CER Bulletin Issue 138 | June/July 2021

Macron’s Europe By Charles Grant Hurrah for the conference on the future of Europe! By Camino Mortera-Martinez Can the EU set a global rulebook for Big Tech? By Zach Meyers Macron’s Europe by Charles Grant

Alongside Germany, has often shaped the EU’s agenda. Recently, French influence has grown, and if President is re-elected in April 2022 – likely, though not certain – he will be Europe’s pre-eminent leader for several years.

One reason is that Macron is brimming with So, if Macron wins re-election, he will have ideas on the future of Europe, which he more heft than the new German chancellor. The pursues energetically. The Brussels institutional economic and political travails of Italy and Spain machinery feeds off ideas. Macron’s predecessor, limit their influence, and in any case both quite François Hollande, came up with fewer schemes often line up with France on EU policy. Poland is and initiatives and was a quieter voice in the in trouble for not respecting the rule of law and so European Council. cannot set the EU’s agenda.

A second reason is Brexit. The UK led the France will use its EU presidency in the first half of EU’s economic liberals in resisting France’s 2022 to promote its ideas on Europe. Fortunately penchant for protectionism and an active for Macron, many of the key people in Brussels industrial policy. Now the Dutch sometimes are sympathetic to France. , try to lead the Nordic, Baltic and other the Commission president, Charles Michel, the pro-market countries, but with less authority European Council president, and , the than did the British. High Representative for foreign policy, owe their jobs to Macron’s support. They are at the very least A third reason is Chancellor Angela Merkel’s open to French thinking. In Frankfurt the president impending retirement. Her track-record in of the European Central Bank, , crafting compromises helped to make her happens to be French. So are some important the European Council’s most respected leader. officials in Brussels, including Thierry Breton, the Germany is already distracted by the campaign commissioner for the internal market, and Olivier for September’s general election, after Guersent, the director-general for competition which the formation of a new coalition policy. In the , too – which government may take two or three months. France has previously not taken very seriously Then the new chancellor – whether Armin – the French have become more influential. Laschet or Annalena Baerbock – will need Macron’s MEPs are the largest component of the time to establish themselves as a substantial centrist Renew Europe formation, one of the three figure in EU politics. groups that run the Parliament. [email protected] | WWW.CER.EU CER BULLETIN ISSUE 138 | JUNE/JULY 2021

Those inside the French government argue platforms behave responsibly. The French doubt – with some justice – that it is not their they can conclude the and machinations and string-pulling that ensure – which they strongly support French influence, but rather the fact that the – during their presidency, but expect to make world is changing. COVID-19 and the new good progress on both. They expect this pair to emphasis on the need for resilient supply set global standards for the regulation of Big Tech. chains have made more people sympathetic to Macron’s idea of ‘strategic autonomy’. Broadly The French like Joe Biden’s plans for a minimum defined, the term means that Europe develops rate of taxation for large companies. The US is not only the capacity to pursue its own interests also working on an OECD-wide tax that would in defence and security, but also safeguards apply to most of the world’s largest multinationals its independence in areas like energy, trade, – whether digital giants or not – and replace financial services and critical technologies. the unilateral taxes that several countries have imposed on the revenues of digital giants. The The French are happy that the Commission is French worry that this could still allow some digital increasingly willing to stand up to China on firms to avoid proper taxation, and have not yet economic issues. Thus the Commission has decided whether to support the Commission’s produced a policy paper on the need for the EU own plans for an EU-wide digital levy – in addition to gain better access to supplies of rare earths to whatever the OECD agrees. If they do support (currently dominated by China). It has proposed the Commission they could annoy the US. legislation that could exclude foreign firms (for example, from China) that receive distortive The second priority is to show that the EU subsidies from taking part in European public can make a difference to climate change by procurement or from acquiring European firms. implementing a carbon border adjustment The EU’s foreign investment screening regulation mechanism (CBAM). The French know that many has been in operation since October 2020. The of Biden’s people oppose a CBAM, and that this Commission has become more supportive of alone will cloud the views of some European industrial policy, for example by encouraging leaders, including in Germany. But the French are Franco-German efforts to foster an electric-vehicle not deterred. battery industry. And its trade policy now places greater emphasis on reciprocity and the ability to The French talk of creating a climate club that act unilaterally against unfair practices. All these would include the OECD countries and others steps reflect French priorities. that adopt effective emission-reduction policies. Trade between the club’s members would avoid Some of the Nordic and Baltic countries are carbon-related charges, but goods from countries uncomfortable with these shifts – but many with laxer climate policies, like India, China and member-states go along with a lot of French Russia, could face them. Apparently the OECD ideas. German opinions are divided but some likes this plan, while US climate envoy John key figures such as Peter Altmaier, the economy Kerry, though initially sceptical, is now willing to minister, agree with the French on the need for consider it. But French officials insist that the EU ‘European champions’. The leaders of Germany’s should not wait for the OECD before pressing Green party seem to like the idea of increasing ahead with a CBAM. Europe’s strategic autonomy. The EU will need to find about €15 billion a year In foreign policy, too, French ideas often prevail. to repay the debt that is funding the RRF. Both Take the European Peace Facility, a new fund a CBAM and a digital levy are candidates to over which – because it is outside the EU budget provide the EU with fresh ‘own resources’, as is – the European External Action Service and the Emissions Trading Scheme. The CBAM could the member-states have more sway than the in theory be decided by qualified majority, as Commission. France will probably ensure that a an environmental measure – but any matter big chunk of the money goes to its priority of the concerning own resources would require Sahel, for example to train and equip troops. unanimity.

French officials say the first three months of Macron will probably have to battle both their EU presidency must produce ‘concrete American and European opponents to get his way deliverables’, to help Macron to win re-election. on the CBAM and digital taxes. But, as one former They talk of progress on European defence, adviser notes, “his chutzpah and self-confidence making a success of the Recovery and Resilience are extraordinary”. Facility (RRF) and starting to reform the EU’s fiscal rules. But they mention two priorities in particular. Charles Grant One is to show that the EU is making digital Director, CER @CER_Grant Hurrah for the conference on the future of Europe! by Camino Mortera-Martinez

If done right, the conference on the future of Europe can help bring about meaningful reform in the EU – even if that means changing the treaties.

At first sight, the conference on the future of The conference’s main strength should be as a Europe, an EU-wide consultation lasting nearly platform for citizens who may otherwise remain a year, may not seem the most straightforward unheard. A mostly digital conference may boost way to generate change and boost democracy. the participation of digital natives and people In fact, with three presidents and a complex generally used to interacting through a screen. governing structure made up of over 400 But it will discriminate against less digitally able people, the conference may not seem the most people, like the elderly, and against those living straightforward way of doing anything at all. in rural or remote areas with shaky internet Many think that is the point of the exercise. And connections. A predominantly digital format yet, with a few tweaks, the conference could end also makes it hard to engage with local civil up challenging everybody’s exceedingly low society groups who may raise issues that are expectations – and become the first step towards important to many people, and who already much needed reform in the Union. normally struggle to get a hearing in Brussels. Aware of this bias, the Commission has hired a The conference’s main, and most overlooked, private company to randomly select 108 citizens problem is timing. It should have started at the who will represent the voice of ordinary people. beginning of 2020 and finished in spring 2022. But that alone will not be enough to ensure the But the COVID-19 pandemic intruded and the conference reaches out beyond urban, educated start of the exercise had to be delayed. French elites – there is no explanation of what criteria President Emmanuel Macron, who is behind the will be used to choose these people and what idea, wants to have the whole thing wrapped up incentives will they have to participate. by March 2022, in the middle of France’s rotating EU presidency. Macron himself faces re-election One way to solve this problem would be to at home in April and hopes that the conference make the conference a rolling exercise. The can help to amplify some of his ideas on how to EU institutions could commit to hold citizen make the EU work better. This means that the consultations on a regular basis and to filter conference will be shorter, and also that and review proposals every two or three years. ©European it will mostly happen online because of This would not require expensive consultants, Union COVID-19 restrictions. complicated bureaucracy or eminent experts. [email protected] | WWW.CER.EU CER BULLETIN ISSUE 138 | JUNE/JULY 2021

Possibly the most effective way to understand Union temporarily suspended its fiscal rules what citizens really think is to have a coffee with and agreed on a recovery fund that includes them. Of course, no EU leader could ever find the issuing of EU debt. The pandemic has also the time to have coffee with over 500 million exposed a darker side: the crisis led to more people. But they can travel to EU countries and border checks and temporary restrictions to engage with local communities, as national the free movement of people in the EU; and politicians do. A recent EU poll shows that most COVID-19 laid bare the EU’s dependency on Europeans would be willing to participate in the other parts of the world for the procurement of conference if given the chance. The EU should health equipment and medicines, at a time of exploit this interest by using every possible increased international tensions. means to connect with its citizens, from school campaigns and expert panels to prime time TV While restrictions on travel will ease as the and town hall meetings. This should be part of pandemic recedes, the wider debate on the the Union’s DNA in the years to come. role of the EU in times of crisis will not. The Commission is considering setting up a Health A more obvious but less serious problem Union, to deal with public health emergencies is the conference’s complicated governing better, for example, by jointly developing structure. An executive board made up of vaccines. Such a union would take health representatives of at least six EU institutions will competences away from member-states, which decide how the conference will operate and would, in turn, require treaty change. If the oversee its work with the help of a common recovery fund works, EU governments may be secretariat. The conference plenary, consisting willing to make it permanent and to overhaul of representatives of parliaments, citizens and the Union’s debt and deficit targets. This too, the EU institutions, will meet every six months will require rewriting the treaties. to discuss the ideas put forward by citizens. The leaders of the Commission, the European Beyond the pandemic, the EU may want to Council and the European Parliament will jointly rethink other issues that matter to citizens. preside over the conference. If that sounds like According to EU polls, a large majority of too many cooks, that’s because it is. But this Europeans want the EU to have a common need not be an issue. The problem is not how foreign and security policy. But the EU often many presidents the conference has, or even finds itself paralysed because one country can who gets to lead it. The problem is whether veto common action. Changing this would or not the governing structure, however require a unanimous decision of the European abstruse it may be, will be able to spot the Council. Similarly, the conference could help most important issues for citizens, and crucially, with another complex matter: how to run the do something about them. Previous soul- 2024 European elections. While voter turnout searching attempts, like former Commission in 2019 was the highest since 1994, the result President Jean Claude Juncker’s white paper on satisfied no one – EU leaders ignored the the future of Europe, failed because, ultimately, Parliament’s lead candidate system (whereby nobody was responsible for addressing the the candidate of the party with the most seats problems identified. should become Commission president) but ended up with Ursula von der Leyen – no one’s To be successful, or at least, credible, the first choice. conference should consider all the available means to act on citizens’ concerns, including, Changing the treaties – or even tweaking some possibly, treaty change. Most EU governments rules – will not be easy. But if doing so would do not want to risk changing the treaties, which make the EU more effective, then EU leaders would require unanimity and referendums should not waver. After months of a trying in several countries. That is a legitimate health and economic crisis, EU citizens could concern, as EU leaders fret about mounting be forgiven for wondering what the value of euroscepticism – and reopening the treaties the EU is. The conference should help to answer may cause serious political crises in countries that question. with EU-hostile governments. But leaders should not shy away from treaty change. The COVID-19 pandemic has shaken the continent in previously unthinkable ways. For the first time, the EU negotiated a deal with vaccine makers on behalf of its member- states. To weather the economic crisis, the Camino Mortera-Martinez Senior research fellow, CER @CaminoMortera Can the EU set a global rulebook for Big Tech? by Zach Meyers

The EU is angling to set a rulebook for digital markets which could be adopted around the world. To achieve this, its draft regulations need improvement.

The EU has a renowned ability to leverage its both sides of US politics. Many Republicans market size in order to influence regulatory were outraged by President Trump’s ban from standards beyond its borders – the so-called Twitter and Facebook; many Democrats believe Brussels effect. For example, the US is now closer that digital platforms have tolerated and even than ever to adopting a comprehensive federal encouraged the dissemination of right-wing privacy law, demonstrating the global influence misinformation. These concerns have contributed of the EU’s General Data Protection Regulation. to a growing belief that Big Tech is too powerful The EU now wants to set global standards for and unaccountable. In October 2020, the US digital platforms such as Facebook and Google, House of Representatives’ antitrust subcommittee to make the markets they operate in fairer and proposed the potential break-up of some firms. more contestable. Digital markets may well be Both Republican and Democratic subcommittee susceptible to the Brussels effect: many countries members agreed that tech giants had acted are considering new regulations, and the large anti-competitively. technology firms that operate globally do not want regulatory fragmentation. But the Union’s In the meantime, competition authorities and attempt to develop and export its digital rulebook policy-makers elsewhere have taken up the case will require refinement if it is to succeed. against Big Tech. Regulators in Australia, Japan, Mexico and India have conducted studies critical Previous EU antitrust cases against American tech of large digital platforms. Chinese authorities have giants and its proposals for regulation caused also begun taking action against the country’s transatlantic tension. The Obama administration own large digital firms. viewed large American tech firms as national champions. President Trump was also critical of Despite the growing global consensus, few the EU’s attempts to discipline them: “Your tax countries have yet formulated precise proposals lady, she hates the US”, he said of competition to address the problem. President Biden has commissioner . However, appointed antitrust scholars renowned for their the academic and political consensus in the US criticisms of Big Tech to his administration, but has now shifted towards the European position. a detailed policy is yet to emerge. Competition In 2019, an influential report by the US’s Stigler authorities around the world have launched Centre confirmed many of the EU’s concerns. antitrust proceedings, but these will be case- Since then, large technology firms have alienated specific. The UK has well-developed thinking, but [email protected] | WWW.CER.EU CER BULLETIN ISSUE 138 | JUNE/JULY 2021 not yet published draft legislation for its proposed one business model in Europe, and a different regulatory framework. model in the rest of world.

The is therefore leading the The DMA is better than proposals – many, world, having drafted a Digital Markets Act (DMA). ironically, emanating from the US – which call for The DMA would set a rulebook for the largest tech large technology firms to be ‘broken up’. Under the firms, requiring them to change their business DMA, the Commission could only break up a firm models in various ways. The rules are intended in extreme cases, after repeated non-compliance. to ensure fairness for businesses which rely on This reasonable approach should make the DMA the largest tech firms, and also intend to give more acceptable to mainstream political thought potential competitors more chance of success. in the US and elsewhere. Other parts of the DMA, however, could cause conspicuous harm to Several aspects of the DMA suggest the consumers and reduce competition. For example, Commission wants to introduce it quickly, many consumers value Apple’s tight control over ensuring that the law is implemented before other which apps run on iPhones, and consider that jurisdictions have finalised their own proposals. this control delivers greater security; consumers First, the Commission wants the DMA to come are free to choose a more ‘open’ ecosystem on into force in 2022 – an ambitious timetable by EU Google’s Android phones. The DMA could force standards. Second, the Commission has designed Apple to relinquish this control. That would a streamlined process for identifying the digital remove an important competitive differentiator platforms (referred to as ‘gatekeepers’) which will between Google and Apple’s businesses. Other need to follow the new rulebook. The process countries might not accept a regulatory approach relies on simple criteria and tries to avoid detailed which limited consumer choice in that way. Apple analysis. Third, the DMA bypasses the normal steps would probably limit its compliance to Europe, used in most models of economic regulation. For rather than voluntarily changing its business example, the DMA imposes an initial set of rules model on a global scale. MEPs should therefore on all gatekeepers, without careful analysis and add more flexibility to the DMA’s rules to avoid this. consultation about which are appropriate for each gatekeeper’s particular business. Some MEPs are also proposing to restrict the DMA’s application to just a handful of gatekeepers. The desire for speed is understandable: the This would be double-edged: such changes Brussels effect could deliver important benefits would make the DMA more targeted, but also for Europe. If the EU’s regulatory standards were risk ensuring that the only gatekeepers were adopted in other countries, or voluntarily adopted American – an outcome which could reignite by large technology firms on a global basis, EU transatlantic tensions, and therefore make other digital businesses could expand globally more countries less willing to follow the EU. The EU easily. They would know they could rely on the could more easily justify all gatekeepers being same rights when dealing with large technology American if the DMA focused on one category of firms outside the EU as they enjoy inside the EU. business, such as Facebook and Google’s digital advertising; that would look more reasonable The EU cannot simply act quickly and unilaterally, that regulating a larger number of firms which all however, if it wants its rules to be adopted happen to be American. That would also bring the elsewhere. The proposed rules must be DMA closer to the UK’s approach, which would comprehensive within Europe – the EU must have other advantages: the UK has a significantly dissuade member-states from ‘supplementing’ the larger number of successful digital businesses DMA with their own national laws, as Germany has than the EU, so if new regulation delivers benefits done. The rules need to produce visible benefits to digital businesses, those benefits might be for European consumers or businesses – and avoid readily observable in the UK. Foreign – especially any obvious negative consequences – so that American – lawmakers might be more easily consumers and lawmakers elsewhere demand persuaded to copy the EU’s rulebook if the UK and the same outcomes. Finally, the rules need to be EU were already aligned. cost-effective – so that large technology firms (and foreign law-makers) see sense in avoiding the costs The Commission has the opportunity to set a of operating different business models in different global standard that works for Europe. But care, regions. The EU has not always achieved these not just speed, is necessary to prepare a rulebook objectives. For example, the Union’s requirement that other countries will follow. that payment card companies separate different parts of their businesses imposed large costs, provided little benefit to competition and failed to Zach Meyers gain global traction. Card companies now operate Research fellow, CER @Zach_CER [email protected] | WWW.CER.EU CER BULLETIN ISSUE 138 | JUNE/JULY 2021

CER in the press

The Guardian hinders their ability to of Brexit” assessment that our overseas territories, it’s 25th May use tax policy to attract UK trade was taking an hugely damaging,” he said. The slump in UK-EU goods investment,” said Zach additional hit, on top of the trade this year shows the Meyers of the CER. 10 per cent reduction in UK impact of Brexit, [tweets] exports relative to what they 17th April John Springford of the CER: The National would have been since the “They [the German Green th “The ONS: trade in goods 13 May 2016 referendum. party] want a world without with the EU down 23 per Luigi Scazzieri of the CER nuclear weapons, but cent in the first quarter of says a Turkey-style deal was The Telegraph acknowledge that it will take th 2021, compared to the first out of the question because 19 April time to get there – they’ll quarter of 2018. That accords it would involve housing Sam Lowe of the CER, says first have to find other ways with my estimate – Brexit migrants in Libya. “The way businesses are caught to reassure eastern and has reduced total UK trade the deal with Turkey works is between tough regulations central European partners,” by 11 per cent (both with EU that migrants and refugees and unmanageable costs. said Sophia Besch of the CER. and the rest of the world).” who arrive in Greece and did “Lots of companies are still not qualify for asylum were struggling because they The New Statesman BBC News returned to Turkey,” he said. can’t get advice. They can’t 16th April nd 22 May get customs agents to do it Against a backdrop of “Imports into Northern Financial Times for them. They’re struggling pandemic, climate crisis th Ireland can only make use 9 May to provide the necessary and favourable shifts in the of the UK's trade deals if “[The Madrid election] information, or they just party-political landscape, the difference between the was an election fought in can’t take on the additional the circumstances have applied UK tariff and the bars,” said Camino Mortera- cost when it comes to never been as ripe for it: applied EU tariff is less than Martinez of the CER, who trading with Europe.” “This could be the chance 3 per cent of the value of thinks it would be hard for the Greens to take the the goods,” said Sam Lowe of to replicate elsewhere in The Sunday Times chancellery,” asserts Christian th the CER. Spain, let alone in Europe. 18 April Odendahl of the CER. “The stance Díaz Ayuso Another British error was Public Finance Focus took completely destroyed allowing “Londongrad” to The Economist th 20 May party lines. It was borderline be corrupted by its embrace 3rd April “The OECD proposals will populist if not populist of new wealth from Russia, While in America gross fixed probably not eliminate altogether.” heedless of the criminal capital formation grew by tax competition between and KGB forces behind it, just under 1 per cent a year in member-states, so some The Times according to Ian Bond of 2016-20, in Europe it shrank, th member-states will probably 28 April the CER. “We have allowed according to an analysis by continue to hold out on John Springford of the a kleptocratic system to be Christian Odendahl and John an EU-wide proposal that CER estimated in his “cost run through our real estate, Springford of the CER.

Recent events 19 May 12 May 5 May Bruegel/CER/Elcano Royal Institute/ISPI Webinar on CER/AIG webinar on T20 webinar on 'The future UK-EU relationship: An Irish 'Forging a middle way: How can the EU 'After COVID-19: A most wanted recovery' perspective' navigate the US-China digital divide?' Speakers: Franco Bruni, Paul De Grauwe, Speaker: Thomas Byrne Speakers: Aynne Kokas, Maria Demertzis, Elena Flores, Christian Caroline Meinhardt and Alexander Roth Odendahl and André Sapir 10 May CER/Clifford Chance webinar on 18 May 'Curbing Big Tech? How the EU should Webinar on regulate gatekeepers' 'Securing Europe's economic recovery' Speakers: Isabelle de Silva, Andreas Speaker: Céline Gauer Mundt, Pedro Rodrigues Duarte and Andreas Schwab

For further information please visit www.cer.eu