleared via US-domiciled accounts.

Beijing is also using the Shanghai Cooperation Organization (SCO) to advance non-dollar-denominated financial systems by promoting the use of local currencies like the renminbi in international trade and finance. Chinese leaders have supported the creation of an SCO development bank and have advocated for measures to increase local currency settlements including through improving local-currency cross-border payment and settlement systems as well as bilateral currency swaps arrangements.¹⁰⁵

The problem with the BRICS currency and Chinese efforts at the SCO speak to the larger limitations on the accumulation of offshore renminbi. As long as China runs a trade surplus, globally, then renminbi remains scarce, and remains inside China itself. Only by running a persistent trade deficit would renminbi end up circulating more regularly outside of China, and therefore create incentives for other market participants to hold renminbi-denominated assets. Otherwise, renminbi must spread through outbound investment, outbound lending, or currency swap arrangements, all of which must be negotiated with Chinese commercial banks or the central bank, rather than proceeding entirely via market transactions. The conundrum for Beijing is that should China run a persistent trade deficit or face persistent capital outflows, China’s currency would remain less attractive than other alternatives, because these forces may reduce the value of the currency over time. But those are also the only channels through which renminbi can significantly increase its circulation outside China.

Policy constraints on expansion of renminbi financial networks

China could meaningfully expand the international use of its currency by opening its capital account more rapidly to both capital inflows and outflows. The fact that the currency is not fully convertible meaningfully limits its usage, because market participants cannot exchange the currency freely for others, nor participate freely in Chinese financial markets. Beijing has significantly liberalized its own financial markets and allowed more foreign participation, but this has primarily been focused on maintaining inflows, rather than permitting outflows. There are still considerable restrictions on daily transaction volumes through China’s Bond Connect and Stock Connect programs, which permit two-way flows via Hong Kong.

However, fully liberalizing China’s capital account would bring a slew of additional financial risks, which explains Beijing’s reluctance to commit to greater opening. China has maintained a closed capital account for years, while the world-leading money supply has expanded to over $40 trillion, even though 98 percent of China’s monetary assets are denominated in renminbi. Currently, Chinese citizens are limited by the $50,000 annual quota on per capita foreign exchange conversions, and corporates are limited by a series of restrictions on outbound investments and rules limiting access to foreign exchange. These capital controls do not completely prevent conversions into foreign assets, but they slow down these flows considerably. Liberalization of the capital account would likely permit more inflows, but at the cost of much faster potential outflows, which may trigger significant liquidity problems within China’s financial institutions and significant pressure on the renminbi to depreciate. And such depreciation pressure would meaningfully reduce the attractiveness of the currency to overseas investors.

Implicit within these limitations is a broader problem of trust and credibility in Chinese policymaking. To hold an asset denominated in renminbi implicitly involves some degree of confidence in the longerterm value of the currency, the stability of China’s regulatory environment, and the credibility of China’s policymaking process. That policy credibility takes years to accumulate, but can be disrupted rapidly, through actions such as the crackdowns on IT firms or education and tutoring firms in 2021, or the botched efforts to bail out the equity markets, both in 2015 and earlier this year.¹⁰⁶ These campaigns and crackdowns were highly adverse to foreign investors’ interests and raised questions about the ultimate intentions of China’s leadership to maintain economic growth and preserve an attractive climate for foreign investment. The same concerns among investors can emerge over geopolitical issues, such as China’s alignment with Russia after the invasion of Ukraine, which has cost China considerable credibility as an attractive economic partner or investment destination. As China’s political system has become more centralized, and campaign-style governance has become more common, it is more difficult for economic technocrats to send countervailing signals that campaigns have ended and normalcy has returned.

All of these constraints limit Beijing’s capacity to develop highly liquid and credible markets for its currency outside of China itself. As a result, China’s financial institutions remain dependent upon the US dollar at the same time as Beijing attempts to expand alternative financial networks in renminbi. Even while many states may seek an alternative to the US dollar system, Beijing faces meaningful limits in its capacity to provide that alternative, without jeopardizing financial stability in China itself.

Responding to G7 economic statecraft in a crisis

The concerns outlined above are longer-term in nature. The immediate question looming for Beijing is what China can plausibly do now if G7 countries initiated some of the economic sanctions and other statecraft measures discussed in the scenarios above. And Beijing does have some meaningful options, simply because most of the renminbi-denominated financial networks can still be used on a limited basis, even if they are unattractive for large volumes of conventional economic transactions.

The first and most obvious step would likely be to route trade transactions involving energy sources and critical commodities imports via countries that were unlikely to cooperate with G7 sanctions or export controls. This would also likely involve the use of the renminbi as a payment currency, which is plausible since many of the commodity exporters to China are likely already receiving renminbi from their Chinese customers. The third-party exporters to China could then be subject to secondary sanctions in some cases, but this would likely involve a significant escalation in targets from G7 countries. Most of this trade activity is likely to continue in spite of Western sanctions on China.

The second measure includes currency intervention, openly selling US dollars in order to shore up the value of China’s currency and reduce near-term pressures for capital outflows that would likely intensify as sanctions were imposed. Currency stability would likely be necessary to maintain Beijing’s capacity to use alternative financial networks in a crisis scenario, to prevent third countries from facing pressure to sell their renminbi and avoid the currency because of sanctions risks. This may appear in Western financial markets as China “dumping” US Treasuries or other US dollar-denominated assets, but the nature of this operation would be to maintain ammunition to stabilize China’s currency.

Third, Beijing can reallocate critical trade and financial transactions with the rest of the world through very large or very small financial institutions. Small financial institutions may be sanctioned, and lose access to US dollar clearing facilities, but these limits are unlikely to have significant implications for financial stability in China, and can shift to other institutions as necessary. Larger financial institutions are more difficult to sanction because of the potential for significant disruptions in regular trade activity with Western markets, and the potential for sudden dislocations in global supply chains. Shifting more critical transactions to larger state-owned banks such as the Bank of China or Industrial and Commercial Bank of China, for example, would be a more difficult secondary sanctions target for Washington.

In terms of rapidly accelerating the development of renminbi-denominated financial networks, Beijing may struggle to react quickly and effectively. More participants from third countries can certainly be admitted into CIPS, more central banks can be linked to mBridge, and more CBDC can be issued, of course. Beijing can suspend cooperation with SWIFT altogether, including within CIPS. But these are not the primary limits on the utilization of these networks, which remain the liquidity and attractiveness of renminbi financial assets, and the limits Beijing places on convertibility of the renminbi. The imposition of G7 sanctions would likely intensify these problems for Beijing, given the rising political costs of third countries in economic engagement with China, rather than catalyzing faster growth of renminbi-denominated financial networks.

Beijing’s responses to different types of crises

As discussed previously, the level of escalation and the mechanics of the scenarios involved will also influence the level of Beijing’s response and attempts to circumvent sanctions. Moderate escalation as defined in this report would suggest that Beijing will attempt to maintain the perception of normalcy in its international financial engagement, leaving channels open for capital inflows into China’s equity and bond markets. The exchange rate would likely be under pressure but within the capacity of the central bank to stabilize conditions, and under most circumstances, it would be in Beijing’s benefit to project financial stability. China would likely try to shift sensitive trade and financial transactions to smaller banks at less risk of international sanctions or restrictions.

Renminbi-denominated international financial networks could become more active in a moderate-escalation scenario, precisely because Beijing would not be facing widespread restrictions on trade, and would be attempting to portray Western sanctions as unreasonable and overreactions, demonstrating the lack of credibility in US and G7 economic policy. Beijing would likely attempt to sign up additional countries’ financial institutions to networks such as CIPS and mBridge, and channel trade and wholesale financial transactions through those networks. Renminbi-denominated central bank swap lines to friendly countries could also be expanded under these circumstances to improve liquidity conditions for renminbi-denominated trade transactions.

In a high-escalation scenario, the renminbi would presumably already be under considerable pressure and would be weaker against the US dollar, and the PBOC would not be as interested in maintaining a certain level of the currency (while also trying to prevent an outright currency collapse). Since this scenario assumes widespread restrictions on China’s financial institutions, it is probable that third countries would be cautious about engaging with China’s renminbi-denominated financial networks for fear of potential secondary sanctions. Furthermore, it is more likely that the pressure on the renminbi would reduce the attractiveness of engaging in trade transactions via China’s international financial networks. More probably, these transactions would be limited to those conducted with Beijing’s explicit political guidance.

Supply and demand of alternatives to the dollar-based financial system

Demand for alternatives to the dollar-denominated financial system are shaped by a desire to mitigate the impact of possible Western sanctions and reduce transaction costs associated with utilizing dollardenominated cross-border payments systems. The G7 and its partners levied unprecedented coordinated sanctions against Russia in response to Russia’s invasion of Ukraine. However, several governments maintain economic and political relationships with Russia. These “fence-sitter” governments, which include BRICS and Gulf countries, have not joined the sanctions campaign and are exploring alternatives to the dollar and euro in order to continue their economic relationships with Russia.¹⁰⁷

The United States and its allies’ perceived willingness to use tools of economic statecraft in the event of any conflict shapes the urgency with which countries are pursuing these alternatives.¹⁰⁸ Similar to G7 economic initiatives to de-risk or pursue China+1 goods supply chain initiatives, nonaligned capitals around the world are also interested in analogous financial hedges.¹⁰⁹ Their efforts are not necessarily meant to supplant the dollar as the dominant international currency but are designed to safeguard their economies in a crisis scenario. It is important to recognize that different countries within the BRICS, for example, have varying motivations and levels of interest in de-dollarization. It is therefore more useful to evaluate de-dollarization efforts on a country-by-country basis as the Atlantic Council has done in its Dollar Dominance Monitor.¹¹⁰

Countries are also striving to reduce dollar usage in cross-border payments because of potential efficiency gains brought about from local currency settlement, or, in the case of China’s trading partners, renminbi trade settlement. This is particularly prominent in Association of Southeast Asian Nations (ASEAN) member states whose central bankers have long taken issue with the inefficiencies and risks incurred by their reliance on the dollar for regional trade and finance.¹¹¹ Currently, most high-value crossborder dollar payments are settled through the US-led CHIPS system. However, because only one ASEAN member state’s bank—Thailand’s Bangkok Bank Public Company Limited—is a direct participant in CHIPS,¹¹² most dollar-denominated financial flows have to rely on correspondent banking relationships where local institutions maintain accounts with institutions that are members of CHIPS. This financial intermediation incurs costs on traders and financial institutions generating financial motivations to advance dollar alternatives.¹¹³ Still, the network effects associated with dollar dominance are considerable, and dollar alternatives may not be readily available or cost effective.¹¹⁴ So while ASEAN countries, for example, are exploring new systems to directly link national payments systems as an alternative to correspondent banking,¹¹⁵ policymakers in the region face considerable headwinds to develop an alternative that is cheaper than established US dollardenominated financial networks.

Foreign exchange markets are one such example. Countries interested in local currency settlement still must utilize foreign exchange markets to convert their domestic currency to their partner’s. However, G7 currencies, led by the dollar, make up nearly 85 percent of all foreign exchange transactions globally.¹¹⁶ With emerging market currencies comprising just 8.9 percent of all foreign exchange transactions, markets for non-dollar currency pairs are mostly underdeveloped. Low volumes for local currency settlement increase the gap between buying and selling rates (the bid-ask spread). For example, in Asia, where ASEAN governments have made a concerted effort to close this gap and increase cross-border local currency use, the bid-ask spread can still be more than double what traders pay for a transaction involving the local currency against the dollar.¹¹⁷ This can counteract the dollar transaction costs incurred by financial intermediation, reinforcing the role of the dollar.

To decrease local currency transaction costs between China and its trading partners, Beijing is actively providing additional pools of renminbi offshore to improve liquidity. During the summer of 2022, the PBOC and the HKMA upgraded their currency swap line to a standing arrangement, providing offshore renminbi markets with stable, long-term liquidity support. The PBOC has also encouraged other regional central banks, namely the Monetary Authority of Singapore, to utilize its renminbi swap funds to enhance the liquidity of their own renminbi markets. The PBOC has suggested it will continue to improve offshore renminbi liquidity through additional supply arrangements.¹¹⁸

Geoeconomics and transactional efficiency gains must reinforce each other for meaningful supplies of dollar alternatives to emerge. The immense network effects of the dollar mean that governments must foot some of the bill, as Beijing and its financial system is doing to develop renminbi foreign exchange markets. These costs can be more easily justified when there is a legitimate national security concern. While the Russia sanctions have accelerated interest in efforts to find dollar alternatives, many of these initiatives are still years away from having enough demand from China’s partners to be useful and effective at scale. However, in the aftermath of a Taiwan crisis, and a sanctions package from the G7, it is likely countries would increase efforts to build these systems both between each other and with China. However, if G7 use of financial statecraft instruments becomes more infrequent or guidelines are adopted to constrain them, there will be less incentive and momentum to develop and adopt alternatives.

Assessing China’s capacity to respond to G7 statecraft

The costs of any Taiwan crisis scenario that threatens to spiral into broader conflict between China and the United States are so large that it may seem trivial to draw finite distinctions between these scenarios, or break down where costs are likely to be most severe. But understanding how China is likely to respond to G7 economic statecraft can help policymakers prepare to minimize those costs, while also outlining alternative paths to avoid conflict by emphasizing that the G7 understands the scope and range of China’s economic second-strike capability. Respect for the damage that both G7 and Chinese economic statecraft can impose can help both sides walk back from the brink of a Taiwan crisis.

The timing of any scenario is also critically important, given how policy is currently evolving in both Western democracies and in Beijing to improve the range of choices in the event of a crisis. The process of de-risking and diversification of supply chains is likely to marginally reduce China’s capacity to practice critical elements of economic statecraft via trade and export restrictions over time. But in finance, policy is trending in the opposite direction, with China’s renminbi-denominated financial networks likely to continue to expand in scope and liquidity, providing more alternative options for China to potentially circumvent US or G7 statecraft tools. A Taiwan crisis in a year’s time will present both sides with far different options and concerns about costs relative to a scenario in five years’ time.

The impact on trade and FDI

One of the principal arguments of this study is that China is armed with powerful statecraft options relating to trade (both imports and exports) and foreign investment (particularly inbound FDI), but that the expansive use of these tools in a moderate- or high-escalation scenario comes with steep economic and reputational costs. Prior geopolitical incidents have shown China to have a wide array of formal and informal tools available, but it has generally used these tools in a targeted fashion: on single firms or industries, or smaller trading partners. China is expanding the legal foundations for these tools. China’s Anti-Foreign Sanctions Law, anti-blocking statute, and expanding export control regime serve to highlight Beijing’s leverage in trade and direct investment with G7 countries.

In an escalation over Taiwan, China has the capability to expand the use of these coercive tools. Trade-related tools would likely focus first on restricting access to China’s market in goods where the costs to China are lower (consumer discretionary goods, easily substitutable goods) and where the relative costs to adversaries are high. Export-related restrictions would likely focus on critical raw materials and key industrial inputs that account for a relatively small share of China’s overall output and employment, but which are difficult for other countries to replace or do without. Investment-related tools would likely begin with disrupting MNC operations through investigations, audits, and interfering with data and financial flows. In a higher escalation scenario, all of these tools could be scaled up further, up to near-total trade restrictions and seizure of MNCs assets in China.

But using these tools, even in limited ways, comes with immediate costs to China. China’s economy depends in large part on the contributions of foreign firms and export-oriented manufacturing. It also carries longer-term costs from frightening off global investors worried about China’s “investability” due to macroeconomic and geopolitical risks. In short, though these coercive tools exist, their use comes at a cost that Chinese policymakers will be loath to bear.

More germane in a moderate-escalation scenario will be China’s usage of positive trade and investment inducements to create cracks in G7 unity on economic sanctions or restrictions, in combination with other restrictions on market access. Beijing may combine measures to restrict market access for one country while offering preferential access to another. In conditions where countries adopt unilateral sanctions against China, China is likely to seek opportunities to undercut alignment by focusing countersanctions solely on that country and offering positive inducements to other G7 countries or the broader G20.

Beijing’s response will also ultimately depend on China’s central position within global supply chains, and as a node in $5.9 trillion in annual global trade activity. Gradual de-risking and diversification of global investment will shift this position, even if the outright volume of China’s trade with the rest of the world remains at a high level and China continues to provide intermediate goods to newer manufacturing centers.

Financial statecraft and consequences

Beijing’s capacity to retaliate against G7 economic statecraft using financial tools alone is limited, and far less consequential for the global economy than Chinese statecraft’s impact on trade and FDI activity. More important are Beijing’s efforts develop alternatives to the dollar-based system financial infrastructure to withstand Western sanctions in the future.

Certainly, Beijing has the ability to impose financial sanctions on Western banks and firms. In a crisis, Beijing is likely to impose stricter capital controls in ways that disrupt financial investments in China, although the primary purpose of these tools would be to prevent destabilizing capital outflows rather than punish foreign investors. Beijing also exerts considerable influence over countries that have borrowed from state-owned banks or received other preferential credit terms for infrastructure construction in cooperation with Chinese companies. These loans could be withdrawn or renegotiated quickly, imposing immediate financial concerns for the borrowing country. This is far less relevant a tool in retaliation against the G7 specifically, but could help Beijing to shape the global political environment in the course of an escalating Taiwan crisis.

The greater focus of policy efforts in Beijing is to expand the scope and capacity of renminbi-denominated international financial networks to offset or circumvent some of the impact of G7 financial sanctions or other economic restrictions. These renminbi-denominated networks are unlikely to challenge the US dollar-dominated financial system at any point in the future, in terms of liquidity, global reach, or reducing transaction costs. But Beijing does not need a comparable or fully competitive system in order to preserve alternatives for critical transactions that can bypass US or G7 controls in the event of broader financial sanctions. Beijing is likely to make further progress in expanding the technical reach of these networks via its digital currency pilot programs such as mBridge and adding more banks in multiple countries to CIPS. This can occur even if offshore renminbi liquidity conditions continue to weaken, as China’s currency remains under pressure to depreciate from capital outflows, which would likely intensify considerably in the event of a Taiwan crisis. Ultimately, it is easiest to understand the internationalization of the renminbi as a safety valve for Beijing in the event of a crisis rather than a full-fledged alternative to the US dollar system.

Preventing escalation in economic warfare

In contemplating the use of economic statecraft in a Taiwan crisis scenario, the challenge for policymakers in G7 capitals and in Beijing will be managing escalation, limiting economic costs, and preventing a spillover into broader kinetic conflict. Understanding how Beijing is likely to respond to G7 statecraft tools can thus help to communicate the potential costs of responsive or retaliatory spirals, and assist both sides in stepping back from the brink before ruinous economic costs result. Escalation is a particular concern for financial markets, which are likely to draw simple parallels between any Taiwan-related crisis and the Russian invasion of Ukraine, along with the past G7 sanctions response. The potential costs of escalation will be presented clearly in the very early stages of any crisis scenario.

Beijing’s initial responses to G7 statecraft measures are likely to fall upon predictable ground, in line with the past actions that China has taken in more limited scenarios. The range of those actions detailed in the previous sections is unlikely to surprise G7 policymakers. But there will still be uncertainty about China’s escalatory responses from those initial steps. The revealed capacity of Beijing to respond with policy agility on unfamiliar ground appears limited, based on the current state of economic policymaking. In addition, past episodes of retaliation against economic statecraft seem to value the perception of reciprocity rather than a technocratic skill in targeting a response toward G7 weaknesses. However, there are some notable counterexamples, such as the restrictions impacting specific foreign firms in the semiconductor industry.

As a result, the chances of escalation and rising economic, political, and potentially humanitarian costs will be higher if in addition to Beijing, G7 actions are also seen as unpredictable, rather than following a logic that global policymakers, financial markets, and Beijing can understand. The case for transparency about the enormous costs of even economic restrictions short of military conflict is strong, particularly as tensions over Taiwan have already risen over the past several years.

Similarly, the more frequent usage of economic sanctions and G7 statecraft targeting US dollar-denominated transactions that are central to the global trading system will help to create further global demand for alternative networks, including those managed by Chinese institutions (even as Beijing maintains similar threats of controlling access to these alternative financial architectures). Explicit restraint in deploying the most aggressive restrictions on economic activity can therefore help to reduce the attractiveness of alternative renminbi-denominated financial networks to third countries, and can also weaken China’s potential leverage over global supply chains and trade activity.

As the lines between economic statecraft and military conflict blur, mapping the paths and consequences of escalatory dynamics can help to prevent initial actions that risk policymakers finding justifications to unveil newer economic statecraft tools. But analyzing the steps China has taken in the recent past and anticipating steps Beijing may take in the future can only go so far. China’s economic second-strike capability is considerable, extending into a large proportion of global trade activity. Credible commitments to restraint in the usage of the most aggressive G7 economic statecraft tools can be just as effective as actively threatening their deployment in limiting escalation in a crisis.

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Appendix 1: China’s formal economic statecraft toolkit

Author analysis

About the authors

Logan Wright is a partner at Rhodium Group and leads the firm’s China Markets Research work. He is also a Senior Associate of the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies. Previously, Logan was head of China research for Medley Global Advisors and a China analyst with Stone & McCarthy Research Associates, both in Beijing. Logan holds a Ph.D. from the George Washington University, where his dissertation concerned the political factors shaping the reform of China’s exchange rate regime. He graduated with a Master’s degree in Security Studies and a Bachelor’s degree in Foreign Service from Georgetown University. He is based in Washington, DC, after living and working in Beijing and Hong Kong for over two decades.

Agatha Kratz is a director at Rhodium Group. She heads Rhodium’s China corporate advisory team, as well as Rhodium’s research on European Union-China relations and China’s economic statecraft. Agatha also contributes to Rhodium work on China’s global investment, industrial policy and technology aspirations. Agatha holds a Ph.D. from King’s College London, having studied China’s railway diplomacy. Her previous positions include associate policy fellow at the European Council on Foreign Relations and editor-in-chief of its quarterly journal China Analysis, assistant editor for Gavekal-Dragonomics’ China Economic Quarterly, and junior fellow at the Asia Centre in Paris.

Charlie Vest is an associate director on Rhodium Group’s corporate advisory team. He manages research and advisory work for Rhodium clients and contributes to the firm’s research on US economic policy toward China. Charlie holds a master’s degree in Chinese economic and political affairs from UC San Diego and a bachelor’s degree in international affairs from Colorado State University. Prior to joining Rhodium, he worked in Beijing as research manager for the China Energy Storage Alliance, a clean energy trade association.

Matthew Mingey is an associate director with Rhodium Group, focusing on China’s economic diplomacy and outward investment, including development finance. Matthew is based in Washington, DC. Previously, he worked on global governance issues at the World Bank. Matthew received a Master’s degree in Global Business and Finance from Georgetown University’s Walsh School of Foreign Service and a Bachelor’s degree from the University of Pennsylvania.

Acknowledgments

This report was written by Logan Wright, Agatha Kratz, Charlie Vest, and Matthew Mingey in collaboration with the Atlantic Council GeoEconomics Center. The principal contributors from the Atlantic Council GeoEconomics Center were Josh Lipsky, Kimberly Donovan, Charles Lichfield, Ananya Kumar, Alisha Chhangani, and Niels Graham.

The GeoEconomics Center and Rhodium Group wish to acknowledge a superb set of colleagues, fellow analysts, and current and former officials who shared their ideas and perspectives with us during the roundtables and helped us strengthen the study in review sessions and individual consultations. These individuals took the time, in their private capacity, to critique the analysis in draft form; offer s uggestions, w arnings, a nd a dvice; and help us to ensure that this report makes a meaningful contribution to public debate. Our gratitude goes to Sarah Bauerle Danzman, Gerard DiPippo, Matthew Goodman, Peter Harrell, Annie Froehlich, Emily Kilcrease, Daniel McDowell, William J. Norris, Daniel Rosen, Dave Shullman, and Hung Tran.

This report is written and published in accordance with the Atlantic Council Policy on Intellectual Independence. The authors are solely responsible for its analysis and recommendations.

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Ellinas in Cyprus Mail: Coming months will see big price increases at the pumps

nsinha — Sun, 31 Mar 2024 19:16:32 +0000

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#AtlanticDebrief – What’s the outcome of the Portuguese election? | A Debrief from Nuno Rogeiro

jbatchik — Thu, 28 Mar 2024 22:17:18 +0000

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On this episode of #AtlanticDebrief, Europe Center Visiting Fellow Andrew Bernard sits down with Nuno Rogeiro, Senior Analyst at SIC TV and Sábado Magazine, to discuss the outcome of the Portuguese elections and the future of Portuguese foreign policy.

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The G7 needs a permanent secretariat. The 2024 elections cycle demonstrates why.

Francis Shin — Thu, 28 Mar 2024 20:45:34 +0000

This “year of elections” has the potential to reshape global politics. At first glance, among the Group of Seven (G7) nations, there are only general elections scheduled in the United States and the European Union (EU). However, it is widely expected that the United Kingdom and Japan will likewise hold general elections this year, with multiple EU member states joining them, too.

These elections could change the foreign policy trajectory of the G7, even if key players such as US President Joe Biden and European Commission President Ursula von der Leyen retain their seats. At the same time, the G7 faces a slew of challenges. Among these are the emergence of a new “axis” among Russia, Iran, and North Korea, as well as the continued strategic challenge posed by China. There is also the potential for current progress on climate action to be derailed by climate-skeptic populist governments. Amid all of these challenges and more, the G7 must be able to continue its work as “a steering committee for the free world,” as US national security adviser Jake Sullivan described it.

To ensure the G7 stays the course amid potential future political upheavals, pools its staff resources, and develops a separate policymaking capacity alongside its presidency, it must commit to establishing a permanent secretariat.

In many ways, the G7 is already drifting toward establishing a permanent secretariat. The days in which the G7 was solely a “fly-in, fly-out” summit series ended with the onset of the COVID-19 pandemic, as G7 members made regular contact with each other to develop global health policy and address the global economic slowdown. This dynamic was further reinforced when G7 leaders held emergency meetings to coordinate their responses to Russia’s invasion of Ukraine. Nevertheless, as global security continues to deteriorate, from the emergence of the “coup belt” in Africa’s Sahel region to the twin threats of the Israel-Hamas war and Red Sea crisis, the G7 must maintain political inertia to head off these dangers. Meanwhile, the current G7 contact structures are insufficient for the tasks at hand.

A permanent G7 secretariat would offer several important benefits. Firstly, with the numerous elections taking place in 2024, policy continuity after changes in government will be vital for global security. This dynamic is especially visible with the growing debates in the US Congress over aid to Ukraine, Taiwan, and Israel. While a secretariat would not necessarily guarantee such aid, it would partially institutionalize such policies. Establishing an “institutional memory” in the G7 would enable members to develop more consistent strategies together, which will be vital to face the growing regional crises across the world. These crises, which were either instigated or exploited by the emerging Moscow-Tehran-Pyongyang axis, could even potentially benefit Beijing at the expense of G7 members if they do not maintain a steady and united approach.

Secondly, the expertise on intergovernmental and geoeconomic policy that the G7 needs is currently scattered throughout individual ministries and in international financial institutions such as the International Monetary Fund, Organisation for Economic Co-operation and Development, and Financial Action Task Force. Although contact groups between ministries and experts in the G7 have already emerged, these coordination platforms would strongly benefit from a permanent and centralized bureaucracy, especially under the continued oversight of an executive committee of the G7 “sherpas.” One G7 initiative that would benefit immensely from the oversight of a permanent staff is the Partnership for Global Infrastructure Investment, widely seen as the G7’s response to China’s Belt and Road Initiative, as the staff could coordinate more global large-scale sustainable development projects.

Thirdly, a secretariat could emerge as a policymaking body in its own right alongside the rotating G7 presidency. The G7’s occasional need to reconfigure its priorities and policies is evident through the return of its practice of external invitations, especially in the cases of outreach to leading Indo-Pacific democracies such as Australia and South Korea. Previously, these countries were invited to the 2008 and 2009 G8 summits, but due to the formation of the larger Group of Twenty (G20) forum in 2008, were not invited to subsequent G7 conferences until the 2021 summit. Oddly, Australia and South Korea were similarly not invited to attend the 2022 summit despite decisively assisting the G7 in enforcing sanctions on Russia and providing aid to Ukraine following Russia’s invasion. Without a secretariat, leading partners such as Australia and South Korea must rely solely on the incumbent G7 president to receive invitations. This is a mistake, especially when both have leading roles to play in promoting security in the Indo-Pacific region. In its role as a policymaking body, a G7 secretariat could contribute to promoting standing invitations to Australia and South Korea, which could open the option to expand the G7 to a G9 with them, as proposed by Biden’s former Chief of Staff Ron Klain.

A G7 secretariat could start small. In fact, the foundations for a G7 secretariat have already emerged out of the existing G7 contact and working groups. Annual (and sometimes biannual) G7 ministerial meetings work in tandem with expert working groups on topics ranging from science and innovation to countering democratic interference. Russia’s invasion of Ukraine also necessitated the establishment of the Russian Elites, Proxies, and Oligarchs (REPO) task force between the G7 members and Australia to enforce sanctions on the Kremlin. REPO could set a precedent for similar sanctions enforcement groups on North Korea and other rogue states under a permanent secretariat.

Granted, the G7’s informal structure is flexible, an advantage that it has often flexed. Its recent invitations to Australia and South Korea to the 2023 and 2024 summits prove this. Nevertheless, a secretariat would not necessarily hamper the political flexibility of the institution itself. It would merely provide a base from which the group could expand operations. Such an organizational dynamic would not be novel either. For example, the Association of Southeast Asian Nations established a secretariat decades before it adopted an official charter, using the founding Bangkok Declaration to set the secretariat’s operational objectives.

Regardless, the growing convergence of autocracies like those in Russia, Iran, and North Korea poses a growing threat to global security, while China’s potential as a rising revisionist power could eventually become an even bigger policy challenge. Moreover, even though the international community has made significant progress in reducing the rate of global warming, the climate crisis remains at a critical juncture.

The G7 must outmaneuver all these risks. The establishment of a G7 secretariat would cement the existing progress the G7 has made on stabilizing the global security situation and climate action, as well as provide a platform for further decisive actions to defend the community of democracies.

Francis Shin is a research assistant in the Atlantic Council’s Europe Center.

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In this year of elections, the US-EU Trade and Technology Council should get strategic

Frances Burwell — Tue, 26 Mar 2024 20:54:46 +0000

On April 4-5, the leadership of the US-EU Trade and Technology Council (TTC) will meet in Leuven, Belgium, for what is expected to be the last session until after elections later this year in the European Union (EU) and the United States. This meeting will be crucial for convincing whoever is in power next year that the TTC is an experiment worth continuing. The TTC needs to demonstrate that it has a central role to play in addressing the challenges that the United States and the EU must meet together.

In many ways, this is an unreasonable expectation. Established in 2021, the TTC was initially intended for a much more limited role—finding ways to ameliorate trade conflicts that were likely to emerge from the use of new technologies. As the Biden administration sought to reaffirm the transatlantic partnership and give new prominence to the US-EU relationship, this was a fittingly limited ambition for an untried mechanism. In a world of growing but less-than-urgent challenges, building cooperation on new technologies and avoiding new trade disputes seemed a reasonable way to reinvigorate a bruised transatlantic partnership.

But the transatlantic partnership now faces much larger geopolitical challenges than it did three years ago, including Russia’s full-scale invasion of Ukraine, the Israel-Hamas conflict, and a more acute Chinese threat to European and US competitiveness. In response to this more complicated world, the TTC must take on a more strategic role. Its work to date in addressing technical-level issues related to new technologies—such as artificial intelligence (AI) and quantum computing—should continue, since these efforts are necessary to strengthen US and EU competitiveness. At the same time, the TTC should build on the work it has pursued since February 2022 on export controls, while also strengthening its engagement in sanctions coordination and enforcement. In Leuven, the TTC should make clear that it is stepping up to a revitalized agenda, one that even when focused on technical issues is doing so within a strategic framework.

That framework should be guided by three watchwords:

Values, based on democracy and the rule of law
Resilience, both in politics and the economy
Competitiveness in the global economy

Values

The defense of transatlantic values requires a response to Russian aggression in Ukraine. As Russia continues its unprovoked war on Ukraine, the TTC must continue looking for ways of increasing pressure on Moscow. Sanctions and sanctions enforcement should be formally added to the TTC agenda (there is currently no sanctions working group). Outreach to third countries should continue to be coordinated, so that those who consider violating sanctions will not be able to play off the United States and the EU against each other.

In Leuven, the TTC should initiate a defense industry dialogue that draws from the new European Defence Industrial Strategy. The focus should be on incentivizing the defense industry on both sides of the Atlantic to produce at greater capacity, while also alleviating any tensions resulting from the European desire to buy more armaments from their own manufacturers. The discussions could also examine the Ukrainian experience of integrating fast-evolving civil technologies into military capabilities. The TTC could even include appropriate NATO officials at the working-group level.

But support for transatlantic values—especially democracy and the rule of law—includes far more than defense capabilities or sanctions. It also includes defending against disinformation and ensuring that new technologies support democracy and the rule of law rather than eroding them. The TTC has already seen significant convergence in US and EU language over the need for human-centered and ethical AI. It has also served to develop joint support for initiatives such as the Declaration on the Future of the Internet, which makes clear the relationship between an open internet and democracy, committing the parties to support a vision of the internet that “fosters competition, privacy, and respect for human rights.”

In Leuven, the United States and the EU should consider not only how to gain more signatories for the Declaration on the Future of the Internet, but also how it could be operationalized into real benchmarks. The TTC partners could also authorize a joint study and reflection on the role of technology in the upcoming elections, including those outside Europe and the United States, to create a workstream at a future TTC meeting.

Resilience

The COVID-19 pandemic and the return of geopolitics has made clear the importance of resilience in the transatlantic system. As the world shifts away from open trade and investment, the United States and the EU have focused mostly on those countries whose technology and investments should be avoided. This is important, of course. During the TTC’s lifetime, the United States and the EU have converged in their attitudes toward China (although often under the “nonmarket economy” rubric), and the TTC has highlighted the importance of investment screening, both inbound and outbound. At the same time, the United States and the EU must avoid stumbling into economic rivalry with each other. The United States and the EU, along with other democracies, must be willing to rely on each other for critical technologies and materials.

In Leuven, US and EU officials should undertake more comprehensive discussions on how to manage the transatlantic shift to industrial policy. Such policies—with subsidies, tax benefits, and local content incentives—have great potential to push the United States and the EU into an adversarial path. The TTC has already played an important role in building a more resilient transatlantic economy, especially in helping coordinate US and EU efforts to support greater semiconductor production and monitor government incentives for clean energy. The TTC leadership should now identify other economic sectors—batteries and electrolyzers, for example—that might benefit from the lessons of transatlantic cooperation over microchips. Management of supply chains will also be crucial for resilience, and thus a US-EU discussion of how to cooperate on transparency and tracing in supply chains would also be very useful. The TTC might also launch a study on how to build a “Resilience Club” that would encourage open economies among friends and partners.

Competitiveness

Any attempt to build resilience must account for the cost of that resilience and its impact on European and US global competitiveness. This is already on the European agenda, with a major report on competitiveness expected to be presented by Mario Draghi in the coming months. To date, the TTC has not focused on competitiveness, which is often regarded as a domestic economic matter. It’s also one that risks pitting the EU against the United States, especially given the difference in their respective energy costs. But as the most integrated international economic partnership in the world—one worth seven trillion dollars in 2023 and based on high levels of mutual investment—the United States and the EU should consider strengthening competitiveness to be a joint undertaking. The future competitiveness of this partnership will largely depend on its success in transitioning to a green economy.

In Leuven, the TTC should give real substance to the Transatlantic Initiative on Sustainable Trade (TIST). Since it was launched in December 2022, the initiative has made some progress, and a valuable stakeholder event was held on the margins of the meeting in January of this year. But there is an opportunity for real negotiations in the next year. While real market access seems off the table, there is much that should be done on mutual recognition and conformity assessment, as well as on standards and procedures. The work program outlined at the May 2023 TTC meeting in Sweden provided a good roadmap, but now the agenda should move from planning and consulting to joint efforts. A crucial element in this will be finding a way to ameliorate the impact of the EU’s Carbon Border Adjustment Mechanism. While the United States does not have a carbon price, the TTC has already initiated work on compatible means of measuring carbon emissions.

Finally, in this geopolitical age, the TTC can serve as a platform for joint US-EU outreach to the many countries that are essentially sitting on the fence in the struggle between democracy and authoritarianism. To date, the TTC has undertaken some small projects in a few third countries, largely focused on internet access. This limited, country-by-country approach is not sufficient.

In Leuven, the United States and the EU should launch an effort to develop a comprehensive strategy for outreach to third countries, bringing together the efforts of the EU’s Global Gateway program and the Partnership for Global Infrastructure and Investment championed by the Biden administration and the Group of Seven (G7). It could also draw on member-state efforts such as Italy’s Mattei plan to promote energy-related development in Africa.

The upcoming TTC meeting in Leuven will set the pattern for the next phase of this transatlantic forum. So far, the TTC has done important but often technical work that does not earn many headlines and too often resembles a laundry list of projects. In April, the TTC needs to put forward a few headline projects that have a real chance of coming to fruition for the next TTC in early 2025. The TIST has the potential to do this. Similarly, a comprehensive investment plan for third countries, a joint supply chain transparency and tracing methodology, or a defense industrial dialogue could help prove the TTC’s value in meeting the challenges now faced by the United States and the EU.

Frances G. Burwell is a distinguished fellow at the Atlantic Council’s Europe Center and a senior director at McLarty Associates.

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Shaffer quoted in Aze Media on the Metsamor Nuclear Power Plant

smeadows — Tue, 26 Mar 2024 18:06:24 +0000

original source

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Ellinas in Financial Mirror: Egypt’s natgas woes continue

smeadows — Tue, 26 Mar 2024 16:35:00 +0000

original source

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Ukraine paves way for green energy future amid Russia’s escalating attacks

Aura Sabadus — Tue, 26 Mar 2024 14:38:33 +0000

In a week when Russia launched some of its most extensive drone and missile attacks against Ukraine’s civilian electricity infrastructure since the start of war, Ukrainian MPs passed a law that could help define the country’s future as one of the biggest suppliers of green energy to Europe. In an historic vote, the Ukrainian parliament lifted restrictions on the export of biomethane, paving the way for a major expansion of Ukraine’s green gas production.

Boasting the largest agricultural landmass in Europe, Ukraine’s biomethane potential is unrivaled across the continent. The country is not only able to produce volumes that could singlehandedly cover the equivalent of a medium-sized European nation’s annual natural gas consumption; it can also do so at prices that are comparatively cheaper than other EU states.

Although Ukraine adopted legislation regulating the production of biomethane last year, it could not realize its full potential because of restrictions introduced at the start of Russia’s full-scale invasion in February 2022. Immediately after the start of war, Ukrainian policymakers imposed a blanket ban on the export of natural gas, fearing the country would be left without supplies to keep the lights on or provide heating to consumers.

While this ban was designed with natural gas in mind, wartime restrictions also extended to biomethane because it is approximately equal to natural gas in quality. As a result, many companies which had invested in producing biomethane using biomass crops had to suspend production or postpone investments as they could not access lucrative European markets.

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With restrictions now lifted, biomethane companies are aiming to export the first volumes to Germany by May. Ukraine is expected to develop its own EU-aligned guarantees of origin which will demonstrate compliance with European Union sustainability criteria. These guarantees will then be linked to the EU’s Union Database for Biofuels (UDB), becoming part of the EU’s single market. Although this process may take two years to complete, Ukrainian companies looking to start exports immediately will be able to do so by providing customs-agreed certificates of compliance or proofs of sustainability.

Ukraine’s enthusiastic embrace of biomethane will help the country move further away from its past reliance on Russian gas and coal imports. Crucially, this shift toward green energy will also support Ukraine’s efforts to monetize its agricultural resources in a way that benefits both local producers and European consumers.

Five biomethane refining plants are currently gearing up to produce and export 77 million cubic meters of biomethane this year. Another ten plants are expected to enter commercial operation in 2025, nearly doubling production. As there is keen interest from large international customers to secure more biomethane from Ukraine, there are expectations that output may be scaled up even further to cover 20% of the EU’s biomethane demand of 35 billion cubic meters by 2030. Within 20 years, Ukraine’s annual output could potentially rise to around 22 billion cubic meters, one of the highest expected levels in Europe.

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To a significant degree, the Ukrainian biomethane industry’s success depends on its ability to export fuel to Europe. Under current regulations, Ukraine doesn’t subsidize internal production, which means it is only viable if exported to countries which have financial support schemes in place. Beyond that, there are also a number of challenges related to potential opposition from European farmers who may fear Ukrainian competition.

Following the introduction of wartime regulations easing Ukrainian access to EU markets, farmers in a number of EU countries have been pushing for greater import controls on Ukrainian agricultural products. This is forcing European politicians to address domestic agricultural sector opposition while also continuing to support Ukraine in the fight against Russia. Since biomethane production is an emerging industry, Ukrainian and EU policymakers have a window of opportunity to find mutually attractive solutions capable of easing Ukraine into the European single market while preparing farmers to face fair competition.

The most important and immediate challenge that Ukraine faces is the Russian threat to its energy infrastructure. A series of Russian missile and drone strikes in late March represented the largest concentrated attack on Ukrainian energy infrastructure since the start of the full-scale invasion in February 2022. This has added to the comprehensive damage already sustained by Ukraine’s energy infrastructure over the past two years. Ukraine’s new biomethane plants will be dotted across the country, but they will not be completely shielded from similar strikes.

To protect the country’s infrastructure and help Europe secure clean sources of energy, Ukraine urgently needs additional air defense systems in large quantities. Failure to act will endanger more Ukrainian lives and could also undermine Europe’s chances of securing competitively-priced green energy.

Experts react: What did the European Council just say about Ukraine and Bosnia and Herzegovina?

Atlantic Council experts — Fri, 22 Mar 2024 22:57:51 +0000

“We are not intimidated by Russia, and we are absolutely on the side of Ukraine.” Speaking following a two-day meeting of the European Council, President of the European Council Charles Michel reiterated the bloc’s support for Ukraine. However, to fully appreciate what this support will entail—from possibly seizing Russian funds to helping Ukraine’s reconstruction—requires digging into conclusions that came out of the two-day meeting.

The quarterly meeting of the heads of state or government of EU member states sets the political direction for the European Union. The European Council meeting that ended on Friday offers new insights about EU support for Ukraine, EU enlargement plans to Bosnia and Herzegovina, and a wide range of other issues. Below, Atlantic Council experts answer five pressing questions about what just went down in Brussels and where the twenty-seven-member bloc is headed next.

1. What is the biggest takeaway from the meeting?

The European Council meeting and its conclusions showcase a number of important decisions from the past few weeks. The biggest development was the nod to open accession talks with Bosnia and Herzegovina, a geopolitical move with some caveats intended to provide incentives for further reforms in Sarajevo.

The other big items were either already agreed to at the working level, such as the top-up of the European Peace Facility, or previewed ahead of time, such as the invitation to the European Investment Bank to adjust its rules for defense investments. Yet, it is worthwhile to note two things. First, security and defense was central in these conclusions. This is a welcome signal from leaders that shows Europe’s security remains top of mind among EU member states, though we’ll need to see more tangible progress more quickly soon. Second, support for Ukraine remains strong, but we do see the results of competing domestic political pressures seep into the conclusions. This was most evident in the move, driven by Poland, to establish a cap for tariff-free agricultural imports from Ukraine. It will be worth keeping an eye on these issues.

—Jörn Fleck is the senior director at the Atlantic Council’s Europe Center.

2. What was decided about EU defense?

The conclusions put wind behind the sails of the Commission’s proposals for a European Defense Industrial Strategy and a European Defense Industry Programme. Leaders pushed the Commission, High Representative Josep Borrell, and the Council of Ministers, where EU member states are represented, to “swiftly advance work” on the initiatives. That’s a good sign of the strong appetite among the EU’s members that greater and more collaborative efforts are needed for things like research and development, sustaining demand for companies to produce kit, and ensuring supply.

The conclusions also, as expected, invited the European Investment Bank to adapt its lending rules to increase investments in defense projects. European Investment Bank rules now require the bank to invest in dual-use goods. These conclusions allow for a more liberal reading of the rules and thus provide more flexibility for investment. This cuts to the heart of much of the defense saga: Europe needs cash to fund any defense transformation. Assuming politicians won’t want to take more money away from other spending priorities on things like social issues, there are a few options. You can raise taxes (unlikely now in an election year or ever), borrow the money via joint debt (an interesting proposal, but not happening in the near term with opposition from the more frugal members), or find new money (by leveraging European Investment Bank funds or using Russian windfall profits). This is the question to keep in mind going forward.

—Jörn Fleck

3. What’s the status of EU support for Ukraine?

Like all European Council conclusions or speeches since February 2022, Ukraine is rightly a first-order priority. The conclusions stress the EU’s continued support for Ukraine and its self-defense. Importantly, they effectively endorse initiatives to get Ukraine more materiel and faster. Specifically, they highlight the Czech proposal to buy ammunition from outside the EU as a laudable effort and note the agreement on the top-up of the European Peace Facility agreed earlier this month. However, there will still be bumps in the road.

A potentially significant detail comes buried near the end of the conclusion on the EU’s trade with Ukraine. Agricultural trade has become a topic of concern for many countries, as farmers’ protests continue throughout the bloc. Allegedly unfair and undue impacts on European producers from Ukrainian products entering the bloc have prompted the EU to take action and enact instruments to control the rate of goods from Ukraine that can enter member states. Earlier this month, the EU effectively capped tariff-free movement of certain grains from Ukraine into the single market at 2022 and 2023 levels, and will implement tariffs if imports go beyond those levels. To be clear, this isn’t the EU abandoning Ukraine, but it does show the reality of domestic politics. EU leaders need to balance economic concerns from their electorate while not bowing to the notion that Ukraine fatigue has overrun the continent.

—Jörn Fleck

4. Where do plans for EU enlargement stand?

Bosnia and Herzegovina’s EU accession journey has begun, but the road ahead is challenging. While the EU’s conditional invitation opens the door to negotiations, Bosnia and Herzegovina must undertake significant reforms, particularly in addressing ethnic divisions, strengthening institutions, and combating corruption. This conditional approach provides a clear incentive for progress. However, success will hinge on the EU offering targeted support to ensure these reforms are sustainable. Only through a combined effort can Bosnia and Herzegovina and the EU achieve a truly unified and stable European future.

It’s important to note that the EU’s approach to Bosnia could have positive spillover effects. The olive branch offered by the European Council should be a catalyst for concrete results in the ongoing Kosovo-Serbia normalization dialogue, also facilitated by the EU. This, if successful, could pave the way for granting Kosovo candidate country status soon. This is crucial for the full integration of all six Western Balkan countries into the EU, and for fostering good neighborly relations and regional cooperation.

Furthermore, the EU’s emphasis on internal reforms is a welcome development. It ensures that both the candidate countries and the EU are well-prepared for accession. Clear and timely conclusions on internal reforms by summer 2024 will provide a much-needed roadmap for a more efficient accession process, guaranteeing a smoother integration for future members and the EU as a whole. Importantly, the EU is signaling a shift in its tolerance for regional leaders. The “Jekyll and Hyde” approach, in which leaders project a positive image externally while exhibiting problematic behavior internally, seems to be no longer acceptable for prospective members.

—Ilva Tare is a nonresident senior fellow at the Europe Center and was most recently a broadcaster with EuroNews Group.

5. What should EU watchers look for next?

There will be one more extraordinary European Council meeting in April before the European elections in June. The continent and the Brussels bubble are already in campaign mode. The Commission and the Council will continue their work, but things may slow down in the run-up to June. Keep an eye on the EU’s appetite for coordination on defense and movement on proposals to use the windfall profits on frozen Russian assets to buy ammunition.

—Jörn Fleck

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Russian victory in Ukraine would leave Europe at Putin’s mercy

Mykola Bielieskov — Thu, 21 Mar 2024 21:06:18 +0000

If Putin wins in Ukraine, will he go further? This is the question currently being asked with increasing urgency in capital cities throughout Europe.

Skeptics note that the failures of the past two years have exposed the limitations of the Russian military, and claim a triumphant Putin would be in no position to expand the war beyond the borders of Ukraine. This argument is comforting but short-sighted. It ignores the practical implications of a Russian victory, and underestimates the geopolitical importance of Ukraine for the security of Europe.

The re-emergence of an independent Ukraine in 1991 profoundly altered the European geopolitical landscape. For centuries prior to 1991, the Russian Empire and the USSR had exploited Ukraine’s geographical location, natural resources, and population to project power into the heart of Europe. Hundreds of thousands of Ukrainians had served in the Red Army, while the Soviet war machine had relied heavily on Ukraine’s industrial base to produce everything from warships and tanks to intercontinental missiles.

The collapse of the Soviet Union temporarily reduced the imperial threat facing the countries of Central Europe. Neighbors such as Poland and Hungary understood the strategic importance of Ukrainian statehood perfectly well and were among the first to recognize Ukraine’s independence. This new geopolitical reality shielded countries across the region from potential Russian aggression and helped pave the way for their NATO accession.

Vladimir Putin was also well aware that Ukrainian independence was a major obstacle to the revival of Russia’s great power status. From the very beginning of his reign, he made the subjugation of Ukraine a foreign policy priority. At first, he attempted to achieve this goal via political means; when this failed, he resorted to the same military methods employed by generations of his Czarist and Soviet predecessors.

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The Russian army has suffered extremely heavy losses over the past two years in Ukraine, but this has not deterred Putin. On the contrary, with the future of Western military aid to Ukraine currently in doubt, the Russian dictator is growing visibly more confident of securing victory. If Putin is able to extinguish Ukrainian statehood, Russia’s military potential will be dramatically enhanced by the acquisition of Ukraine’s considerable resources.

Russia is already conscripting large numbers of men in occupied regions of Ukraine and using them as cannon fodder in brutal human wave offensives. If Ukraine falls, hundreds of thousands more would be forced to join the Russian military and deployed in similar fashion. As well as extra manpower, a conquered Ukraine would also provide Russia with vast natural resources, industrial strength, and agricultural wealth. Indeed, the occupation of Ukraine would allow Russia to dominate global agricultural markets.

The geographical implications of a Russian victory in Ukraine would be equally grave. Russia seized Crimea in 2014 then used the occupied Ukrainian peninsula as a springboard for the full-scale invasion of the country eight years later. As the Russian army continues to edge forward in eastern Ukraine, each advance brings Putin’s troops closer to the border with NATO.

Nobody is more conscious of the growing danger than Ukraine’s western neighbors. It is no surprise that Poland, the Czech Republic, and the Baltic states are among the biggest supporters of Ukraine and the most vocal when it comes to raising the alarm over the Russian threat. They know that if Ukraine is lost, they are next in line and will face a resurgent Russia emboldened by the success of the current invasion.

This is not to say that others are oblivious to the potentially disastrous consequences of a Russian victory in Ukraine. French President Emmanuel Macron has recently warned that European security is “at stake” in Ukraine, and has refused to rule out deploying Western troops to prevent Russia from overrunning the country.

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Influential voices in America have long recognized the geopolitical importance of Ukrainian independence. In the 1990s, former US National Security Advisor Zbigniew Brzezinski highlighted the country’s crucial role in the geopolitics of the region. “It cannot be stressed strongly enough that without Ukraine, Russia ceases to be an empire, but with Ukraine suborned and then subordinated, Russia automatically becomes an empire,” he famously observed.

During the early decades of Ukrainian independence, successive US administrations appeared inclined to follow Brzezinski’s counsel. However, from the late 2000s onward, the focus of US foreign policy began to shift away from Ukraine and the wider Eastern European region toward Asia.

This coincided with the rise of a more assertive Russia. In 2008, Russian troops invaded Georgia. Six years later, the Kremlin occupied Crimea and sparked a war in eastern Ukraine. By 2022, an emboldened Putin felt strong enough to launch the biggest European invasion since World War II. This escalating Russian aggression should serve as a painful lesson for anyone tempted to take the continued existence of an independent Ukraine for granted.

Ukraine is currently facing the most challenging period since the start of Russia’s full-scale invasion. Starved of supplies, Ukrainian troops find themselves forced to ration ammunition. In many cases, they are already unable to prevent Russia from edging forward. This is fuelling increasingly pessimistic forecasts as the spring campaigning season draws near.

The stakes could hardly be higher. If Russia’s invasion succeeds, the consequences will be felt far beyond the borders of Ukraine. The Russian military will be revitalized by the capture of Ukraine’s vast human and material resources, and will loom large on the eastern border of a NATO alliance demoralized and discredited by its failure to defend Ukrainian independence. At that point, many in the West may begin to ask why they didn’t arm Ukraine when they had the chance. By then, of course, it will be too late.

Nonresident Senior Fellow Ilva Tare sits down will Marko Troshanovski, President of the Institute for Democracy, to discuss the importance of the elections and the key issues debated by the main two opposing political camps.

Can the North Macedonian public regain trust in the EU accession process? What do the surveys suggest about the winner of the political elections? How will a potential victory by the center-right VRMNO-DPMNE opposition affect the country’s foreign policy and its EU path? What role will Albanian parties play in the winning coalition? How should the new government address the problem of corruption?

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Global Sanctions Dashboard: How Hamas raises, uses, and moves money

Kimberly Donovan, Maia Nikoladze, Ryan Murphy, and Alessandra Magazzino — Wed, 20 Mar 2024 13:40:18 +0000

Terrorism, and specifically the financing of terrorism, has come back to the top of the national security agenda following Hamas’ October 7 attack on Israel and the spillover effects of Israel’s subsequent war in Gaza.

This past October, the US Treasury sanctioned a network of financial facilitators managing a complex global investment portfolio for Hamas, with assets estimated to be worth hundreds of millions of dollars. These designations and subsequent actions likely disrupted Hamas’ finances and investments, but more importantly shed light on a persistent challenge: A heavily sanctioned entity, designated as a terrorist organization across multiple jurisdictions, was able to take advantage of the international financial system to raise, use, and move significant amounts of funds for its terrorist operations.

In this edition of the Global Sanctions Dashboard, we explore Hamas as a case study to illustrate how designated terrorist groups abuse the global financial system. We will walk you through:

How Hamas raises, uses, and moves money;
How sanctions are used to counter Hamas and combat the financing of terrorism; and
Where governments align and diverge in their approaches to combat this activity.

How Hamas raises and moves money despite sanctions

Hamas has been designated as a foreign terrorist organization by the United States since 1997 and the group is now sanctioned by the European Union (EU) and Group of Seven (G7) allies to varying degrees. Governments have further sanctioned hundreds of individuals and entities associated with Hamas, and thousands more with ties to Iran, Hamas’ primary benefactor. Nevertheless, the group has been able to access the global financial system to amass a diverse stream of income from multiple sources.

In addition to extorting money from the civilian population of Gaza and receiving varying amounts of annual financial support from Iran, estimated to be as much as $100 million, Hamas has created a global investment portfolio valued between $500 million and $1 billion. This portfolio is invested in companies in countries including the United Arab Emirates (UAE), Turkey, and Qatar. Hamas has also effectively exploited the charitable sector and solicited donations from witting and unwitting donors using crowdfunding websites. The US Treasury recently noted that while Hamas and other terrorist groups prefer fiat currencies, there is a risk that they will turn to virtual assets as they lose access to traditional financial services.

Terrorist groups, such as Hamas, and other illicit actors use increasingly sophisticated money laundering techniques including smuggling cash and using shell companies to avoid detection and hide their involvement in financial transactions.

Who has sanctioned Hamas

Terrorist designation gaps across jurisdictions create vulnerabilities for the global financial system and may be one explanation as to how Hamas and its financial facilitators were able to operate within the system and with impunity.

Hamas is not designated as a terrorist group by the United Nations (UN). . . UN member states follow and implement UN designations of terrorist groups, including entities like al-Qaeda and the Islamic State of Iraq and al-Sham (ISIS or ISIL), among several others. However, the UN has not designated Hamas as a terrorist organization. Most countries do not have an autonomous terrorism sanction regime and rely on the UN terrorist designations to inform and justify their counterterrorism efforts.

. . .or sanctioned by the West’s partners. Treasury’s October tranche of designations included individuals and entities in Turkey, Sudan, and Qatar—jurisdictions that have not sanctioned Hamas and thus do not have legal restrictions that would prevent Hamas and its facilitators from accessing their financial systems.

There are gaps in sanctions designations among Western jurisdictions. Over the past thirty years, Hamas, in part or in its entirety, has been designated as a terrorist group by various countries in response to its terrorist activity and efforts to destabilize peace operations in the Middle East. Several governments originally only designated Hamas’ “military wing,” the Izz al-Din al-Qassam Brigades, and later began designating the entirety of the organization as a terrorist group.

The lack of a common narrative of what constitutes terrorism and the lack of a coordinated and unified multilateral effort on terrorist designations provide Hamas and other terrorist groups more freedom to operate and abuse sanction loopholes between jurisdictions.

Closing sanctions gaps

Following the October attacks and subsequent war between Israel and Hamas, international partners have come together to close gaps and improve multilateral coordination and enforcement of their sanctions regimes related to Hamas and other groups undermining peace and security in the region.

Engagement with partners in the Middle East. Treasury’s outreach to countries in the Middle East included convening an emergency meeting of the Terrorist Financing Targeting Center (TFTC), which was created in 2017 to enhance information sharing and collaboration on efforts to counter the financing of terrorism. TFTC is focused on the Middle East and includes the United States and the Gulf Cooperation Council (GCC) countries (Saudi Arabia, Qatar, Kuwait, Oman, Bahrain, and the UAE). Engagement with partners in the Middle East is critical to effectively disrupt and address terrorist financing by Hamas and other groups in the region, while working together to prevent further escalation of the Israel-Hamas conflict. It is important to note, however, that these countries have not explicitly designated Hamas as a terrorist organization, and based on recent sanctions, we know Hamas has used their financial systems to raise and move funds. The GCC countries need to take action to secure their financial systems, and thereby the global financial system from abuse by Hamas. There are political challenges at play, but the GCC should consider a Council-wide terrorist designation of Hamas, similar to the action it took against Lebanese Hezbollah in 2016.

Information sharing with the private sector. The Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an alert for financial institutions providing guidance and red flags to help identify and subsequently report suspicious activities related to Hamas financing. Such suspicious activities include but are not limited to a customer that is:

Transacting with an Office of Foreign Assets Control-designated counterparty,
Transacting with a Money Services Business or other financial institutions located in high-risk jurisdictions of Hamas activity, or
A charitable or nonprofit organization soliciting donations but not seeming to be providing any charitable services.

Alerts often help financial institutions understand what types of information FinCEN and other countries’ financial intelligence units (FIUs) are most interested in. This information is used to inform law enforcement investigations or national security actions, including financial sanctions. It is reasonable to estimate that the Hamas alert generated additional suspicious activity reporting from financial institutions within the US jurisdiction, which can help FinCEN and its partners identify potential terrorism financing activity related to Hamas.

Information sharing with foreign partners. Information sharing and coordination among FIUs is critical for disrupting terrorist financing. FIUs are national centers responsible for receiving and analyzing suspicious activity reports from financial institutions and publishing red flags and alerts to help them identify suspicious activity and protect their systems. The need to share information and develop a common understanding of the terrorist financing threat was acknowledged after the October 7 attack, when FIUs from Australia, Canada, Estonia, France, Germany, the United Kingdom, the United States, and other like-minded states created the Counter Terrorist Financing Task Force–Israel. In a public statement, this task force committed to expediting and increasing the sharing of financial intelligence in terrorist financing-related issues.

Designation of the Hamas network. In response to Hamas’ October attack, the United States and United Kingdom took coordinated action to designate individuals and entities involved in financing Hamas. The EU and other partners took action to shore up their existing sanctions regimes targeting the group and its facilitators. This is a needed step to counter Hamas and deny the group access to funds to finance its terrorist operations. However, allies need to go beyond Hamas and these specific designations. The terrorism threat is on the rise as a result of escalating tensions in the region. Lebanese Hezbollah is increasing rocket attacks in northern Israel, the Houthis continue to attack shipping vessels in the Red Sea, and other Iranian-backed groups have attacked US forces in Iraq, Jordan, and Syria, killing US soldiers. Allied nations must consistently prioritize counterterrorism and countering the financing of terrorism by aligning their sanctions, sharing information, and coordinating designations. Multilateral coordinated action will prevent terrorist groups from taking advantage of jurisdictional gaps between sanction regimes and will create clarity that helps financial institutions identify and report suspicious terrorist financing activity, which in turn can help governments take appropriate action.

Consider secondary sanctions. When partners do not align on terrorist financing risks, the United States should consider leveraging its secondary sanctions authority (pursuant to Executive Order 13224 as amended) to target the foreign financial institutions that continue to facilitate terrorist financing within the global financial system. The use of secondary sanctions sends a strong message that may deter third parties from providing material or financial support to US-designated terrorist groups and will unilaterally shore up gaps in international sanctions regimes that pose a threat to the US financial system.

Kimberly Donovan is the director of the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @KDonovan_AC.

Maia Nikoladze is the assistant director at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @Mai_Nikoladze.

Ryan Murphy is a program assistant at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center.

Alessandra Magazzino is a young global professional at the Economic Statecraft Initiative within the Atlantic Council’s GeoEconomics Center. Follow her at @alesmagaz.

Castellum.AI partners with the Economic Statecraft Initiative and provides sanctions data for the Global Sanctions Dashboard and Russia Sanctions Database.

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Mullaney cited by European Parliamentary Research Service on TTC institutionalization and formalization

lhamilton — Fri, 15 Mar 2024 19:40:20 +0000

Read the full report here.

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Ukraine’s Security Council Secretary: The West is still in denial over Russia

Peter Dickinson — Thu, 14 Mar 2024 18:08:33 +0000

When the full-scale Russian invasion of Ukraine began in February 2022, Ukrainian Security and Defense Council Secretary Oleksiy Danilov found himself having to repeatedly reassure Ukraine’s doubting partners that the country was not about to collapse. “At the beginning of the war, nobody believed we would stand,” he recalls.

Danilov says the lack of faith he encountered among Ukraine’s allies during the first days of the invasion reflects the widespread disinformation that continues to cloud international perceptions of his country’s struggle against resurgent Russian imperialism. With the invasion now in its third year, Danilov warns that many in the West remain in denial over the scale of the threat posed by Putin’s Russia, and have yet to grasp the true international implications of the war in Ukraine.

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Danilov has led Ukraine’s influential National Security and Defense Council since October 2019, and has been at the heart of Ukrainian attempts to galvanize international opposition to Russia’s invasion. He readily admits that these efforts have been consistently hampered by Russia’s sophisticated and highly effective disinformation strategies. Looking back at the past two years, Danilov says this experience has underlined the growing importance of information warfare in shaping today’s multidimensional battlefield. “We all make decisions based on the information we have. While there is now an unprecedented amount of information available, it is also apparent that this information can be easily manipulated and distorted.”

Today’s increasingly chaotic and overloaded information landscape is helping Russia conceal its true intentions in Ukraine and disguise its geopolitical ambitions, says Danilov. He frames the ongoing invasion of Ukraine as the central stage in a far broader global confrontation between the democratic world and the resurgent forces of autocracy led by Russia, China, Iran, and North Korea, but cautions that such clarity is often lacking during his interactions with Ukraine’s Western partners.

The 61-year-old Ukrainian Security Council Secretary bemoans the absence of a modern-day Reagan or Churchill with the necessary vision to see the Russian threat in its true historical context. Unless today’s generation of Western leaders urgently acknowledge the scale of the challenge, he predicts they will soon be confronted by a very different and more hostile international environment. “Too many countries remain stuck in an information fog and do not realize that World War III is already underway. The whole world is engaged in the current war in one way or another, even though Ukraine is the only country doing the actual fighting against Russia.”

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With no end in sight to Russia’s invasion, the diplomatic debate in many Western capitals currently revolves around the question of Vladimir Putin’s ultimate war aims and how far he is prepared to go. To Danilov, the answer is disarmingly simple: Putin wants to completely transform the geopolitical climate and will keep going until he is stopped. If Ukraine should fall, Danilov is convinced Russia will expand its aggression further. He believes the countries most immediately at risk will be the former member states of the Warsaw Pact. “Putin made his intentions perfectly clear in his December 2021 ultimatum to the West, when he called for NATO to withdraw from Central and Eastern Europe. Just look at the map; it’s all there.”

Returning to the status quo of the early 1990s is unlikely to satisfy the Russian dictator, Danilov says. He argues that Putin’s foreign policy objectives ultimately stretch far beyond the old Iron Curtain and include the breakup of the European Union itself. This would allow Putin to divide and conquer Europe. “One of Putin’s key goals is the destruction of the EU. It is very difficult for the Kremlin to deal with a united Europe; this puts Russia at a significant disadvantage. Putin would much prefer to splinter the EU and negotiate with each European country separately.”

This does not mean Russia is preparing to imminently invade Belgium or occupy Brussels, of course. On the contrary, the Kremlin is far more likely to employ the kind of hybrid warfare tactics honed in Ukraine between 2014 and 2022. Indeed, Danilov argues that Moscow has been engaged in an active campaign of hybrid hostilities inside the European Union for a number of years, and accuses European leaders of turning a blind eye to this unwelcome reality. “Russia’s hybrid war against the EU is already well underway, but some Western countries prefer not to acknowledge it. Putin constantly commits acts of hybrid aggression against Europe, but many Europeans are reluctant to draw the obvious conclusions as this would force them to recognize the threat and respond.”

Putin’s other great strategic priority is the dissolution of NATO. While skeptics argue that the Russian military is currently in no shape to take on NATO, Danilov believes Putin could potentially achieve his goal by discrediting the alliance rather than defeating it in a conventional war. With Western weakness increasingly evident in Ukraine, Putin may seek to test the shaky resolve of NATO leaders by staging some kind of border provocation. According to Danilov, if the alliance fails to produce an adequate response, there is a very real chance that member countries will quickly lose faith in collective security and seek alternative arrangements. NATO may be able to formally survive such a blow, but the damage to its credibility would be fatal. “When you have a maniac on the loose in your neighborhood, the task is to stop him as soon as possible and not engage in negotiations or other nonsense,” Danilov says.

Based on his own extensive interactions with NATO commanders over the past two years, Ukraine’s Security Council Secretary has full confidence in the alliance’s military leadership and believes they are under no illusions regarding both the nature of the Putin regime and urgency of the threat facing the West. However, he also stresses that the same cannot necessarily be said for Europe’s political leaders. This is a recipe for potential disaster, says Danilov. “Putin is the Hitler of our era. The current situation is strikingly similar to the 1930s, when military men warned of the mounting danger but were overruled by politicians who preferred to appease Hitler. If we make the same mistake again, it could mean the eclipse of the West.”

Peter Dickinson is editor of the Atlantic Council’s UkraineAlert service.

Ukraine expands EU energy exports in fresh display of wartime resilience

Aura Sabadus — Tue, 12 Mar 2024 16:17:16 +0000

Since the beginning of March, Ukraine has been powering thousands of homes in neighboring European countries, exporting large amounts of clean energy from solar and hydro plants.

Data from Ukraine’s electricity grid operator, Ukrenergo, indicates that the country is making full use of its interconnection capacity to sell electricity to Hungary, Moldova, Romania, Poland, and Slovakia, with over 13 gigawatt hours (GWh) flowing across the border during daylight hours. Outflows are driven by ample renewable production in Ukraine at this time of year, which makes it commercially attractive to sell to EU markets during the day, when the country has surplus solar production. At night, flows tend to reverse, allowing Ukraine to import from Europe when internal production from other sources may be insufficient.

The fact that in spring 2024 Ukraine is not only able to produce electricity but also export to the EU at full throttle is testament to the country’s extraordinary wartime resilience. Over the past two years, Russia has attempted to destroy Ukraine’s energy infrastructure as part of Vladimir Putin’s full-scale invasion. These efforts have included a six-month campaign of intensified air strikes against power stations and transmission lines during the first winter of the war that caused widespread blackouts and plunged the country into darkness amid temperatures well below freezing. The World Bank estimates the cost of wartime damage to Ukraine’s energy sector at $12 billion, with attacks ongoing.

Ukraine’s renewable capacity has also been badly hit. Invading Russian forces have bombed or occupied approximately 90% of Ukraine’s wind capacity along with half of its solar plants, and are also accused of destroying the Nova Khakovka hydro plant, one of the largest in the country.

The human cost of keeping the lights on in Ukraine has been staggering. On the second anniversary of the full-scale invasion in February 2024, leading Ukrainian electricity producer DTEK stated that 252 of its employees had been killed while working to keep the system operational. Meanwhile, the company’s electricity infrastructure had sustained over 9,700 attacks in the past two years. DTEK’s experience is thought to be typical among Ukraine’s energy sector companies.

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The Ukrainian energy sector has been demonstrating its resilience since the very first night of Russia’s full-scale invasion, when Ukraine unplugged from the old Soviet grid in preparation for planned synchronization with the rest of Europe. This set the tone for more wartime progress in the following months, with Ukraine fully connecting to European infrastructure and starting commercial flows to the region in summer 2022, more than a year earlier than expected.

Further advances were achieved during the second year of the Russian invasion. Ukrenergo managed to more than triple importing capacity from 500 megawatts (MW) in January 2023 to 1,700MW this year, while export capacity to Europe now exceeds 700MW per month, enough to power more than 700,000 homes.

Even as Russian missiles and drones were striking Ukraine’s electricity infrastructure, Ukrainian engineers were busy building a new interconnection line with Poland, which has facilitated the expansion of capacity. Similar works are planned with Romania and Slovakia, although details remain confidential for security reasons. Just as important has been Ukraine’s ability to align its own domestic regulations governing commercial flows with those of the EU, ensuring that import or export transmission capacity is allocated fairly and transparently.

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Ukraine’s efforts to expand its electricity interconnections with neighboring European countries will not only further increase its resilience, allowing it to import energy in case of shortages; it could also turn Ukraine into a major future exporter of clean energy to the region. Much will depend on Ukraine’s ability to rebuild the renewables sector by scaling up its installed wind, solar, biomass, and hydro capacity, and by deploying a nimble decentralized transmission system with self-contained clusters of production close to high-demand urban areas.

Ukraine’s potential for renewable power generation is almost unparalleled in Europe, with solar capacity alone thought to be capable of expanding to more than one-third of the EU’s existing total. Onshore wind plants could eventually be even larger, with the potential to make up half the EU’s current total of 255GW.

This large renewable potential, combined with Ukraine’s plans to expand its electricity interconnections with continental Europe, could provide a real boon to regional countries looking to break their addiction to polluting fossil fuels. However, none of this will materialise if Western partners fail to unblock financial and military support to protect Ukraine’s infrastructure and help the country defeat Russia.

Ukraine currently needs additional air defense systems to protect energy generation facilities and safeguard key parts of the country’s transmission infrastructure. The longer US and European partners delay sending aid, the easier it will be for Russia to undo Ukraine’s energy sector gains and jeopardize the safety of transmission lines connecting the country to the EU.

Over the past two years, Ukraine has more than proven its resilience. The country has repeatedly demonstrated its ability to complete energy infrastructure projects well ahead of time in the most challenging of circumstances. This is one of the success stories of the Ukrainian war effort. It is vital that the country’s international partners now provide the support that will enable Ukraine to consolidate these gains.

Webster in War on the Rocks: Win-wind: How a bipartisan SHIPS act could meet China and climate challenges

smeadows — Tue, 12 Mar 2024 13:59:28 +0000

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Shaffer joins Strait Talk to discuss the Turkmenistan/Turkey gas deal

smeadows — Mon, 11 Mar 2024 20:06:35 +0000

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A geopolitical European Commission is a must for 2025 and beyond

James Batchik, Stuart Jones — Thu, 07 Mar 2024 21:21:44 +0000

From the eurozone crisis in 2011 to Russia’s ongoing invasion of Ukraine, Europe has faced existential tests more or less continuously for over a decade. This year is no exception, especially as citizens on both sides of the Atlantic head to the polls to decide the future of their political leadership and, as a result, the direction of transatlantic relations.

Europe votes first in June, when elections for the European Parliament will usher in a tenth parliamentary session and, circuitously, a new European Commission for the next five years. European Commission President Ursula von der Leyen has announced that she is running for a second term, driven, among other priorities, to deliver a geopolitically relevant European Union (EU). Whoever ends up at the helm in the Berlaymont, a critical task will be to prioritize this ambition—especially in the bloc’s defense transformation and economic security—all while carefully navigating the EU’s relationship with the United States.

Europe’s elections and the geopolitical Commission

The first test of the bloc’s geopolitical ambitions will be the indirect election of the European Commission president. With the much-anticipated announcement of von der Leyen’s candidacy to lead the European People’s Party (EPP) on February 19, and with the official nod from the EPP Congress on March 7, her hat is officially in the ring.

As a committed Atlanticist and proponent of a “geopolitical Commission,” a term she has popularized, von der Leyen is the face of a more muscular and active EU in world affairs, with the Commission at the steering wheel. Hers is a world in which the Commission president answers Henry Kissinger’s famous question of who the United States should call to speak with Europe. She looks to continue that vision. “Prosperity. Security. Democracy,” will be her priorities for the next Commission, von der Leyen stressed at the EPP Congress.

Von der Leyen’s return is likely, but it is not guaranteed. The EPP is on course to collect the most seats in the parliamentary elections, which would put von der Leyen, as the EPP’s Spitzenkandidat (or “lead candidate”), in pole position for another term as Commission president. However, the EU’s twenty-seven member state leaders at the European Council will be the ones to officially nominate the president, and EU treaties only require them to take “into account” June’s election results when making this decision. One recalls how in 2019, von der Leyen was controversially not her party’s lead candidate—or even officially in the running—but was still nominated by the Council to become Commission president.

Von der Leyen has already collected the endorsement of European leaders from her EPP family as well as those from the rival Party of European Socialists, including Spanish Prime Minister Pedro Sánchez. She has also garnered positive murmurs from Berlin—even though von der Leyen is part of Germany’s opposition Christian Democrats, Chancellor Olaf Scholz’s main rivals. However, her style and ambition have not been without controversy. She has earned the ire of national capitals for not consulting with them on major decisions, overstepping her role, and centralizing powers inside her office.

With a projected rightward shift in the Parliament, von der Leyen will have to win over European leaders and a constellation of parliamentary parties outside the EPP to secure a new mandate. The European elections are mostly national affairs and voters are mobilized by national priorities, such as the rising cost of living or farmers’ protests. But the elections and subsequent horse trading at the Council can still be seen, in part at least, as a vote of confidence—or not—on von der Leyen and her leadership of the Commission. Regardless of von der Leyen’s future, the next Commission president will have to contend with crises and challenges at their doorstep.

Adapting Europe for the realities of war

Once the dust settles after the election, Europe will face a litany of priorities commanding the attention of the Commission. While environmental and agricultural regulations, reforms to immigration policy, and concerns over the common market’s sluggish competitiveness are all important considerations, the first order priorities must be bolstering European security and supporting Ukraine. This means recognizing the need to reshape Europe’s defense footing for the near and long term.

Europe has come a long way since Russia’s full-scale invasion of Ukraine two years ago. Member states have emptied their stockpiles of arms and munitions. The bloc has activated nearly one hundred billion euros in support for Ukraine, accented by a fifty-billion-euro financial aid package to Kyiv earlier this year. The EU additionally blocked Russian state assets, enacted thirteen packages of sanctions against Russia, weathered a difficult and costly ongoing energy decoupling from Moscow, and pioneered new mechanisms to fund, arm, and train Ukrainians.

Much more is needed. Europe continues to struggle to arm Ukraine with the kit it needs. National differences inside the bloc have hampered efforts to buy ammunition for Ukraine or agree on top-ups to the European Peace Facility. Joint defense procurement, a perennial goal, remains underdeveloped.

On these fronts, the EU institutions can play an important role and have already made promising signals. Von der Leyen and others have already endorsed establishing the post of commissioner for defense, and the EPP’s electoral manifesto calls for the creation of a “Single Market for Defence.” On March 5, the Commission unveiled its European Defence Industrial Strategy (EDIS) which outlines a path to revitalize Europe’s defense industrial complex, meet ambitious targets for homegrown defense capabilities, and continue to arm Ukraine. The Commission complemented EDIS with its proposal for the European Defence Industry Programme (EDIP), which includes an investment plan worth €1.5 billion to boost domestic production and common procurement of military equipment in Europe.

Individually, however, a new initiative or a European defense commissioner will not solve Europe’s woes. As proposed, EDIP only spans until 2027 and offers a paltry sum—just 1.5 percent of the one hundred billion euros needed in the long term, as European Commissioner for the Single Market Thierry Breton has argued. As EDIP itself states, it is only a bridge to longer-term changes. EDIS sets laudable targets, but defense competencies remain in national capitals, and there are still wide divergences on how to take EU defense efforts forward, never mind how to finance them. All the while, Ukraine desperately needs European military aid now.

Time is also running short to enact EDIP this legislative term. The Parliament will need to debate and adopt the proposal and square any differences with member states in the Council of the European Union before electoral campaigning begins in May.

As a result, Brussels will need to hit the ground running on defense. After the election, EU policymakers must implement EDIP and subsequently look ahead to the long-term plan. The next Commission cannot afford to be absent in this debate and must spearhead the effort to design a more unified and concerted approach to European defense.

Preparing for economic security in action

Alongside defense, the next Commission’s agenda must deal with security concerns in international trade and industrial policy. Following the COVID-19 pandemic and Russia’s invasion, Europe has reassessed how to conduct trade with unreliable actors, including China, on which the EU market is vulnerably dependent. Subsequently, the EU is debating how to shore up supply chains and “de-risk” its critical dependences from one of the bloc’s biggest trade partners.

Fears of overexposure to Chinese exports, dependence on unreliable states for critical materials needed for the green transition, unfair market practices skewing trade relations, and strategic investments of critical infrastructure have already pushed the European Commission to release a comprehensive economic security package. The policy proposes bloc action to confront nonmarket actors and would-be antagonists. Although it does not mention China by name, the EU has already begun to screen Chinese investment and state subsidies into electric vehicles and solar panel imports. The next Commission will likely continue its current posture and maintain a delicate balance of trade and security vis-à-vis China, despite the caution expressed by some member states (especially Germany) over von der Leyen’s hawkish tone.

In doing this, however, the EU must also ensure its commitment to the values of free trade and open markets on which the bloc was founded. Europe cannot compete dollar for dollar as the United States can on issues of economic security. Nor can it fully engage in industrial policy, as Mario Draghi’s forthcoming report on the single market likely suggests. These deficiencies need not be crippling, though, as the European Commission can still work to complete new free trade agreements with strategic partners such as Canada and Mercosur.

Transatlantic relations on and off the ballot

While Europe’s strategic attention is focused on Ukraine and China, the EU will still need to look to the United States for partnership. Whether the transatlantic relationship persists in its current form or gets upended will depend in part on the outcome of the US presidential election in November. In any case, the next Commission must aim to maintain at least stable relations with Washington.

It is fundamentally in the United States’ interest to have a strong and cooperative partner across the pond—a proactive Europe on the world stage, capable of securing its own defense and taking the lead on supporting Ukraine. It has already made great strides on the latter but will need to address the former from day one after June’s elections. Meanwhile, the US-EU Trade and Technology Council remains a central vessel for harmonizing digital policy and mediating trade disputes, which will only grow in prominence amid transatlantic de-risking from China.

Given how often Europe has overcome serious institutional headwinds and geopolitical crises before, observers may dismiss the EU’s current wave of structural challenges as merely one more in a long series. But it would be mistaken to downplay Europe’s coming troubles or the scale of the institutional reforms that will be necessary to surmount them. While Europe has so far managed to avoid sending its own forces into direct combat with Russia or facing heavy Chinese economic pressure, it is increasingly clear that the EU must develop its defense and economic statecraft capabilities to guarantee its security and geopolitical weight in the long term. The legacy of the next European Parliament and Commission president will be defined by how they rise to these challenges.

James Batchik is an associate director of the Atlantic Council’s Europe Center.

Stuart Jones is a young global professional with the Atlantic Council’s Europe Center.

The post A geopolitical European Commission is a must for 2025 and beyond appeared first on Atlantic Council.

#AtlanticDebrief – Is Europe a factor in the US election? | A Debrief from Daniel Vajdich

nlawler — Thu, 07 Mar 2024 19:46:26 +0000

IN THIS EPISODE

Are we witnessing a deepening confluence of domestic campaign and foreign policy messaging on both sides of the aisle in the United States? How do transatlantic relations play into these different factions within the Republican party that might be divided on US foreign policy? Have European institutions such as NATO and the EU become to some degree targets in the US presidential election?

On this episode of #AtlanticDebrief, Rachel Rizzo sits down with President of Yorktown Solutions and former Republican campaign advisor Dan Vajdich to discuss the US elections and politics and implications for the future of transatlantic relations.

You can watch #AtlanticDebrief on YouTube and as a podcast.

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With Operation Aspides, Europe is charting its own course in and around the Red Sea

Léonie Allard, Cinzia Bianco, and Mathieu Droin — Thu, 07 Mar 2024 16:49:43 +0000

On February 19, the European Union (EU) launched its own naval operation in the northwest Indian Ocean. EU High Representative for Foreign Affairs Josep Borrell called the decision to launch the mission “a fast and robust reaction to the attacks of the Houthis, who are attacking commercial ships in the region.” That is true, but the decision was also, in part, a reaction to a first round of US and UK strikes on the Houthis’ inland capabilities on January 11. The only EU country actively contributing to the strikes was the Netherlands, led by Mark Rutte, the outgoing prime minister and aspiring future NATO secretary general. While several European countries continue cooperating with Prosperity Guardian, the EU operation was set up as a sign of dissociation from the US-led operation against the Houthis, which some European governments perceive as escalatory in the fragile and tense broader regional context.

The EU operation, called EUNAVFOR Aspides (the ancient Greek word for “shields”), has initial contributions from seven member states: Belgium, Denmark, France, Germany, Greece, Italy, and Spain. It is headquartered in Greece, while Italy is in charge of its operations. Already, four multipurpose frigates are part of the mission: one each from France, Germany, Italy, and Greece. In launching Aspides, the EU seems intent on asserting European agency, with its own assets and rules of engagement, in line with its own interests rooted in confidence-building with regional states.

The shipping industry is increasingly impatient for action to protect shipping lanes, and the urgency will only increase after the March 6 attack on the cargo ship True Confidence that killed two crew members and injured six. Now the EU has to deliver. Yet, whether the new operation will help Europeans achieve their goals, strategically and in terms of perception by international and local partners, remains unclear. Already, the United States is unhappy with Europeans signaling their willingness to proceed differently from Operation Prosperity Guardian. Conversely, some in the Middle East feel that Europeans are contributing to raising military stakes in the region for their own interests.

But there might be real value in the current European approach, for regional partners as much as for the United States. With a longstanding naval, military, and diplomatic presence around the Gulf of Aden, Europe has credentials and legitimacy to engage regional players more inclusively. Although the EU’s response to the current crisis could have come sooner, the new operation will provide an impetus to step up engagement, especially given the large operation area covering the Red Sea, the Gulf of Aden, the Arabian Sea, the Gulf of Oman, and the Gulf. If Europeans want to be taken seriously and have a positive impact, they must articulate a clear vision for the basis of their future diplomatic and security initiatives, in addition to investing in adequate means to implement their initiatives.

Europeans and the US in the face of increasing militarization of the region

The Red Sea has been of strategic interest as a central corridor for global trade and connectivity ever since the opening of the Suez Canal in Egypt in 1869. Nearly 15 percent of global seaborne trade passes through the Red Sea. This includes 12 percent of seaborne-traded oil and 8 percent of the global liquefied natural gas trade, as well as 8 percent of the world’s grain trade. Around 17 percent of the world’s submarine cables pass between the Mediterranean and the Indian Ocean. The impact of the recent cable cuts in the Red Sea, affecting 25 percent of data between Europe and Asia, highlights a sometimes overlooked vulnerability while shallow waters in the sea make them more prone to damage. The southern opening of the Red Sea around the strait of Bab el-Mandeb has long been affected by piracy issues, which peaked in the 2000s. Thanks to international efforts, the threat has been significantly reduced. The safety of Bab el-Mandeb and the Gulf of Aden is now primarily affected by overlapping local, regional, and international conflicts and tensions. These include pervasive terrorist threats in Somalia and Yemen; civil wars in Sudan, Ethiopia, and Somalia; and ongoing tensions among Ethiopia, Egypt, Eritrea, and Somalia.

This entrenched instability combined with the strategic significance of the Red Sea has led to a competition for influence and militarization. Regional powers such as the United Arab Emirates (UAE), Saudi Arabia, Iran, Turkey, and Qatar are actively developing strategies to assert their influence in the Horn of Africa by establishing outposts and conducting security, economic, and diplomatic engagement. The Red Sea has also suffered from the export of rivalries between Iran and Arab Gulf countries to the maritime domain. Iran has long shown its capability to disrupt vessels operating in and out of the crucial chokehold in the Strait of Hormuz. Since a coalition led by Saudi Arabia launched military operations against the Houthis in 2015, Iran has deepened its relations with the rebel group and expanded its disruptive activities to the Red Sea, too. In 2018, the Houthis launched a severe attack on a major Saudi tanker off the Yemeni coast using an Iran-made drone boat. A year later, they launched missile and drone attacks against two major Saudi oil installations. These incidents highlighted Iranian-Houthi capabilities, pushing Saudi Arabia to seek diplomatic solutions to the conflict.

Russia and China have also taken advantage of Red Sea instability to establish footholds in the region. China’s military has expanded its first overseas base in Djibouti since its opening in 2017, while Russia concluded an agreement with Sudan in February 2023 to build a base after years of persistent attempts. Despite the presence of China and Russia, however, the United States remains the main security player in the region. It maintains a robust military presence of approximately 45,000 permanent forces, centered at the Fifth Fleet based in Bahrain, at Al-Udeid air base in Qatar, as well as in Kuwait, Saudi Arabia, the UAE, and Djibouti.

Europe has been a player in the Red Sea

Europeans have consistently reinforced their presence in and around the Red Sea. France has unique stakes due to its overseas territories in the southwestern Indian Ocean (La Réunion, Mayotte, Scattered Islands). It also has two military outposts: a joint base in Djibouti and three bases for navy, air, and land forces in the UAE. Italy, a former colonial power in the Horn of Africa, has retained strong relations and influence in the region, too. Since 2013, Italy has also had a military base in Djibouti to provide logistical support to Italian military operations in East Africa and the Indian Ocean. Moreover, European investment in maritime security is important for a country such as Denmark, home of the Maersk Group, Denmark’s largest company by revenue. Finally, since 2018, Spain has held the command of the flagship naval operation mission of the EU: EUNAVFOR Atalanta.

Atalanta was set up in 2008 with a mandate to escort World Food Program vessels heading to Somalia and fight piracy off the coasts of that country. Another existing collective European effort is the European Maritime Awareness in the Strait of Hormuz, launched in 2020. It came amid a flare-up of tensions in late 2019 caused by a series of attacks by Iran on vessels in the Strait of Hormuz, to which the United States reacted by launching a coalition called “International Maritime Security Construct” and its task force “Sentinel.” Perceiving the US move as escalatory, France initiated another coalition, composed of European nations (Belgium, Denmark, Germany, Greece, Italy, the Netherlands, Portugal, and Norway) but outside of the EU framework, with the primary objective of providing surveillance capabilities in the Gulf, the Strait of Hormuz, and a part of the Arabian Sea.

Questioning of the US-led escalatory approach in the region

The wave of Houthi attacks created major strategic dilemmas for all Red Sea stakeholders. They need to mitigate the trade and economic costs of the disruption of maritime traffic caused by the Houthis. At the same time, they are wary of the political and security costs that could come from escalating tensions in Yemen and with Iran, in particular in the context of the ongoing Gaza war. The United States, given its regional clout and facing domestic pressures to show strength against Iran and its proxies, displayed a willingness to act. Regional countries, mindful of their public opinion rattled by the events in Gaza, preferred restraint, at least in public.

Europeans asserted their positions across this spectrum. Some EU members such as Denmark, Germany, and the Netherlands ended up publicly backing the US-UK attacks. The Netherlands in particular has been providing logistical and active military support to the US strikes on the Houthis. Other European countries, such as France, Italy, and Spain, preferred to keep some distance from the US-led military operations. From the onset, both Italy and France stated that their assets in the Red Sea and surrounding areas should not be considered to be following US orders and remained under national command, with their own rules of engagement. Their fear appears to be that supporting a more kinetic US involvement over Yemen will deteriorate the security situation in the region and drag external powers into a further escalation, while potentially metastasizing the Israel-Hamas conflict.

Therefore, when the United States and the United Kingdom launched their campaign of strikes against Houthi targets, the Italian government clarified that active involvement was conditioned on parliamentary approval, while French President Emmanuel Macron declared that the move was “escalatory” and that France would continue to enforce freedom of navigation, in coordination with—but not in subordination to—US-led efforts. France’s decision balances the country’s efforts to maintain leverage, particularly in defusing tensions between Hezbollah and Israel, while preserving some space for mediation in the region. It reflects the French government’s increasing concerns about perceptions of the country in the Middle East and North Africa, as well as domestic stability, with strong popular feelings regarding the situation in Gaza and Israel. Spain was probably the most straightforward in its refusal to join US-led efforts, presenting its choice of not intervening militarily in the Red Sea as a “commitment to peace,” consistent with Madrid’s stance on the war in Gaza, which has been critical of Israel.

A new, robust EU naval mission

After initial scattered operational responses from member states, the EU launched Aspides on February 19 for a one-year mandate. Protection of shipping is the mission’s only executive task, which will have to be defined and adapted, depending on the force flow and the number of requests for protection. The main distinction with the US-UK approach is that Aspides does not envision any participation in strikes against the Houthis and will only operate at sea with an escort, patrol, surveillance, and intercept mandate.

While Europeans seek to de-escalate and assuage their Arab partners’ concerns by showing that they diverge from the US-led approach, they might end up irritating their US partner but could also inadvertently be seen as fueling escalation, thus failing to score any points vis-à-vis regional actors. Avoiding such a scenario requires a massive strategic communication effort by Europeans to explain their approach and diplomatic finesse to convince their partners. Borrell has already visited Israel, Bahrain, Saudi Arabia, Qatar, and Jordan. Several EU member state leaders and ministers have traveled extensively in these countries, as well as in Egypt. The newly appointed Greek commander of Aspides, Commodore Vasileios Gryparis, has also started reaching out to regional partners.

A paper by France, Germany, and Italy to other EU members that was leaked to the press prior to the launch of the operation pointed to two main strategic objectives: building “trust and confidence with regional Arab States” and “never entering in a confrontational mode with Iran.” The Red Sea offers a promising opportunity for constructive cooperation between European countries and Arab Gulf states, which is an EU priority. While it is in the Gulf monarchies’ interest to secure the Red Sea waterways, the priority for Gulf capitals is to avoid escalatory incidents vis-à-vis Iran. Both Saudi Arabia and the UAE feel particularly vulnerable to an Iranian reaction, which could easily target their territories, strategic assets, or critical infrastructure. The UAE and Saudi Arabia—alongside Egypt—may find it politically easier to extend their support for the EU operation rather than the US mission, given the lesser emphasis on active deterrence. The UAE and Saudi Arabia have consistently demonstrated a keen interest in internationalizing maritime security to compensate for the United States’ perceived retrenchment from the region.

Over the next year, Aspides could potentially be extended to other like-minded contributors also interested in projecting a bigger maritime security role in global strategic chokepoints. A key partner could be India, which also enjoys deep relations with the Gulf monarchies, including maritime security cooperation. Moreover, Europeans should think strategically about the consolidation phase after this immediate crisis is placated. They should carefully consider the possibility of using Aspides as a platform for sustainable deconfliction. Doing so would be another way to demonstrate complementarity with the United States, while finally responding to long-standing US pressures for more burden-sharing by Europeans.

Léonie Allard is a visiting fellow at the Atlantic Council’s Europe Center.

Cinzia Bianco is a senior fellow at the European Council on Foreign Relations.

Mathieu Droin is a visiting fellow in the Europe, Russia, Eurasia Program at the Center for Strategic and International Studies.

The post With Operation Aspides, Europe is charting its own course in and around the Red Sea appeared first on Atlantic Council.

Lichfield quoted by Politico on blocked Russian reserves in Europe

stanleywu — Tue, 05 Mar 2024 22:17:35 +0000

Read the full article here.

The post Lichfield quoted by Politico on blocked Russian reserves in Europe appeared first on Atlantic Council.

Putin is on an historic mission and will not stop until he is finally defeated

Peter Dickinson — Tue, 05 Mar 2024 11:34:27 +0000

There was no escaping the mounting sense of gloom in late February as the world marked the second anniversary of Russia’s full-scale Ukraine invasion. While a chorus of international leaders voiced their determination to continue standing with Ukraine, it is now evident that Russia holds the upper hand as the conflict evolves into a grinding war of attrition. Indeed, with the future of US military aid in doubt, the mood among Ukraine’s partners is visibly darkening as thoughts turn to the disastrous consequences of a potential Russian victory.

In recent weeks, more and more Western leaders have begun publicly warning that their countries may soon become targets of Russian aggression. The latest leader to sound the alarm was French President Emmanuel Macron, who stated on February 26 that Russia could attack NATO member states “in the next few years.” Macron also sparked a heated debate by refusing to rule out sending Western troops to Ukraine.

Not everyone believes a victorious Putin would inevitably go further. Many remain skeptical and claim the Russian dictator is only interested in Ukraine. Others point to the Russian army’s well-documented difficulties during the current invasion as evidence that any Russian attack on the NATO alliance would amount to military suicide. These arguments reflect a fundamental failure among many in the West to grasp the true motives behind Russia’s invasion and the nature of the threat posed by Vladimir Putin’s imperial ambitions.

When Putin first launched the full-scale invasion of Ukraine in February 2022, he initially sought to portray it as a defensive measure against “Ukrainian Nazis” and NATO expansion. However, as the conflict has unfolded, it has become increasingly apparent that the Kremlin is waging an old-fashioned colonial war of imperial expansion.

In summer 2022, Putin directly compared his invasion to the eighteenth century imperial conquests of Russian Czar Peter the Great. Months later, he proclaimed the annexation of four Ukrainian provinces while declaring them to be “historically Russian lands.” He has since asserted that “no Ukraine ever existed in the history of mankind,” and has issued orders for all traces of Ukrainian national identity to eradicated from areas of Ukraine under Kremlin control.

Putin’s historical motivations were perhaps most immediately obvious during his recent interview with American media personality Tucker Carlson. While Carlson openly encouraged Putin to blame NATO and the US for the invasion, the Russian ruler preferred to embark on a half-hour history lecture that placed the origins of the current war firmly in the distant past. Rather than seeking to justify his invasion in terms of contemporary geopolitics, Putin chose to argue that Ukraine was historically Russian and therefore a legitimate target.

Putin’s chilling dream of reclaiming “historically Russian lands” puts a large number of countries at risk of suffering the same fate as Ukraine. The Kremlin strongman is notorious for lamenting the collapse of the Soviet Union, but his revisionist ambitions actually extend beyond the boundaries of the former USSR. On numerous occasions, Putin has expressed his belief that the Soviet Union was in fact a continuation of the Russian Empire, while the fall of the USSR was “the disintegration of historical Russia.” “What had been built up over 1000 years was largely lost,” he commented in December 2021.

Based on this twisted logic, the historical arguments used by Putin to justify the invasion of Ukraine could be equally applied to any country that was once part of the Russian Empire. This would result in a list of potential targets including Finland, Estonia, Latvia, Lithuania, Belarus, Poland, Moldova, Georgia, Armenia, Azerbaijan, and the whole of Central Asia, not to mention Alaska. Anyone tempted to dismiss the idea of Russia invading these countries should consider that just ten years ago, most Ukrainians were equally sure such things were impossible in the twenty-first century.

Nor is Putin solely motivated by his deep-seated desire to reverse Russia’s imperial decline. He also sees the invasion of Ukraine as a fight to end the era of Western dominance and establish a new multi-polar world order. After decades spent bristling at Russia’s reduced status and the perceived humiliations of the post-Soviet period, he is now attempting to frame the war in Ukraine as a battle against Pax Americana to shape the future of international relations. Putin believes victory over Ukraine would represent a decisive breakthrough that would undermine the entire post-1991 world order and reverse the verdict of the Cold War.

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Doubters argue that the Russian army is currently in no shape to undertake any further invasions, never mind confronting the military might of NATO itself. This reasoning is superficially persuasive. After all, Putin’s army has seen its reputation as the world’s number two military take a severe battering in Ukraine. Russian commanders have lost a series of key battles and have suffered catastrophic losses in both men and equipment that have left them increasingly dependent on the brute force of primitive human wave tactics.

Despite these setbacks, it would be foolish to underestimate Russia’s military potential. In the past two years, Putin has placed the entire Russian economy on a war footing. Armaments factories are now working around the clock and are already comfortably outproducing the entire NATO alliance in terms of artillery shells and other key armaments. Russia may have lost hundreds of thousands killed and wounded in Ukraine, but the Kremlin still has vast untapped reserves of fighting age men who can be mobilized in time for the next big invasion.

Skeptics also tend to overlook the likely impact of victory in Ukraine on Russia’s military capabilities. In practical terms, the conquest of Ukraine would secure hundreds of thousands of additional conscript troops and a vast array of new weapons for the Russian army. Control over Ukraine would significantly enhance the Kremlin war machine by offering renewed access to a range of major Ukrainian enterprises that previously played key roles in the Soviet military industrial complex. It would make Russia the dominant force on global agricultural markets, handing Moscow enormous leverage that could be used to bribe allies and deter opponents.

Crucially, success in Ukraine would provide Putin with enormous additional momentum while simultaneously destabilizing and demoralizing the whole democratic world. Inside Russia, pro-war sentiment would be further strengthened and Putin’s messianic vision of a new Russian Empire would be vindicated. Internationally, Russia’s existing allies would feel free to increase their support, while the countries of the nonaligned Global South would rush to strengthen ties with the triumphant Kremlin. In such a favorable geopolitical climate, Putin would doubtless find it difficult to resist the temptation to escalate his confrontation with the West. Indeed, he would almost certainly see it as a once-in-a-lifetime opportunity to achieve his historic mission.

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Conflict Russia Security & Defense Ukraine

This does not mean we should expect to see Russian tanks on the streets of NATO capitals any time soon. Putin knows he can reach his goals by discrediting NATO rather than actually defeating the alliance on the battlefield. With this in mind, the Kremlin would be far more likely to opt for the kind of hybrid tactics employed during the early stages of the Ukraine invasion in 2014. Indeed, it is all too easy to imagine unidentified Russian troops operating inside NATO territory behind a veil of barely plausible deniability.

An escalation of hybrid warfare against the NATO alliance would enable Moscow to exploit the lack of resolve and fear of escalation demonstrated by Western leaders over the past two years in Ukraine. Would the current generation of US, German, or French leaders be prepared to involve their countries in a war with Russia over an ambiguous “pro-Russian” uprising in an Estonian border town? If not, the absence of a decisive response could fatally undermine NATO’s core commitment to collective defense. The alliance might formally survive such a blow, but the loss of credibility would be catastrophic. It would not be long before individual NATO member countries started forming separate security arrangements of their own and began offering concessions to the Kremlin.

Even if Putin chooses not to test NATO directly, a Russian victory in Ukraine would transform the international security environment and dramatically increase the risk of a truly global war. European countries would be forced to rapidly rearm, with defense budgets soon ballooning to levels that far surpass the current costs of supporting the Ukrainian war effort. Those who begrudge today’s spending on Ukraine would find themselves confronted with security expenditure five or ten times higher.

Putin himself has provided ample evidence that his goals extend far beyond the reconquest of Ukraine. He makes no secret of his commitment to reclaiming what he regards as historically Russian lands, and believes he is fully justified in using military force to do so. Putin’s revisionist agenda is inextricably linked to his other great passion, namely the revival of Russia’s great power status as part of a post-Western world dominated by a handful of regional behemoths. These imperial ambitions led directly to the invasion of Ukraine and make further escalations virtually inevitable unless Russia is defeated.

Ultimately, it is impossible to predict exactly what Putin will do if he wins in Ukraine. He may initially choose to pursue low-hanging geopolitical fruit by seizing small neighborhood countries like Moldova or Georgia. Alternatively, he might seek to press home his advantage against a weakened West by embarking on far bolder military gambits targeting the Baltic states or the Suwałki Gap. Of the many possible post-Ukraine scenarios for Russia, the least likely of all is the idea that an emboldened and victorious Putin would simply stop.

Peter Dickinson is editor of the Atlantic Council’s UkraineAlert service.

Common pillars for clean hydrogen—with different rules

In December 2023, the United States published draft guidance on hydrogen standards, used to determine eligibility for tax credits under the Inflation Reduction Act (IRA). The guidance, called 45V, is built around what is termed the “the three pillars” of hydrogen: temporal matching, additionality, and deliverability. These three general requirements are also tacked in the EU Delegated Act, which defines renewable hydrogen for compliance with EU targets as renewable fuels of non-biological origin (RFNBOs). While in the US framework, tax credits go toward clean hydrogen that is produced using any clean electricity source, including nuclear energy, and in the EU, compliance with EU RFNBO targets requires that hydrogen be generated with renewables only, the three pillars can be generally understood as:

Temporal matching: These rules aim to ensure hydrogen is produced when clean electricity is available. This means that any amount of electricity used in hydrogen production must be matched with the same amount of zero-carbon electricity produced within a given time period. Shorter time intervals reduce electrolyzer capacity factors, increasing the levelized cost of hydrogen but achieving greater emissions reductions. Temporal matching periods are typically conducted on an hourly, daily, monthly, or annual basis.

Additionality/incrementality: Rules around this pillar aim to ensure hydrogen production goes hand in hand with new clean electricity generation capacity, making hydrogen producers add renewable electricity to the grid, rather than repurpose existing clean energy already on the grid.

Deliverability: This set of rules aims to ensure hydrogen is produced using clean electricity in the same region where that electricity is produced. There must be a direct physical interconnection between the clean energy source and the electrolyzers producing green hydrogen.

The chart below features a comparison between the EU and the US approaches to hydrogen across the three pillars, as well as other key areas of clean hydrogen policy. While US regulations are a proposed draft, the EU framework is considered final despite tweaks that may take place during its scheduled revision period in 2028.

Table 1. US and EU approaches to green hydrogen

While certain elements of the US rules might suggest they are stricter than the EU approach, this would be an oversimplification, as each contains elements that could be considered stricter—or looser—than the other in certain areas. While both approaches ultimately mandate hourly temporal correlation and strict additionality rules, the EU does not switch to hourly correlation until 2030—whereas the United States switches in 2028. Also, the EU allows for grandfathering of additionality, which is not permitted in the US proposed guidelines. Nonetheless, the draft US framework allows for the use of subsidized clean electricity for hydrogen production, takes a technology-neutral approach to clean electricity, and accepts energy attribute certificates to comply with hydrogen rules, diverging from the EU framework and allowing for greater flexibility for hydrogen producers. Importantly, differences in approach mean qualifying for the US 45V credit does not automatically qualify a facility as producing EU RFNBO-compliant renewable hydrogen.

Beyond these significant technical variations, US and EU strategies for developing clean hydrogen markets differ in their economic approach: the United States follows a supply-incentive model, while the EU is predominantly relying on a market-pull mechanism. The United States incentivizes production of hydrogen with uncapped tax credits that give lower or higher support depending on emissions thresholds but does not mandate clean molecule uptake. In this sense, it rewards greater wholesale emissions reductions without requiring it. In contrast, the EU employs a demand-side mechanism: regulation imposes the consumption of renewable hydrogen (i.e., 42 percent of hydrogen used in industry must be renewable by 2030), and strictly defines which hydrogen (RFNBOs) is available to meet legally binding targets. This mechanism prioritizes the use, rather than production, of hydrogen, and thus the decarbonization of end users. While the EU has put in place a Hydrogen Bank to support production, support is capped and auction based, whereas the United States’ effort is uncapped and direct. The Hydrogen Bank’s results are yet to be seen.

To maximize clean hydrogen’s potential to contribute to energy security and decarbonization, the EU and the United States will need to balance environmental, economic, and security concerns—and they must coordinate these efforts together. While the two markets have different resource endowments, legal regimes, and more, the EU and the United States should ensure the maximal harmonization and interoperability of hydrogen regulatory frameworks, as this will simplify investment and trade. The two sides should also plan carefully to ensure that their respective approaches to hydrogen development reduce carbon emissions. The next Trade and Technology Council in Belgium is an opportunity for both sides to learn from each other’s best practices and develop common approaches to hydrogen development.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

Pau Ruiz Guix is Officer on Trade and International Relations at Hydrogen Europe.

This article reflects their own personal opinions.

EnergySource

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The US DOE announced $7 billion in funding for clean hydrogen hubs across the US, the single largest public investment in US hydrogen to date.

Climate Change & Climate Action Energy & Environment

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Policy Memo: How to deepen transatlantic energy and climate cooperation at the US-EU summit

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With the European Commission President Ursula von der Leyen and European Council President Charles Michel visiting Washington on October 20, 2023, all eyes will be on the Rose Garden to see how the US and EU can chart a course on energy security and climate action.

Energy & Environment Energy Markets & Governance

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COP28 and the growing Europe-MENA hydrogen connection

By Giampaolo Cantini

A key piece of the COP28 plan to double global hydrogen production by 2030 will be connecting hydrogen-hungry Europe to the potential green hydrogen powerhouse of the MENA region.

Africa Energy & Environment

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Graham cited in Telegraph on Chinese exports to European EV market

stanleywu — Sat, 02 Mar 2024 22:17:40 +0000

Read the full article here.

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Ellinas in Cyprus Mail: Cyprus’ democracy continues to be flawed

smeadows — Sat, 02 Mar 2024 15:48:43 +0000

original source

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Undermining Ukraine: How Russia widened its global information war in 2023

the Digital Forensic Research Lab — Thu, 29 Feb 2024 11:00:00 +0000

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As the full-scale war in Ukraine enters its third year, Russia has doubled down on its worldwide efforts to undermine Kyiv’s international standing in an attempt to erode Western support and domestic Ukrainian morale. Years of close monitoring of not only state-sponsored media such as Russia Today (RT) and Sputnik, but also Russian activity on Telegram, TikTok, X, and other social platforms, points to one conclusion: In the propaganda war, Russia remains fully committed to conducting information operations around the globe, playing the long game to outlast any unity among Ukraine’s allies and persist until Ukraine loses its will to fight.

Western sanctions applied in the wake of the initial invasion disrupted Russia’s ability to reach some European audiences with its state-sponsored media outlets. But Russia has since adjusted its information operations to focus more on social media; in addition to attacking Western public support to fund Ukraine’s defense, it has expanded targeted propaganda efforts in different parts of the world, including Latin America, Africa, and the Middle East.

And Western support for Ukraine is indeed wobbling, most notably in Washington, where additional aid to Ukraine has been held up for months in Congress. Many factors influence voters’ and lawmakers’ support for sending weapons and money to Ukraine. Whether or not Russian propaganda has played a decisive role, the outcome of decreasing Western material support for Ukraine’s defense is the clear goal of President Vladimir Putin’s information war. And with recent battlefield wins such as the capture of the city of Avdiivka alongside propaganda wins such as the death of opposition leader Alexei Navalny, Putin’s position at home and abroad is stronger than ever.

Russia has actively employed information operations to undermine Ukraine since at least 2014, as Digital Forensic Research Lab (DFRLab) researchers around the world have documented in detail through their ongoing monitoring efforts. In the lead-up to the February 2022 invasion, Russia employed disinformation in the form of narrative warfare to justify military action, mask its planning, and deny any responsibility for the war. And as the DFRLab detailed in its landmark February 2023 report, Undermining Ukraine: How the Kremlin employs information operations to erode global confidence in Ukraine, Russia’s information strategy began to shift following the 2022 invasion, focusing on eroding Ukraine’s ability to resist. In this follow-up to the first edition of Undermining Ukraine, we explore how Russia further entrenched these efforts throughout 2023, developing new messages and techniques while recommitting to ones that continue to prove effective.

Russian tactics in 2023

In the second year of its war, faced with international sanctions, a damaged reputation, and the ban of state-sponsored RT and Sputnik in many Western countries, Russia shifted toward more targeted and tailored influence operations, using TikTok, Telegram, and other social platforms to expand its international audience—especially in the Global South, where Russian state media are still big players. Russia also deepened its cooperation in the media and information spheres with sympathetic countries.

Throughout 2023, Russia relied on its rich toolbox for conducting information operations, including employing coordinated inauthentic networks on social media platforms, exploiting regional grievances with the West, hacking, and forging documents, among other tactics. Russia propagated a combination of old and new narratives to undermine Ukraine domestically and internationally, aiming to discredit its reputation with Western partners and neighboring countries. Additionally, Russia has continued to tighten its control over its domestic information space, spread false and misleading narratives to weaken Ukrainian resolve, and present its ongoing case for war via RT and Sputnik, adjusting its messaging to cater to regional audiences, particularly in Latin America and Africa. Russia has also doubled down on eroding cohesion within Ukrainian society.

What do those information operations look like in practice—and how have they affected the targeted countries? Drawing on the long experience and global reach of the DFRLab research team, this report breaks down Russia’s propaganda operations since the start of the full-scale war two years ago, region by region. The case studies that follow shine a light on pro-Kremlin propaganda activities in their various forms, shapes, and approaches.

In Ukraine, Russia over the past year sought to erode the country’s will to resist and sow internal discord by discrediting both the civilian and military leadership. This involved portraying Ukraine as an unreliable ally, amplifying internal conflicts, and launching scam attacks on civil society and ordinary users. For example, the Kremlin’s propaganda apparatus established the largest known influence operation on TikTok to disseminate rumors about Ukrainian political corruption.

Internally, Russia also directed its efforts toward controlling domestic audiences, primarily focusing on restricting access to information. Incidents such as the June 2023 Wagner mutiny created a quandary for the Kremlin regarding its tolerance of Telegram, which effectively served as a digital home base for Yevgeny Prigozhin and his fellow mutineers. Ongoing domestic censorship and surveillance measures also persisted, including legislation to curtail virtual private networks (VPNs) used to circumvent online restrictions. Russia’s Federal Service for Supervision of Communications, Information Technology and Mass Media, the state telecommunications regulator commonly known as Roskomnadzor, also rolled out an internet surveillance system known as Oculus designed to detect content that the Kremlin considers undesirable.

In Europe, Russia disseminated recurring claims asserting that Ukraine sold Western weapons for profit on the international black market, in an attempt to undermine European support for Ukraine. Russia also persisted in promoting the narrative that European Union member states would face hardship during the winter without access to Russian gas, unleashing an extensive online information influence campaign comprised of more than fifty fake websites impersonating reputable European media outlets.

Russian operations were not limited to European countries assisting Ukraine with arms and financial support. DFRLab researchers observed targeted messaging tactics in the South Caucasus and Moldova seemingly with the dual aim of undermining support for Ukraine while dividing societies from within and gaining local influence. For instance, pro-Russian actors capitalized on existing criticisms of Armenian Prime Minister Nikol Pashinyan after neighboring Azerbaijan conquered the Armenian ethnic enclave of Nagorno-Karabakh; Kremlin officials, propagandists, and influencers on Telegram fueled anti-government sentiment and called for the overthrow of Pashinyan and his government. In Azerbaijan, the Kremlin capitalized on Russian-language influence through academia, exchange courses, and universities while exploiting the country’s lack of independent media outlets. In Georgia, the Georgian Dream-led government expanded its relationship with Russia both politically and economically following the February 2022 invasion, exploiting popular fears of the war escalating into Georgia to further cement the government’s pro-Russia stance. And in Moldova, Russia engaged in energy blackmail and warmongering by amplifying the false narrative that Moldova, Ukraine, or NATO was planning a military intervention in the Russian-backed breakaway region of Transnistria.

In the Middle East and North Africa, Russian influence operations rely on its RT and Sputnik media empire and local amplifiers of pro-Kremlin messages and broad anti-West, anti-colonialist sentiments. Russia employs a dual strategy in Africa: an official dimension involving trade, investment, diplomacy, public outreach, defense agreements, and engagements with international organizations, alongside an unofficial and covert aspect using hybrid tools, tactics, and clandestine arms-for-resources trade.

In Latin America, RT and Sputnik serve as conduits for Russian communications, complemented by Russian ambassadors and unaffiliated journalists disseminating pro-Russia propaganda.

While some proclaimed Ukraine the winner of the information war in 2022, it was never that simple, especially in a global context; it is also far from over. If these global case studies make anything clear, it’s that the Kremlin and its supporters are still attempting to shatter Ukraine’s global standing, playing the long game by targeting countries around the world with disinformation and influence campaigns designed to decrease public support and allies’ willingness to send aid.

Russia has a long history of information and influence operations worldwide, making it a formidable opponent constantly seeking to exploit weaknesses or problems within enemy societies. Similarly, Russia abuses the idea of “neutral” media to serve its disinformation alongside reporting of real events, all with an intention to leave viewers with the impression that both versions of events have merit.

By February 2022—if not earlier—the Western world recognized that RT and Sputnik are instruments of Russian propaganda rather than legitimate media sources. However, those media are still popular and influential in parts of Latin America, the Middle East, and Africa. Moreover, even in the European Union, where those channels are technically blocked, RT circumvents limitations and continues poisoning the media space via smaller mirror sites, effectively “spitting” on Western sanctions. Some channels feature Russian propagandistic content translated into local languages. At the same time, Russia continues using its embassies and diplomats as an extension of its propaganda apparatus, promoting false information, false fact-checking, and conspiracies worldwide. Russia also uses diplomatic events, such as the Russia-Africa Summit, to spread its messages at a more region-specific level.

Russian information and influence operations inside Ukraine and abroad will likely continue to evolve, finding new rifts within societies to deepen and novel approaches to employ. On top of this, 2024 is an election year in dozens of countries where Russia may try to meddle in an effort to push support toward its allies or, at minimum, away from pro-Ukrainian parties. In the least friendly countries, Russia will likely continue to push the idea—through more covert means—that aid to Ukraine is a net loss to those residing in those countries.

By Roman Osadchuk, Andy Carvin

From the very start of the war, the Kremlin emphasized demoralizing Ukrainian audiences and destroying their will to fight. Building on daily monitoring of the Kremlin media ecosystem, this report analyzes Russia’s attempts to undermine Ukraine by targeting local, regional, and global audiences since February 2022.

Disinformation Russia

Report Feb 22, 2023

Narrative warfare

By Nika Aleksejeva, Andy Carvin

In the weeks and months leading up to Russia invading Ukraine on February 24, 2022, the Kremlin and pro-Kremlin media employed false and misleading narratives to justify military action against Ukraine, mask the Kremlin’s operational planning, and deny any responsibility for the coming war. Dive into a full accounting of the road to war.

Disinformation Russia

The Atlantic Council’s Digital Forensic Research Lab (DFRLab) has operationalized the study of disinformation by exposing falsehoods and fake news, documenting human rights abuses, and building digital resilience worldwide.

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The post Undermining Ukraine: How Russia widened its global information war in 2023 appeared first on Atlantic Council.

The EU needs a more comprehensive plan to aid Ukraine

Michael John Williams — Mon, 26 Feb 2024 14:22:08 +0000

As Russia’s illegal full-scale invasion of Ukraine stretches into its third year, the clouds on Brussels’ bleak winter horizon are more foreboding than usual. The culmination of Kyiv’s summer 2023 counteroffensive, with very little change in the lines of control, illustrates the reality that the fight for a free and independent Ukraine will be a protracted conflict. In Washington, additional aid to Ukraine remains mired in Congress. One bright spot, however, was the European Union’s (EU) decision on February 1 to approve an additional fifty-four billion dollars in support to Ukraine through 2027. This is a good start, but the EU can and must do more.

The EU needs a comprehensive plan for its beleaguered neighbor. In addition to the current aid package, and along with discussions about Ukraine’s EU accession, which will take a decade or more, the EU needs to implement a three-pronged strategy. The EU must ramp up its economic recovery program to get private and public sector investment to rebuild Ukraine. It should develop a longer basic military training course and a staff officer course to help the Ukrainian military effect large-scale maneuvers, which Ukrainian forces cannot yet do. And it should build out pan-European defense procurement for Ukraine.

The United States must continue to play a critical role in supporting Ukraine. It can do this, for example, by passing the sixty-one billion dollar spending package for Ukraine and then working with European allies to implement a better strategy to continue support. But for the Biden administration, the task over the next year should also be to Europeanize the war in Ukraine, with the EU and the United Kingdom becoming Kyiv’s leading sources of military aid (in addition to overall aid), with the United States in a supporting role.

Ramp up EU members’ defense production

First, European states must move themselves onto an industrial war footing—which they still have not done. The EU has made ambitious promises to deliver armaments, but it has not yet delivered on these promises. The EU pledged one million 155-millimeter shells to Ukraine, for example, but EU members have thus far sent only around three hundred thousand from their own stockpiles and they have little capacity to get more quickly. European states should also stop prevaricating on key systems, such as long-range Taurus missiles, which are critical to any effort to compel Russia to the negotiating table.

To facilitate long-term defense production and planning, European states must collectively approach industry to lay out bulk annual orders and insist that Ukraine is prioritized for delivery. European states should also select a set number of current systems and order those specific systems rather than supplying a broad array of systems, which has led to a polyglot arsenal that brings as many challenges as it does benefits.

Right now, Ukraine gets a range of systems: some old and some new. This made sense as the older systems were readily available and donations of Warsaw Pact equipment by new NATO allies, such as Poland and the Czech Republic, facilitated military transformation within the Alliance and helped Ukraine. But as these older systems lack enough spare parts and as they wear out, they need to be replaced with Western military technology. New systems, often awarded on a national basis, complicate Ukraine’s ability to utilize them effectively. Offering select new systems will make training, as well as replacement part procurement, more logical and efficient. The EU and the United States should select a smaller range of systems to donate to Ukraine going forward. For example, all tanks could be Leopards, all fighter aircraft could be F-16s, and howitzers should be limited to three or four systems to make long-term sustainability more practicable.

Enhance training for Ukrainian troops

Just as defense procurement and supply must be systematized, so too must training. New recruits to the Ukrainian military receive five weeks of basic training—this is woefully insufficient. During World War II, new British recruits got twenty-four weeks. Basic combat training in the United States is ten weeks, in the French Foreign Legion it is twelve, and for UK infantry it is twenty-eight weeks. The challenge for Ukraine is how to build a military while still fighting a war. As the campaign to keep Ukraine free enters its third year, Kyiv must mobilize a broader swathe of society and it must do so quickly, so that these recruits can receive better basic training.

Initial recruits should get a ten-week basic course and then be cycled into combat. European states should create a longer, fifteen-week course and run two parallel courses, cycling out experienced soldiers for more advanced courses. Given Ukrainian constraints on manpower, it is imperative that new soldiers get the best training possible to increase their chances of success on the battlefield. Equipment is far easier to replace than manpower, and Ukraine has a far smaller pool of potential soldiers than Russia. It must fight smarter with better-trained troops.

The second task will be to create two sets of officer courses—a shorter twenty-week basic officers’ course and a longer thirty-week staff officer course. This could be modeled on the US Maneuver Captain’s Career course. This can be done while cycling between groups to allow as many soldiers to stay in the field as possible, while new officers get first-round training and more experienced officers receive advanced training.

Officer training is critical, as Ukraine lacks staff officer capacity, which was evident over Ukraine’s summer 2023 counteroffensive. Having eliminated the divisional level decades ago for cost savings, Ukraine’s officer corps cannot conduct large-scale maneuver warfare—it simply does not have the command-and-control capacity. This means that even if the size of the enlisted force doubled, Ukraine would be unable to effectively employ them in large-scale offensive operations. With the lines of control frozen and Ukraine in a defensive orientation, the task needs to be to build up a larger and more effective fighting force over the next twelve to eighteen months, a process which should then continue indefinitely.

Revitalize Ukraine’s economy

The third and final piece of the puzzle is rebooting Ukraine’s economy, which is currently on life support. Russia’s invasion cut Ukraine’s gross domestic product by around 30 percent in the first year of the war. Kyiv’s 2023 budget deficit was thirty-eight billion dollars, some thirty-one billion of which was offset by international assistance. The World Bank estimates that rebuilding Ukraine over the next decade will cost nearly five hundred billion dollars, which will need to come in the form of grants, loans, and private investment. Here, the EU is doing well via the bloc’s recently approved “Ukraine Facility,” which allows it to provide more than fifty billion euros in grants and loans to Ukraine over four years. This is a good start, but it is not enough.

The EU, the United Kingdom, and the United States should work to pass the legislation required to seize frozen Russian assets, which can then be used to rebuild Ukraine. Using Russian funds as collateral is not sufficient. Belgium’s Euroclear has around $180 billion in Russian reserves on the books. The October 2023 Group of Seven (G7) communiqué included language that such options should be explored, but action, not merely exploration is necessary.

Right now, the legal frameworks simply do not exist to seize the funds. The challenge here is getting the laws in place and then keeping financial markets stable—no easy task given the politics in Europe. But it is worth pursuing options to seize the funds, and once seized, the funds should be placed into an international trusteeship that can reinvest the funds to generate annual income for Ukraine, and where necessary, draw down on some of the principal reserves.

EU member states also should support private sector investment into Ukraine, given the enormous risk facing anyone attempting to run a business in the country. This can be achieved via a mix of tax breaks for companies willing to build and operate facilities in Ukraine, as well as through a special bloc insurance scheme to offset risk. Industrial efforts should focus on the defense industry, but wider multi-sectoral investment is necessary. In turn, Ukraine needs to reciprocate. As the EU has made clear, Ukraine needs serious, deep reform to clean up the court system and ensure the independence of supervisory boards at state-owned enterprises. Kyiv must continue to support transparent privatization efforts—all of which will contribute to a more level playing field for international investors.

Rebooting the economy, prioritizing defense industrial production, and systematizing longer military training will send a strong signal to Russia that the EU is prepared to support Ukraine in a long war. This will make it more likely that Russia will consider negotiations to settle the war, as well as increase Ukraine’s ability to defend itself, and perhaps launch a more successful offensive. Right now, neither Ukraine’s posture nor Western assurances look credible to Russian President Vladimir Putin. Compelling him to change course requires a different approach that Ukraine and its partners must begin to implement immediately.

The role of the United States

The White House has a critical role to play in establishing a more systematized approach to assisting Ukraine. Washington, because of its commitment to Europe via NATO, can focus minds and corral allies in a way that EU leaders cannot. Indeed, much action is required at the national level, where certain legal privileges remain in Europe, rather than at the EU level.

Continued methodical and deliberate engagement across Europe from US officials and diplomats, such as the excellent efforts by US Ambassador Julianne Smith at NATO and US Ambassador Mark Gitenstein at the EU, will be critical to helping Europeans overcome the internal differences that hinder current efforts to help Ukraine. It is in the US interest to work closely with European allies to set up these respective facilities before November 2024 potentially upends the political pieces in Washington. Doing so will capitalize on Ukraine’s successes to date, set a basis for potential new offensive operations in 2025 and, even barring that, establish a stronger foundation for a negotiated settlement.

Michael John Williams is a nonresident senior fellow with the Transatlantic Security Initiative in the Atlantic Council’s Scowcroft Center for Strategy and Security and associate professor of International Affairs and director of the International Relations Program at the Maxwell School for Citizenship and Public Affairs at Syracuse University.

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EU’s future prosperity will be marked by war in Ukraine

Simeon Djankov — Mon, 26 Feb 2024 14:00:00 +0000

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Evolution of freedom

Freedom to prosperity

The future ahead

Evolution of freedom

International comparisons recognize that Europeans enjoy the highest quality of life in the world. European society benefits from great equality in income, excellent healthcare and basic education, good infrastructure, and eminent rule of law.¹ However, the past decade has presented an array of challenges to European Union (EU) nations. Europe’s gross domestic product (GDP) in 2016 had only just returned to its 2008 level—before the eurozone crisis—and it has been losing market share in the global economy. Russia’s annexation of Crimea in 2014; the 2015–16 migrant crisis; the UK’s secession from the EU; COVID-19; and Russia’s full-scale attack on Ukraine, the EU’s ensuing sanctions, and complete reorientation of its foreign policy toward helping Ukraine—by any historical standards, the past decade has been trying.

The EU is also the freest region of the world in the Atlantic Council’s Freedom Index, 20 points above the global average throughout the period of analysis. The increase in aggregate freedom was sustained until 2014 but has stagnated in the past decade. The main reason is the changing priorities in the aftermath of the eurozone crisis, which diverted politicians’ attention towards reducing social vulnerabilities.² The ensuing decade brought several other challenges, starting in 2015–16 with a wave of migration from northern Africa that divided public opinion and engulfed the EU in heated debates about migration policy. These debates brought about political change in a number of European countries too, shifting the focus further from expanding freedoms and on to defining a narrower European identity. Just as this changing political landscape started to stabilize, the COVID-19 pandemic hit Europe hard, resulting in more demands for government participation in the economy and putting the emphasis on security rather than freedom. In sum, the past decade in Europe has been one of crisis abatement.

Crisis abatement has brought about new politics in Central Europe in particular, a region which was for a quarter century (1989–2014) at the forefront of increasing political freedom in Europe. The governments of Hungary and Poland, and to some degree Slovakia, have followed a path of what Viktor Orbán calls “illiberal democracy,” concentrating powers in the hands of few political leaders. This concentration has come at the expense of media freedom, judicial independence, and institutional development. The European Commission and other European institutions have responded with concerned actions to limit the loss of freedoms, with some success.

Economic freedom increased by more than 10 points until 2014, leveling off since then due to the various crises that emerged. However, there are some bright spots. Women’s economic freedom has increased continuously during the whole period, up 25 points. Investment freedom increased substantially during the period 2005–15, and has seen another upswing since as governments have tried to keep their economies competitive. This reflects the response of many EU countries to the pandemic, including significant subsidies to particular sectors of the economy, enlarging the role of the state, and crowding out the private sector. This effect continues to evolve, particularly in the energy sector where the war in Ukraine has given a jolt to Europe’s desire to be independent from Russian oil and gas.

The level of political freedom is very high in the EU, although “legislative constraints on the executive” receives a clearly lower score than the other three components of the political freedom subindex. All components of political freedom decrease slightly after 2016, coinciding with the reverberations from the migration crisis and the rise of populism in a number of European countries. The most prominent of these have been in Central Europe, where Hungary’s Viktor Orbán has been particularly outspoken on the need to curb political freedoms. The trend, however, runs deeper, with nationalist parties gaining popularity in Austria, Finland, Italy, Germany, and Sweden, among others. Europe is a more closed society now than it was thirty years ago.

From freedom to prosperity

Prosperity in the EU is around 17.6 points higher than the global average, and this gap has been stable since 1995. The trend is positive until 2019, but has stagnated since the pandemic struck. This is broadly consistent with the global pattern, suggesting that Europe is finding ways to maintain its edge in prosperity over its competitors.

The superior outlook on prosperity, coupled with geographic proximity, has made Europe a magnet for migrants from Africa, Asia, and the Middle East. The pandemic reduced this inflow, as have various country-level policies to prevent migrants from entering Europe. Still, 2022 saw a significant new wave of migration from Ukraine, reaching a total of 6 million refugees towards the end of the year. And a new wave of non-European migrants has posed challenges for Italy and Greece in 2023.

The effects of the eurozone crisis of 2008–10 and the COVID-19 pandemic of 2020–22 are evident in the income component data. Fortunately, financial assistance to vulnerable groups was quickly dispensed during both episodes, reducing social tensions. Europe’s social safety net expanded, increasing budget deficits but allowing the crises to pass with minimal losses in welfare. Reflective of these policies, inequality is relatively low compared to the global average.

Finally, the data show sustained improvements in health and education for the EU, probably driven by countries in Eastern Europe. These countries saw social supports deteriorating at the beginning of the post-communist transition period in the 1990s. Heavy government spending, assisted by EU funding since their accession in the 2000s, has reversed these losses and led to convergence in health and education indicators across the EU.³

The future ahead

The next decade of EU freedom and prosperity dynamics will be marked by the war in Ukraine. The EU has committed enormous financial resources, nearly €100 billion across 2022 and 2023, in supporting Ukraine’s fight against the aggressor. It has also imposed a dozen rounds of sectoral and economy-wide sanctions on Russia. These sanctions also have negative implications for some industries in Europe, which have traditionally relied on resources from Russia. The war, in other words, has a slowing effect on Europe’s economy.

Another major impact of Russia’s war in Ukraine is that it has forced the EU to rethink the Green Deal, which the European Commission has championed for the past decade. Given Russia’s threats to Europe’s energy security, a decision was taken in 2022 to sever the dependence on Russian energy products. With only two countries—Bulgaria and Hungary—receiving postponement of these measures to 2024, Europe has quickly weaned itself from Russian oil and gas. However, this change has come at a cost: a number of countries have increased their use of coal and other high-polluting sources of energy.

The war has also sped up the process of EU integration for Moldova and Ukraine, and this will occupy the attention of Brussels institutions in the years to come. Such integration provides for a larger European market: a welcome development. The past decade has shown that Europe cannot multitask—perhaps the inevitable result of gradual consensus building among twenty-seven member states—preferring to focus on one issue at a time. The clear task at hand is helping Ukraine win the war.

The two case studies in this volume on Ukraine (by Professor Yuriy Gorodnichenko from the University of California at Berkeley) and Russia (by Professor Konstantin Sonin from the University of Chicago) demonstrate what is at stake for these countries in terms of freedom and prosperity. In this chapter I suggest that, for Europe as a whole, what is at stake in the conflict is the further development of freedoms and the ensuing prosperity of Europe. Only with a free and victorious Ukraine can the EU refocus on its prosperity agenda.

In the face of Ukraine’s resolute response to Russia’s invasion, President Putin has escalated the economic warfare against its citizens by incessantly attacking the country’s energy infrastructure and cutting off vital trade channels. These acts have severely hampered the prospects for economic recovery in 2024.

A large part of Ukraine’s civilian population, an estimated 6 million refugees, is awaiting a ceasefire that would allow them to return to their homeland, as the frequent bombings and power outages have forced them to take temporary shelter in other European countries.⁴ These immigrants look forward to reuniting with their families and continuing with their jobs or finding new economic opportunities. In both cases—whether Ukraine’s refugees stay abroad or return home—massive European help is needed to jump-start the economy. The needs are enormous: rebuild infrastructure, provide financing for entrepreneurial activities as many old enterprises are razed to the ground, open new export opportunities, and invest in the training of workers and in new technologies.

Europe’s prosperity agenda

This prosperity agenda is fourfold. First, there are wide disparities across regions within Europe. These are seen within countries, for example southern versus northern Italy, and across countries, for example Scandinavia versus Eastern Europe. A significant portion of the EU budget is directed to reducing these disparities, through investments in infrastructure, agriculture, and regional economic development. Such financial aid needs to be coupled with policies that increase economic freedom at the regional level. For example, decentralization of some tax policies combined with explicit subsidy schemes will keep more resources in underdeveloped regions and thus attract businesses and individuals who would otherwise look for opportunities in more advanced parts of the EU.

Second, increased prosperity in the EU comes from completing the internal markets for energy and financial services. These topics were discussed even prior to the 2014 annexation of Crimea, which started a series of crisis years for the EU. 2024 is a good year to go back to the original design and create a single energy market in Europe, as well as a single financial market, with a single set of regulators. Much has been written and discussed about how to achieve these goals; now is the time to act.

Third, migration has been at the forefront of European politics in the past decade. It promises to remain an issue in the decade to come. On the one hand, Europe’s demographics are such that the labor market benefits from human capital coming into European countries and putting their labor and talents into productive use. On the other hand, social tensions have risen in the countries that have received large numbers of migrants. Even in countries with few actual migrants, the specter of competition for social services and jobs has boosted the fortunes of nationalist parties that have promised to erect barriers to further migration. This issue, more than any other in Europe, inflames public opinion.

Finally, prosperity in Europe emanates from open markets. While the European market itself is large, many innovations and technologies come from either the American or Asian markets. The two other superpowers—the United States and China—have been on a collision course in asserting their economic dominance, leaving Europe to choose how to align in the global picture. So far this path has meandered, with some calling for greater protections for Europe’s own market. Such an isolationist approach is counterproductive. Europe has to remain as open as possible, assimilating leading innovations and creating the space to implement these new ideas into better production processes and products.

The Atlantic Council’s Indexes also raise some philosophical questions regarding European identity: Has the golden age of European prosperity passed, weighed down by the heavy fiscal burden of an unwieldy social safety net? Has the energy of European integration through the accession of new member states tapered off? Is federalism, in the shape of the EU, losing momentum? The past decade has not given many indications of a clear reform agenda, as Europe has stumbled from one crisis to another. The existential crisis of a war in Europe has strained the abilities of European institutions to act, yet it has demonstrated a unity that has been largely absent in previous decisions Europe has faced. This unity leads to strength and such strength is needed to overcome the many challenges that lie in Europe’s path.

Simeon Djankov is policy director of the Financial Markets Group at the London School of Economics. He was deputy prime minister and minister of finance of Bulgaria from 2009 to 2013. Prior to his cabinet appointment, he was chief economist of the finance and private sector vice presidency of the World Bank.

EXPLORE THE DATA

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Freedom and Prosperity Indexes

The indexes rank 164 countries around the world according to their levels of freedom and prosperity. Use our site to explore twenty-eight years of data, compare countries and regions, and examine the sub-indexes and indicators that comprise our indexes.

1 Anders Aslund and Simeon Djankov, Europe’s Growth Challenge (Oxford: Oxford University Press, 2017)

2 Simeon Djankov, Inside the Euro Crisis: An Eyewitness Account, (Peterson Institute for International Economics, 2014)

3 Anders Aslund and Simeon Djankov, The Great Rebirth: The Victory of Capitalism over Communism (Peterson Institute for International Economics, 2014).

4 Oleksey Blinov and Simeon Djankov, “The all-out aggression requires an all-out response” in Supporting Ukraine: More critical than ever, eds. Yuriy Gorodnichenko and Vladyslav Rashkovan (London and Paris: CEPR Press, 2023), https://cepr.org/publications/ books-and-reports/supporting-ukraine-more-critical-ever.

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#AtlanticDebrief – What are the key trends in the European elections? | A Debrief from Fabian Zuleeg

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