Vulcan Insight | Analysis of the latest EU Developments 13-20 September 2019

Key Events This Week

The week that went from bad to worse for Boris
They say a week is a long time in politics. Well this week must have felt like a lifetime for UK PM Boris Johnson. On Monday Johnson travelled to Luxembourg to meet with European Commission President Jean-Claude Juncker. EU officials present at the meeting describe a “penny dropping moment” when Johnson realised that his plans for common “sanitary and phytosanitary” (SPS) rules on the island of Ireland would not solve the need for customs checks on the vast majority of goods crossing the border.

The aim of the meeting, to falsely show the British public that Brexit negotiations were progressing, dramatically backfired as protesting Britons living in Luxembourg made their dissatisfaction over Brexit heard. The loud chants and jeers of the protestors prompted Johnson to request that the joint press conference with Luxembourg Prime Minister Xavier Bettel be held inside Government buildings at the last minute, rather than outside, as originally planned. Bettel refused and proceeded to do the press conference alone, gesticulating at the empty podium beside him, with all patience and goodwill long gone.

He did not mince his words as he mocked suggestions from Johnson, published in UK papers over the weekend, that progress was being made in the Brexit negotiations and again stated that the UK government needed to lay out – on paper – an alternative to the Irish backstop.

Johnson returned to London where things went from bad to worse. On Wednesday, during a visit to Whipps Cross University Hospital in London, Johnson was angrily confronted by the father of an ill new-born child who told him that the NHS had been destroyed and berated him to coming to the hospital for a press opportunity. Johnson’s rebuttal “Well actually there’s no press here,” led to the father gesturing to the reporters and cameras and saying: “What do you mean there’s no press here, who are these people?”. The encounter was another embarrassing blow for the PM.

While this was happening in London, across the Channel the Prime Minister of Finland — which currently holds the rotating presidency of the European Council — met with French President Emmanuel Macron in Paris. Antti Rinne warned that Johnson had to send concrete proposals by the end of September if there was to be any chance of an agreement when the leaders of the EU’s remaining 27 member states meet in Brussels on 17-18 October. He said that he and Macron agreed that the UK needed to produce the proposals in writing by the end of September, adding if not, “then it’s over”. This seems to have worked, at least partially, as on Thursday the UK government finally submitted a number of confidential technical non-papers to the European Commission outlining for the first time Boris Johnson’s ideas on how to end the Brexit impasse. While the substance of these papers is not yet fully known, EU diplomats have dismissed them as ‘wishful thinking’.

As the Brexit saga rolls on the Irish government is ramping up its preparations for a no-deal Brexit. Government departments are preparing their budgets ahead of Budget day on 8 October with a no-deal scenario very much top of mind. Despite the high likelihood of a hard Brexit, EU officials are continuing to try to secure a deal. Taoiseach Leo Varadkar will meet with PM Boris on the sidelines of the United Nations General Assembly in New York next Thursday in another last-ditch attempt to get a deal over the line.

 

Ireland’s tax policy back in EU spotlight over Apple Tax Case
This week saw a landmark appeal case appear in front of the European Union’s General Court in Luxembourg. Ireland and Apple appealed against a ruling by the European Commission that Ireland had given the technology giant some €13billion in illegal state aid, and ordered that Ireland claim the unpaid taxes. The 2016 ruling by Margrethe Vestager relates to competition policy and contends that a special tax arrangement for Apple was illegal state aid to a private company. According to the European Commissioner for Competition this unfairly distorts competitions between corporations and between countries.

The Commission’s case is that the Irish State gave Apple unfair advantage in two rulings in 1991 and 2007, and that these ‘sweetheart’ deals amounted to illegal subsidies. Under an agreement reached between Apple and the Irish Revenue Commissioners, the company agreed a formula that would pay a tax on profits of its Irish branch. Lawyers for Apple and Ireland have said that Ireland was not entitled to tax over €13billion because of the companies limited sales and distribution activities and no research, development or intellectual property activities in Ireland. They argue that Ireland could only tax Apple on the small part of global profits that were funneled through the branches in Cork, and that the profits in question in the case should be taxed in America. While the US Treasury Department argued that the disputed profits should be taxed in America the EU rejected the US government’s application to intervene in the case.

The outcome of this appeal is likely to have consequences for Ireland, the EU and beyond. Irish lawyer Paul Gallagher told the court that the case has tarnished the country’s reputation. This is of particular importance in the current uncertainty surrounding Brexit, as the country attempts to shore up political and financial support from the EU and its member states. Multinational companies in Europe, including the likes of Nike and Ikea who are currently under formal investigation, will also watch the European Court ruling closely. The Commission has recently lost a number of state aid cases in recent months, including a sweetheart tax deal in Belgium. If the court undermines the case it would be a major blow to Commission, as the ‘fair’ taxation of tech companies has been cited as a top priority by the incoming Commission President.

The panel of judges will deliver their verdict on the decision challenged by Ireland and Apple on 24 September.

 

Former Romanian Anti-Corruption Chief set to become the EU’s chief prosecutor
On Thursday Laura Kovesi received the backing of EU Ambassadors to become the new European Public Prosecutor. The new office of European Public Prosecutor will be tasked with investigating complex fraud cases, including crimes related to the EU budget, tackling corruption and fraud connected to EU funds. To date 22 EU member states have agreed to join the European Public Prosecutor’s Office. Hungary, whose ruling nationalist Fidesz Party is a major critic of Ms. Kovesi, reject the formation of the new office as an infringement of national sovereignty.

Last year the government in Bucharest ousted Ms. Kovesi as the head of national anti-corruption after she oversaw the prosecution of thousands or corrupt politicians. Her nomination will be a blow for the ruling Romanian Social Democrats, with Romanian opposition parties quick to claim credit for Kovesi’s nomination. President Klaus Iohannis, a former member of the opposition National Liberal Party, welcomed the result saying that it was an important victory for Romania. Mr. Iohannis was forced to fire Ms. Kovesi after being ordered to do so by the Constitutional Court at the request of the Minister for Justice.

Her candidacy was stalled earlier this year when, despite having won the backing of the European Parliament, she was opposed by several EU countries, including her own, who supported a French rival candidate Jean-François Bohnert. However, Emmanuel Macron reserved his own decision in July, clearing the way for her nomination. This is seen as part of a strategy to empower liberal groups in central and eastern European members states. It will also make Ms. Kosevi one of the most senior EU officials in the next Commission. Her nomination is a major success for the European Parliament, particularly the European People’s Party and Renew Europe, who supported Kovesi’s candidacy. Supporters will consider this a major win in the fight against authoritarian regimes in central and eastern European states.

The European Council, which previously backed Ms. Kovesi’s appointment to the role, is expected to confirm her appointment over the coming weeks.

Key Dates
30 September: Hearing of European Commissioner for Trade, Phil Hogan
1 October: Hearing for European Commissioner for Agriculture, Janusz Wojciechowski
3 October: Hearing for European Commissioner for the Economy, Paolo Gentiloni
8 October: Hearing for the Executive Vice President of the Commission for an Economy that Works for People, Valdis Dombrovskis
21 – 24 October: European Parliament Plenary Session in Strasbourg