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Paul Hofhuis Policy Brief Clingendael Policy Brief

This policy brief concentrates on these three back to the European Commission, buying questions, in particular on the potential more time to adjust its position and forge effectiveness of the European Commission’s consensus with like-minded countries. In the proposals in its Next Generation EU meantime, a large majority1 of the European package. It starts with an overview of how, Parliament adopted a resolution, stating that at minimum, the Commission has been ‘the recovery strategy should be based on consistent in advocating a long-term green the principles of economic and territorial recovery. cohesion, social dialogue and transformation towards a resilient, sustainable, socially just and competitive economy, ... calling therefore A green, fossil-free recovery for (European and national) investments to or economy first? be prioritised into the Green Deal, the digital agenda and achieving European sovereignty in strategic sectors, with a consistent In discussions on Europe’s COVID recovery industrial strategy’. over the last two months the focus has been on a short-term ‘economy first’ recovery. In mid-May, the deliberation process within European leaders have argued in particular Member States delivered a French-German about the generosity-versus-frugality issue, proposal for the recovery, and shortly and on whether Member States should thereafter a reactive non-paper, supported by spend the recovery budget first and foremost Austria, Denmark, Netherlands and Sweden. on structural reforms of their labour market, The French-German position chose yet their fiscal and pension system, or the another set of European priorities: resilience, functioning of the rule of law. It appears that convergence, competitiveness. It emphasised the relevance of a ‘fossil-free and green’ ‘the increase of investments in the digital recovery is alluded to mainly in the public and green transition and strengthening debate outside the (virtual) negotiation research and , reaffirming the rooms in Brussels. Green Deal as the EU’s new growth strategy’. A few days later, the so-called ‘frugal-four’ Almost like playing a lone hand, the non-paper focused on European solidarity European Commission has stood out in and resilience, establishing a temporary steadily advocating the urgency of continued (two years) Emergency Recovery Fund aimed priority for its Green Deal agenda as the new at ‘ensuring a green transition that underpins EU growth strategy for 2019-2024. Along the EU’s ambitious climate, growth and that line, the Commission presented a first digital agendas’. In the beginning, most other ‘Roadmap for Recovery’ on 23 April, subtitled Member States in the east and the south ‘Towards a more resilient, sustainable and kept a low profile on the issue, but recently fair Europe’. The European Council did not they became more vocal in opposing the accept this. It chose different wording for green angle of the recovery package.2 labelling the recovery priorities: solidarity, cohesion and convergence, and adopted On 27 May the Commission published a first 540 billion safety net package. its proposal Next Generation EU. The Council called upon the European This repeated the April message that the Commission to ‘…analyse the exact should define the EU (recovery) needs and to urgently come up recovery strategy. The Commission wants with a proposal that is commensurate with to revitalise the Single Market, to guarantee the challenge we are facing’. an economic level playing field and support urgent investments, in particular in the This showed that EU Member States green and digital transitions, which would allegedly could not (yet) identify common grounds for a ‘long-term green’ recovery strategy. Only a few gave the impression 1 505 votes in favour, 119 against, and 9 abstentions. that they had not forgotten their earlier 2 See for instance remarks made by Czech Prime support for a green transition, but the Minister on 17 March 2020 “The Green Deal Should Council as a whole passed that hot potato Be Canceled Because of Coronavirus”.

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hold the key to Europe’s future prosperity players: academic and research institutes, and resilience. On how to achieve this, the suppliers, SMEs and larger companies. Commission was very clear: the spending Building on earlier successes of so-called of recovery budgets, either gifts or loans, ‘industrial alliances’ in batteries, will be guided through the ‘revamped long- and microelectronics, the Commission term EU budget’, in line with priorities of prioritised new alliances on clean the Digital Agenda and the Green Deal hydrogen, low-carbon industries, (renovation of buildings and infrastructure, industrial clouds and platforms, and , renewable and clean raw materials. energy, cleaner and logistics, ), and strengthening This EU Industrial Strategy is a crucial the Fund to help businesses element of the EU Growth Agenda create new economic opportunities. 2019-24, which in turn is transferred ‘one-on-one’ into the Next Generation EU package. As a matter of fact, the Will the greening ambition proposed recovery policies imply a top- of Next Generation EU down picking of winners and subsidising them, directly or indirectly, through be effective? all of the existing EU instruments and mechanisms. Without knowing what priority the Council will give when it meets this summer to the The question is to what extent Member greening of the recovery package, it is States will in the end support (and nevertheless relevant to analyse the context implement) this top-down European in which the European Commission is public influence over the future structure trying to steer the debate on greening the of the supply side of the Single Market. recovery. This policy brief highlights three area of tension in the debate, and focuses in So far, the impression is that Member particular on the potential effectiveness of States in their first crisis policy responses the Commission’s proposals: are mainly focusing on protecting the market position of their own national 1. Public power over market economy industries – either by labelling them with The recovery package includes proposals wording such as ‘our national pride’ for a full-blown EU-wide strategic ­and­/­or ‘indispensable’, or by supporting industrial policy. On 10 March 2020, them with a ‘whatever it takes’ public just before the COVID crisis in Europe budget. Some Member States have truly set in, the European Commission established national strategies, aimed published its new ‘Industrial Strategy for at supporting their own industries a globally competitive, green and digital to develop into ‘Europe’s best’, by Europe’. This strategy set ambitions for competing against European competitors. achieving a twin transition in the Single Examples of this can be seen particularly Market towards climate neutrality and in the transport and mobility sector, digital leadership. To ensure the strategy’s with large support schemes for the success, the Commission advocated a automotive and air transport sectors. familiar3 type of governance: joining the The Netherlands is an example of the forces of businesses within and between latter, in proposals to Parliament from industrial sectors, Member States, the Rutte government, boosting the regions and EU institutions. It aimed Dutch basic industry sector to ‘become to create a new European ‘industrial the number-one place of business in ecosystem’, bringing together crucial Europe’ and ‘to take up a new, leading

3 Compare earlier attempts in the 1980’s and 1990’s.

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role in the greening of (European) An intriguing aspect is the ongoing industry’.4 Admittedly, this Dutch proposal debate between the Commission and underscores the importance of European the on whether the cooperation, but that seems subordinate Commission’s aspiration6 to increase its to the national ambition of becoming #1 guiding power over implementation of EU in Europe. climate policies by Member States are in line with the EU Treaty. Furthermore in this context, remarks can be heard – but as of yet not very The main recovery instrument will loud – that question the effectiveness be the new Recovery and Resilience of top-down industrial public policies in Facility (RRF), specifically designed to general. These remarks mirror classical fund investments and reforms aligned arguments that governments are not able with European priorities. The RRF will to make the right practical choices about be ‘firmly embedded in the European which firms or industries to support, Semester’. Member States will be and consequently, that they will make required to draw up recovery and mistakes and valuable resources. resilience plans as part of their National In addition, these remarks include Reform Programmes, which will need to the proposition that effective industry include investment and reform priorities policies need long-term continuity and related to these strategic recovery that government policy and long-term priorities. It is worth noting that the RFF continuity are by definition contradictory is a one-off instrument, meant to support notions.5 short-term recovery, not a 30-year green transition. In summary, the view on unconditional support for a full-blown top-down Furthermore, the European cohesion European industrial policy seems a little policy instrument will continue to play blurry. In line with that, the effectiveness its role in tackling the most pressing of the present recovery package may be economic and social needs. Here too, the somewhat questionable. Commission’s proposal is to adjust the policy framework to make it more flexible 2. EU power over Member States’ and fully aligned with recovery priorities. policies Next Generation EU includes an overview Regarding the Green Deal priority, the of how the Euro 750 billion recovery Commission has set out an extensive package should be spent, but does not, arsenal of (extra) guiding instruments: however, set out all the details of the New Growth policies. The Commission’s At EU level, it includes integration proposal is to ‘channel the recovery of the UN Sustainable Development funds through the European budget’. Goals (UN SDGs) in the European Spending at Member State level will be Semester, a new environmental guided through existing EU programmes, action programme with a new conditioned by the European strategic monitoring mechanism to ensure priorities of strengthening the digital that the EU remains on track to meet single market, the European Green Deal its environmental objectives, and a and resilience. dashboard to monitor the progress of Green Deal objectives. Also, the Commission will start a debate on how to improve European fiscal governance, by including references 4 See: Kamerbrief met visie kabinet op verduurzaming basisindustrie-2050 (in Dutch). 5 Interview with Dutch Prime-Minister Mark Rutte and economics professor Arnout Boot on Dutch public radio, 29 May 2020 (in programme ‘Met het 6 As included in the EU Climate Law proposal Oog op Morgen’). COM(2020) 80 final 2020/0036 (COD).

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to green public investment in the and implementation of country-specific context of the quality of public finance. recommendations by Member States are This will form a basis for including limited, and have been weakening over ways of treating green investments the years.7 in EU fiscal rules while preserving safeguards against risks to debt Ten years of experience have shown sustainability. that the Semester process is largely dominated by economic policy makers. At Member State level, the amended It is primarily focused on budget discipline ‘green’ European Semester will rather than on adequate addressing of monitor policy progress to put policy integration towards better policy sustainability and the well-being of performance. Greening of the European citizens at the centre of economic Semester has been strongly advocated policy. In particular, it will focus on from the beginning, especially by green implementation of the UN SDGs. In political parties and non-governmental addition, the Commission will use the organisations (NGOs). However, until National Energy and Climate Plans now greening has not reached the (NECPs) instrument to monitor and desired level. An important factor here assess Member States’ performance may be that greening adds complexity in achieving European climate of interpretation and understanding of and energy policy targets, and will the instrument for both authorities and recommend additional measures if the citizens at national and European levels.8 level of ambition is not high enough. One way to solve this could be de-siloing Furthermore, the Commission strives policy development and integrating for a greater use of green budgeting green policies into economic, fiscal and tools in national budgets in order social policies, at both Member State to help redirect public investment, and European levels. consumption and taxation towards green priorities and away from harmful The other steering instrument – the subsidies. The Commission will work NECPs – has existed only since 2019. with Member States to screen and It uses the same cycle as the European benchmark green budgeting practices, Semester of Member States sending to assess the extent to which annual plans to the Commission, followed budgets and medium-term fiscal plans by evaluation and country-specific take environmental considerations and recommendations. The focus of the risks into account, and to learn from NECPs process is the integration of best practice examples. energy and climate policies against the background of European policy Overall, and the ambitions and targets. Like the European NECPs seem to have the most potential Semester, the process is quite complex, as guiding and steering instruments in particular because it deals with the for a green transition. Both already integration of energy and climate policy exist, but will be amended. Other within five sectors (energy, mobility, highlighted instruments are still under food and agriculture, industry, housing). discussion. Questionable is the extent to which Member States will accept the Commission’s ambition to increase its ‘guiding power’ over recovery budget spending, and whether the available 7 Darvas, Zsolt M; Leandro, Álvaro (2015). The steering instruments can be effective. limitations of policy coordination in the euro area under the European Semester. Brussels: Bruegel. 8 Zeitlin, Jonathan; Vanhercke, Bart (2018). So far, the monitoring and especially the ‘“Socializing the European Semester: EU social steering power of the European Semester and economic policy co-ordination in crisis and instrument seem rather unimpressive. beyond”’ Journal of European Public Policy. 25 (2): Evaluations show that responses to 149–174.

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At this time, it is still too early to judge In summary, on this second aspect, the effectiveness of the instrument; the we should not expect too much from first cycle is still ongoing. All Member the practical feasibility of available States sent the first concepts of their instruments and the effectiveness plans to the Commission in December of the proposed policy steering by 2018. They were required to send their the Commission. first final plans by the end of 2019. Luxembourg and Ireland have not as yet 3. The politics of a delivered, while Germany sent its plan The above-mentioned leads our only on 10 June 2020. attention to a third element that could determine how ‘green’ the recovery In the meantime, the Commission has package will be: the political context. evaluated the draft NECPs. Indications The simple argument that before the are that among northwest Member COVID crisis the EU Council (almost) States there is some consistency of reached consensus on the need for ambitions towards European climate and urgency of the long-term Green and energy policy targets. Whether Deal transition no longer seems that is the case in east and south enough. The choice of the European Europe is ‘questionable’. However, the Commission in its Next Generation evaluation shows substantive gaps EU proposals for a long-term vision in policy implementation, particularly with disruptive consequences for the on renewable energy targets and on existing economic structure is politically energy efficiency. The Commission has very courageous, and almost just as emphasised that ‘setting ambitions is unprecedented as the crisis itself. not enough’. Judging from an analysis of recent In line with the above remarks, better media coverage of the crisis recovery alignment of national and European debate, the greening of the EU economy policy development and de-siloing and society towards 2050 does not economic, fiscal and energy policies seem to be a major consideration for might be the keys to enhancing the any political majority, either in Brussels effectiveness of the NECP process. or in national capitals. The key question is to what extent the furious debate on An added complication in the ‘generosity versus frugality’ will leave effectiveness of both Semester and room – in the view of the Commission NECP instruments for the European and the European Parliament – for Single Market recovery is that Member other crucial long-term aspects of States have set out – or are setting out – the recovery strategy, such as the recovery strategies at national level. digital agenda and the Green Deal. Of course, these include setting priorities So far, the signs are not very hopeful. in response to the most urgent national The political energy in the debate in the needs to avoid or diminish short-term European Council seems almost fully economic and social damage. A quick absorbed by negotiations on where scan shows that high ‘green’ ambitions national economic and budgetary self- fade somewhat into the background; determination ends and where the for example, an abasement in planned need for European cooperation begins.

CO2 tax levels in the Netherlands, and It is clear that current domestic political German support for the traditional relations within Member States are car industry. How understandable this playing a crucial role in the debate. short-term oriented national mechanism With 27 opinions, complexity is high, might be, it definitely complicates and even higher due to the dynamics European ambitions to steer the of upcoming general elections in spending of recovery budgets towards seven countries (, Lithuania, long-term strategic priorities that aim to Czechia, Cyprus, Netherlands and disrupt existing economic structures. Germany).

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European Council members will each Strategic issues for the longer term, such have to judge for themselves whether as the Green Deal transition, will probably a Council compromise on the recovery – at best – be part of the compromise, package (and the extended MFF) but only in general terms. Decisive could be supported ‘at home’, and to action on the details of the Green Deal what extent it would serve continuity package, such as the precise definition in support of the political agenda of of the Commission’s steering mandate their own government. More than a few and criteria for determining whether national governments, particularly those Member State investments actually fit with upcoming elections, will need to ‘into EU programmes’, will most likely be take into account societal opposition postponed and/or delegated to Councils forces, not the least of which are the of EU Ministers dealing with the specific nationalistic and EU-critical parties, policy portfolios. some of which are also sceptical about climate policies. It is not that difficult In summary, analysis of the political context to predict that the outcome of the in which the European Council must complex Council negotiations will be a negotiate raises serious doubts about the compromise with remedies for short- effectiveness of the greening ambitions in term crisis issues at Member State level. the Commission’s recovery package.

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About the author

Paul Hofhuis is senior research associate at the Clingendael Institute. Between 2011 and 2015 Hofhuis was counselor strategic foresight at the Netherlands’ Permanent Mission to the in Brussels, in the section for Infrastructure and Environment Policies. Prior to his posting in Brussels – between 1986 and 2011 – he was involved in policy development of the Netherlands’ central government, in several areas (environment, , taxation, mobility, strategic planning). He held several positions (including middle manager, program manager, director and counselor) in The Hague and abroad (Netherlands Embassy, Washington D.C.).

DISCLAIMER: Research for and production of this report was conducted within the PROGRESS research framework agreement. Responsibility for its contents and for the opinions expressed rests solely with the authors and does not constitute, nor should be construed as, an endorsement by the Netherlands Ministries of Foreign Affairs and Defence.