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DRIVING THE DAY: GERMANY ENTERS RECESSION
BERLIN FACES BUDGET CUTS AMID ECONOMIC DOWNTURN: The EU’s largest economy has tipped into recession — and the effects are likely to bleed across borders. The downturn will worsen squabbling not just in the domestic ruling coalition, but across Europe if other countries are pulled into Germany’s wake.
What happened: Gross domestic product dropped by 0.3 percent in the first quarter of the year following a 0.5 percent drop in the fourth quarter of 2022. The definition of a recession is two consecutive quarters of economic contraction.
Reacting to the news, German Chancellor Olaf Scholz put on a brave face, saying the outlook for his country was “very good.”
But others disagree, including in Scholz’s own coalition. Economy Minister Robert Habeck warned earlier this week that an unfavorable outlook means Germans will have to brace for tough budget cuts of up to €22 billion next year.
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Now read this: My colleague Hans von der Burchard in Berlin reports the downturn “will only add to mounting fights within the ruling coalition, most recently over a contentious ban on oil and gas heating in homes that has pushed Germany to the brink of a government crisis.” Seen from Brussels, this means Berlin is likely to become even more indecisive and slow-moving on big EU policy questions.
That’s not all. Germany’s downturn, driven by low consumer spending and cost-of-living concerns, is likely to drag on neighboring countries in Central Europe, eastern France and parts of Italy, said Stéphane Colliac, a senior economist with BNP Paribas bank.
Lowering all boats: “What Germany has in common with the rest of the eurozone is the impact of rising interest rates,” said Colliac. “The cost of borrowing is going up in all these countries and this is dampening the investment outlook because it’s happening at the same time as a drop in demand.”
Downgraded forecast: Asked about the impact of Germany entering recession on the wider eurozone economy, a spokesperson for Paolo Gentiloni, Europe’s economy commissioner, wrote in: “All things being equal, this implies that the yearly growth rate for 2023 for the euro area and EU as a whole would be very slightly lower than projected in the spring forecast.”
SECURITY BREACH: Scholz’s security detail made an embarrassing blunder on Thursday that allowed a stranger to approach and lay hands on the chancellor — before the bodyguards finally realized the security breakdown. The man joined Scholz’s motorcade and even passed through Frankfurt airport’s security barrier despite his unregistered license plate.
Fortunately, all the man did was give Scholz a hug. Perhaps he’d heard about the recession. Bild has the story.
PUSH TO CANCEL HUNGARY’S EU COUNCIL PRESIDENCY: The European Parliament will soon come forward with a proposal to further sideline Hungary over rule-of-law issues — canceling its presidency of the European Council, which Budapest is scheduled to take over in the second half of 2024.
Or else … According to a draft resolution seen by Playbook, due to go to a vote on June 1, the Parliament questions Budapest’s ability to hold the EU’s rotating presidency in light of its Article 7 proceedings. If the Council fails to act on Budapest’s presidency, Parliament warns it would take “appropriate measures,” the draft reads.
If that sounds vague, it’s because the key line was diluted during talks between political groups in Parliament.
No easy way: “It’s vague because I’m working collaboratively and I want to have as wide a majority in Parliament as possible,” said Gwendoline Delbos-Corfield, the French Greens lawmaker who worked on the resolution. “The answers to the challenges posed by Hungary aren’t simple — they aren’t spelled out in our texts.”
Quite right. The Article 7 procedure initiated against Hungary doesn’t spell out what measures can be taken to bring a rebellious EU country to heel, short of suspending its right to vote in the Council. Brussels has shown creativity by withholding EU funds from Budapest in exchange for judicial reforms, but other avenues remain unexplored, said Delbos-Corfield.
Bully pulpit: Holding the EU presidency — even if it’s after the European Parliament election — would grant Hungary a platform at a time when it’s in open conflict with Brussels, a non-starter for Delbos-Corfield. “Hungary would be speaking on behalf of 27 member countries, when we know what they say about migrants and LGTBQ rights,” she said. “It’s time to look closely at the presidency.”
What triggered the move? Partly the fact Hungary has used an EU law on whistleblowers to stigmatize LGBTQI+ parents, inviting “whistleblowers” to denounce them to authorities. “This is another step down the authoritarian path,” added Delbos-Corfield. “This society, which encourages telling on your neighbors, is a Putinist society.”
Nothing to see here: Critics were quick to dismiss the resolution as a mere “signal” from Parliament, which has no power to force the Council’s hand. And Delbos-Corfield said parliamentary groups had stopped short of threatening a boycott of the Hungarian presidency.
De-po-ten-ti-ate: But supporters said there were options for “canceling” the Hungarian presidency — for example by having Belgium and Spain, whose presidencies precede Hungary’s, “depotentiate” Budapest’s presidency by banning it from hosting any meetings having to do with rule of law. “This would go down in history as the first depotentiated presidency of the Council,” wrote Alberto Alemanno, professor of EU law at HEC business school.
Another option: A full suspension of the Hungarian presidency with Belgium and Spain splitting the Hungarian’s six months into two, meaning their presidencies would last nine months each.
Wake-up call: “This unprecedented threat to the Hungarian (and Polish) government(s) may prompt a badly needed political and legal debate over the conditions under which the EU may accept rebellious member states within the Union,” Alemanno added in an email to Playbook.
Guess who’s due to take the presidency after Hungary? Yep, it’s Poland.
CHINA SENDS WARNING ON VDL’S PLANNED SCHEME: China has doubled down on its skepticism of EU Commission President Ursula von der Leyen’s (anti-China) Economic Security Strategy, which she’s set to elaborate on by late June, Stuart Lau writes in to report.
Old wine, new label? “The G7 suddenly stopped talking about ‘decoupling’ and instead used ‘derisking’ in [the G7 meeting in] Hiroshima … it’s only by suppressing China that their risks could be avoided. This is a massive risk in and of itself,” China’s state news agency Xinhua said in a commentary overnight. “It’s merely old wine in a new bottle … In nature it’s still decoupling, despite the fact that [de-risking] is a more deceiving description.”
EU MEETS CHINA ENVOY: China’s special envoy on the Ukraine war, Li Hui, was in Brussels on Thursday meeting European External Action Service Deputy Secretary General Enrique Mora, who welcomed the visit “although it comes more than one year after the start of the illegal Russian aggression,” according to the EEAS.
CHINESE INFLUENCE GROWING: Meanwhile, China has been stepping up its efforts to influence European policy and public opinion, according to a special adviser to the Commission. Ivana Karásková, a Czech academic and foreign influence specialist who advises European Commission Vice President Věra Jourová, cited direct propaganda via so-called wolf warrior diplomats as well as covert funding of think tanks, academic institutions and nonprofit organizations.
Western Europe drops the ball: Countries in Eastern Europe are more adept at spotting the propaganda attempts due to their experience dealing with Russian interference, said Karásková. However, “the whole of Western Europe is not looking. And yet there are cases that are so blatant.” Read more in my article with Ketrin Jochecová.
Further listening: Hear more from Karásková in this week’s EU Confidential podcast.
IN OTHER NEWS
CHARLES MICHEL’S CARBON FOOTPRINT: European Council President Charles Michel is vying to keep greening his image with a scheme increasingly criticized as greenwashing. The Council wants to cancel its airborne carbon footprint by supporting carbon-reducing projects elsewhere.
Offset, shmoffset: Doubts increasingly plague the concept of carbon offsets — commodities meant to represent carbon avoided or absorbed from the atmosphere — as mounting investigations show their contribution to reducing carbon emissions is largely exaggerated. More here from Nicolas Camut, Federica Di Sario and Mari Eccles.
Context: Following Playbook’s report Thursday about Michel’s flying habits, the Council got in touch to say that the Belgian politician had requested that, as of 2021, the emissions of his air taxi flights be offset by carbon credits and, as of 2022, the emissions of all his flights be offset. The Council spokesperson also defended Michel’s use of an “air taxi” (private jet, to you and me) to travel to Paris in December 2019, saying strikes made travel via train too difficult. They justified the air taxi flights to Egypt and Scotland for climate conferences by saying the trips comprised several legs and that Ursula von der Leyen joined him.
KAILI’S BACK: Eva Kaili, one of the main suspects in a cash-for-influence corruption probe at the European Parliament, is no longer under house arrest. Pieter Haeck has more.
HAPPENING THIS WEEKEND — SPANISH LOCAL ELECTIONS: When Spaniards vote in local elections this Sunday, they’ll be participating in what is being seen as a dress rehearsal for the national election, which has to be held by the end of the year. And while Socialist Prime Minister Pedro Sánchez won’t be on the ballot, he might as well be, writes POLITICO’s Aitor Hernández-Morales in his curtain-raiser.
SUPPORT FOR NATO AND EU INCREASING SINCE 2022: Support for EU and NATO membership has grown in eight Central and Eastern Europe countries since Russia’s full-scale invasion of Ukraine — including Hungary, according to a new report by the GLOBSEC think tank previewed by Playbook.
Key findings: Russia is perceived as a key threat, though respondents are “rather ignorant about [China’s] increasing influence in the region,” the think tank notes. In most countries, respondents rely on NATO and the U.S. as the guarantors of security, with the recognition of Washington’s role having surged substantially since the war. Most people also support economic sanctions against Russia, but there is no majority support for LGBTQI+ rights in Romania, Slovakia, Lithuania and Bulgaria.
EPC PREP GEARS UP: It was a full house at the Czech Permanent Representation in Brussels Thursday evening for the launch of a new study by the Brussels Institute for Geopolitics on the European Political Community, Suzanne Lynch writes in to report. The new think tank, headed up by Luuk van Middelaar, Hans Kribbe and Sébastien Lumet, launched on the fringes of the inaugural EPC summit in Prague last October. Now it’s back with a study on the EPC ahead of next week’s summit in Moldova, which will be attended by 47 leaders from the greater European area.
Returning to Europe’s roots: Van Middelaar, a Dutch historian and former member of Cabinet for Herman van Rompuy, the first European Council president, explained why he thinks the European Political Community, the brainchild of French President Emmanuel Macron, is, on balance, a good thing: “It may not have issued a single statement, or delivered tangible measures, but it would be a mistake to dismiss it as irrelevant,” he told POLITICO. Instead, he argued that the EPC is a return to an older idea of Europe, one that pre-dates structures like the EU or Council of Europe. “These countries are united by the fact that they share a common territory. It’s not about the EU. It’s about Europe the continent. In that sense it is rediscovering a past idea.”
PORTO SOCIAL FORUM: Ministers of social affairs, employment, health and officials from the social policy bubble are gathering in Porto today and on Saturday for a biennial Porto Social Forum to explore the social dimension of EU governance. Among topics discussed will be combating homelessness and youth unemployment.
FRIDAY FEATURES: Paul Dallison’s latest Declassified humor column is out, irresistibly headlined: “Up yours! When politicians give the middle finger.” And on this week’s Westminster Insider podcast, Ailbhe Rea takes us inside the art of the political interview.
TWITTER SPACE: To mark the launch of our new Central Banker vertical — which is going live on Tuesday, the eve of the ECB’s 25th birthday! — we’re taking to Twitter for a Space diving into the far reaches of the U.S. debt ceiling crisis and its likely impact on Eurodollar markets.
The line-up: POLITICO will be joined by special guests including former Pimco boss Mohamed A. El-Erian, the Peterson Institute for International Economics’ Nicolas Véron, and global liquidity plumbing expert James Aitken. Our Editor-in-Chief Jamil Anderlini will be kicking off the festivities, before our Senior Finance Editor Izabella Kaminska grabs the mic (or, phone). Set a reminder and join us here on May 30.
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— New European Bauhaus Collateral Event at the 18th International Architecture Exhibition of Venice Biennale continues. Opening speech by Commission President Ursula von der Leyen at 11:10 a.m.; dialogue between von der Leyen and the Biennale curator Lesley Lokko at 11:30 a.m.; closing speech by Commissioner Elisa Ferreira at 5 p.m. Watch.
— Porto Social Forum. Among participants: Prime Minister of Portugal António Costa, Director General of the International Labour Organization Gilbert Houngbo, Commissioners Nicolas Schmit and Elisa Ferreira, Ukrainian Minister of Social Policy Oksana Zholnovych; most EPSCO ministers. Agenda.
— European Parliament President Roberta Metsola in Vienna, Austria. Meets Foreign Minister Alexander Schallenberg at 9:30 a.m. … meets President Alexander Van der Bellen at 10:15 a.m. … attends inauguration of the Europa Experience Space at 11 a.m. … meets Chancellor Karl Nehammer at 1 p.m. … meets Federal Minister of Europe and the Constitution Karoline Edtstadler at 1:45 p.m.
— Commission Executive Vice President Frans Timmermans is in New Delhi, where he’ll meet with government representatives, stakeholders and civil society to prepare COP28 U.N. Climate Change Conference.
— Alliance of Liberals and Democrats for Europe (ALDE) annual congress in Stockholm. Commission Executive Vice President Margrethe Vestager and Commission Vice President Věra Jourová speak at the event. Watch.
— High Representative Josep Borrell is in Havana for EU-Cuba Joint Council. He’ll release a joint press statement with Cuban Minister for Foreign Affairs Bruno Rodríguez Parrilla.
— German Chancellor Olaf Scholz travels to Tallinn, Estonia. He’ll meets Prime Minister Kaja Kallas, Lithuania’s President Gitanas Nausėda and Latvia’s Prime Minister Krišjānis Kariņš.
20KM BRUSSELS: Around 40,000 people will gather in the Cinquantenaire Park on Sunday to attend the 20km de Brussels, one of the city’s biggest annual sports events. Some bus and tram lines will be disrupted. Detailed information via STIB.
Controversy: The race is again drawing fire from environmental organizations over its partnership with French oil company TotalEnergies. And Brussels Climate and Sports Councillor Benoît Hellings told Playbook’s Ketrin Jochecová: “My goal is to make the biggest sports event in Brussels green. It can’t be green if one of your sponsors is selling fuel.” Environmental organizations, including Greenpeace, are preparing a protest during the event to denounce the sponsorship.
Nothing to see here! “TotalEnergies has been a partner of the race for 20 years. I am not their spokesperson, but they also have projects for the climate,” Secretary-General of the Initiative Syndicate of Brussels Promotion Carine Verstraeten told Playbook, echoing lines oil industry spokespeople like to use. “We should also focus on what good effects this event has.”
LANGUAGE SPAT IN FLANDERS OVER ROAD SIGNS: Belgium’s language fracas has a new victim: a motorway. Some of the names of cities on the road signs on the recently renovated Antwerp-West interchange were changed to French from Flemish, despite lying within Flemish territory. As a result, four of the road signs pointed to the cities of Liège and Namur, instead of Luik and Namen.
A big deal? It is to Flemish Mobility Minister Lydia Peeters! “The language legislation is there to be respected. I am therefore asking that the signs at the new Antwerp-West interchange be modified to bring them into line with the language law. So it will be Luik and Namen again,” she tweeted. The federal law states that official signs must be in the official language of the area they are located in.
How did it happen? The Flemish Highways and Traffic Agency followed its own internal guidelines when designing the road signs, a spokesperson told Ketrin. D’oh.
DUCK PARK OPENS: Pierre Paulus Park, known as Duck Park, reopened to the Saint-Gilles public on Wednesday after almost two years of renovation works. Apart from ponds with no ducks (yet) and waterfalls, there’s a bew playground for children in the park, along with outdoor pétanque areas.
WHAT’S ON THIS WEEKEND: Lotto Brussels Jazz Weekend, a festival that attracts around 300,000 people to Belgium’s capital for free open-air concerts at five major squares. It will run until Sunday May 27 — here’s the program. Also: CORE festival at Osseghem Park with Angèle, alt-J and DJ Seinfeld. More info and tickets here.
BIRTHDAYS: MEPs Emil Radev and Tilly Metz; Former MEPs Claude Rolin, Julia Pitera and Ulrike Lunacek; Former U.K. Labour Party leader Jeremy Corbyn; Senior Policy Manager at DIGITAL Europe Hugh Kirk; Playbook’s own Ketrin Jochecová.
CELEBRATING SATURDAY: MEPs Marie Toussaint, Paolo Borchia, Vladimír Bilčík, Jessica Polfjärd, Elena Yoncheva and Costas Mavrides; Former MEPs Stanisław Ożóg and Kristina Winberg; POLITICO’s Marylise Mahe; Gregg Svingen of UPS; Andrew Overton, an alum of the British Embassy in Washington; Henry Kissinger turns 100; News UK’s Rebekah Brooks.
CELEBRATING SUNDAY: MEP Carlos Zorrinho; Sebastian Fischer of the German Federal Foreign Office; Former MEP David Campbell Bannerman; Former Dutch Foreign Minister Bert Koenders; ACEA’s Erik Postma; Journalist Christof Roche; Secretary-General of the Greens/EFA Group Vula Tsetsi; Greens/EFA Group Press Adviser Alex Johnson; Former BBC News Presenter Tim Willcox; POLITICO’s Ellen Boonen and Roisin O’Hara.
THANKS TO: Playbook reporter Ketrin Jochecová, editor Joe Stanley-Smith and producer Dato Parulava.
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