Germany’s six months at the helm of the rotating European Union presidency will end in December. Climate change, Next Generation Fund, Rule of Law: Europe’s only superpower tries to do some very heavy lifting. Perhaps too heavy.

The EU is attempting to put final touches on three mega-projects, all of a transformative nature. A carbon-neutral transformation of economy, the “Next Generation Fund” (NGF) to deal with the economic fallout of the coronavirus crisis, and the introduction of a “Rule of Law” (RoL) mechanism all have the potential to fundamentally change the character of how the EU works. They are all intertwined, all politically problematic, and all difficult to agree on.

No wonder then that all eyes are on Germany. Europe’s only superpower assumed the rotating EU presidency on 1 June 2020. In the six months that will end on 31 December, Chancellor Angela Merkel would like to solve all three problems (and many smaller ones as well). If she succeeds, it may define her political legacy as “Climate Chancellor”, saviour of the European economy, and last but not least as Europe’s champion of “democratic values”. Expectations are high. Even more so as another German, and close Merkel ally, Ursula von der Leyen, is at the helm of the European Commission. That combination has some clout. But the going is rough. On all three fronts, progress is fast by EU standards, but too slow to easily fit into the six-month timeframe of the German presidency.

Let us begin with the climate change dossier. In 2014, the EU set an ambitious goal to reduce carbon emissions by 40 per cent by 2030, compared to the levels measured in 1990. Only recently did member states finalise implementation plans in order to achieve that aim. But suddenly, the EU Commission is trying to move the goalposts and declare a new, far more difficult goal of 55 per cent lower carbon emissions by 2030. The European Parliament, not to be outdone, has demanded an even bigger reduction of 60 per cent.

Attila Steiner, Hungarian State Secretary at the Ministry of Justice and responsible for EU affairs there, called this “planning chaos”¹: “The Commission has not even provided a detailed impact study, breaking down the numbers for each member state”, he pointed out at the beginning of October, “yet members are expected to commit themselves to the new carbon reduction goals”. Poland and the Czech Republic, which largely rely on coal to generate energy, have refused to accept the new plans. Eleven countries, however, did sign a common declaration supporting the new benchmark. At the EU summit meeting in mid-October in Brussels, Chancellor Merkel managed to sound ambitious while remaining cautious: she declared support for the new goal of 55 per cent, but did not sign the declaration of the eleven countries who favour this aim. Some of those countries, Steiner pointed out, have not much more than words to show when it comes to reducing carbon emissions. Spain, he argues, has actually increased its emissions, “yet it demands even bigger reductions”. As it stands, the matter will be discussed again at the next summit in December. If member states come to an agreement there, Germany can claim formal success – while kicking the can down the road to the Portuguese and Slovenian EU presidencies. That is where details would then need to be negotiated. And the devil, as the saying goes, is in the details. A wiser decision might have been to just stick to the original 40 per cent and get a manageable implementation plan under wraps.

All of this is tied to the discussions about the next EU budget/Multiannual Financial Framework (MFF) and the Next Generation Fund (NGF), a EUR 750 billion rescue package to salvage Europe’s economies from the effects of the COVID–19 pandemic. “Green” investments are to be a key factor for distributing these funds. The goal of a carbon neutral economy in itself is deeply transformative. It would require profound changes in the way industry works, and even in our private lives – less and more expensive travel, less and more expensive meat consumption, to name just a few. Then there is the question of what this would do to Europe’s competitiveness compared to China and the USA.

The NGF introduces another transformation: common debt. The EU as such would borrow money on financial markets, and this would be guaranteed by the member states. Yet these very same states would need to adhere to RoL conditions if they are to receive any of this money. Common debt and a political tool to enforce a streamlining of the inner workings of EU members: this combination could be a first step towards something that resembles a federal state more than a voluntary cooperation of sovereign nation states.

However, this will not come about easily. The so-called “frugal five” northern EU members, led by the Netherlands, do not like the idea of common debt. Nor do they like the idea of giving some of it away for free to what they deem “irresponsible spenders” in the south of Europe – especially Italy. Politically, it is unwise for them to say that. It goes against the mantra of EU “solidarity”. Instead, they demand a RoL mechanism so harsh that it is impossible for some of the countries of East Central Europe to accept it.

Poland and Hungary in particular sense that such a mechanism could become an instrument to pressure any government that criticises the EU. In other words, a political weapon pointed at them. They insist that there can be no “RoL” conditionality without a change of the Lisbon Treaty, because that treaty – the legal foundation of the EU – does not contain any other RoL mechanism than Article 7. And Article 7 states that sanctions against member states can only be decided by consensus in the European Council of the Heads of Government. Then there are the southern EU members. They need and want the money, and are angry at the northern and eastern states for slowing down the process.

In addition, the European Parliament and the European Council both seem intent on expanding their influence. In a sense, this is the real battle: an attempt to transfer the RoL dossier from the authority of the Council (and thus from the member states, per Article 7) to that of the Commission and/or Parliament. This was the aim of the original Commission proposal in 2018, which the Parliament has endorsed: if the Commission decided that a member state had “general deficiencies” regarding EU fundamental values – a formula that is impossible to define and easy to weaponise – then funds would be cut. The member state could only block this with a “reverse majority” of 15 states in the Council.

Northerners, Southerners, Easterners, Commission and Parliament: in the midst of this circus, the German presidency has tried to come up with a magic solution. It first brokered a compromise in July 2020 which seemed to but did not explicitly contain a binding connection between RoL and sanctions. It did say that the Council would “return to the matter”. Then, on 28 September, the Germans tabled a new text and had it passed in the Council of Permanent Representatives, where a qualified majority sufficed. This version contains a “mechanism” which limits sanctions to financial misdeeds. No sanctions, then, if member states, for instance, harass the media or NGOs, but do not hurt the financial interests of the EU.

This was de facto the Hungarian and Polish position. Also, instead of a “reverse majority” to block sanctions, the proposal instead states that a majority of 15 states is needed to decide sanctions, which is more difficult. This should please Poland and Hungary. But the text also contains a semantic connection between RoL and “sanctions”. And with that, it became taboo for Warsaw and Budapest. Why? Because it opens the door to more political amendments later.

A so-called “trialogue” went on for weeks between Parliament, the Commission and the Council (under the current German Presidency). Green MEP Daniel Freund, who took part in the negotiations, claimed that “it is as if (Viktor) Orbán were sitting at the table, although his name is never mentioned”², and accused the German presidency of acting in defence of Hungary’s interests. That was probably true, as seen from Berlin – but in Budapest, the feeling was that the Germans were forcing a solution that Hungary does not want. “We could always rely on them in this matter, but not anymore”, one source told this author. Another called the German proposal “helpful”, but stated that Hungary needed to oppose it out of principle.

Finally, on 5 November, the three sides agreed to a compromise that media were quick to celebrate as a breakthrough. It contained one substantial change, to appease the European Parliament: sanctions could now be decided if a country's judiciary was deemed to not be sufficiently independent. This is something difficult to pin down and opens the door for political manipulation. Hungary's Prime Minister said as much in a letter he immediately sent to EU leaders. In it, he threatened to veto the whole MFF/NGF budget once it comes to a final vote in the European Council. Hungary and Poland have stated that they will accept no RoL mechanism, in relation to the budget, and in fact, Hungary legally cannot do so. Its Parliament has voted to refuse any such solution. In turn, EU Parliament, which also needs to vote on it, may refuse it if it does not contain such a mechanism.

So there we are. Germany is running out of time to secure success in three key projects of its EU Presidency: carbon emissions, MFF/NGF and RoL. It will all come down to the final two weeks of the year. Meanwhile, it might be wise to think about emergency plans for the most seriously hit countries in the coronavirus pandemic, in case there is no compromise. German commentator Alan Posener, a self-described leftist/liberal, has a good idea: “Give them the money, and let’s talk about the Rule of Law later.”³

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