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Von der Leyen calls for unity to get Europe back on its feet

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The EU’s chief executive today (16 September) painted a sober picture of Europe grappling with a pandemic and its deepest recession in its history, but laid out ambitious goals to make the 27-nation bloc more resilient and united to confront future crises, write Foo Yun Chee and Robin Emmott. 

In her annual State of the Union address, European Commission President Ursula von der Leyen doubled down on the flagship goals she set out on taking office last December: urgent action to tackle climate change and a digital revolution. She unveiled a plan to cut the European Union’s greenhouse gas emissions by at least 55% from 1990 levels by 2030, up from an existing target of 40%, and pledged to use green bonds to finance its climate goals.

“There is no more urgent need for acceleration than when it comes to the future of our fragile planet,” the former German cabinet minister told the European Parliament. “While much of the world’s activity froze during lockdowns and shutdowns, the planet continued to get dangerously hotter.”

Von der Leyen also called for greater investment in technology for Europe to compete more keenly with China and the United States, and said the EU would invest 20% of a €750 billion economic recovery fund in digital projects.

Officials said that, far from backing off the plans she laid out at the beginning of her term because of the coronavirus crisis, von der Leyen believes they will be key to Europe’s long-term economic and political survival. The EU has been buffeted for years by crises, from the financial meltdown of 2008 to feuds over migration and the protracted saga of Britain’s exit from the bloc.

Solidarity among the 27 member states frayed badly at the onset of the COVID-19 pandemic, when countries refused to share protective medical kit with those worst-affected and closed borders without consultation to prevent the spread of the virus. The bloc’s leaders also jousted for months over a joint plan to rescue their coronavirus-throttled economies.

But in July they agreed on a stimulus plan that paved the way for the European Commission to raise billions of euro on capital markets on behalf of them all, an unprecedented act of solidarity in almost seven decades of European integration.

Von der Leyen told the EU assembly that “this is the moment for Europe” to trust each other and stand together. “The moment for Europe to lead the way from this fragility towards a new vitality,” she said. “I say this because in the last months we have rediscovered the value of what we hold in common ... We turned fear and division between Member States into confidence in our Union.”

Turning to the troubled talks with London on the future relationship between the world’s fifth-largest economy and biggest trading bloc, von der Leyen said every passing day reduces chances for sealing a new trade deal. She stressed that both the EU and Britain negotiated and ratified their Brexit divorce deal and warned the UK, which has proposed a bill that would breach elements of the pact, that it “cannot be unilaterally changed, disregarded or dis-applied”.

“This is a matter of law, trust and good faith... Trust is the foundation of any strong partnership,” she said. She said EU states must be quicker in their foreign policy to support pro-democracy protests in Belarus or to stand up to Russia and Turkey. “Why are even simple statements on EU values delayed, watered down or held hostage for other motives?” she asked. “When member states say Europe is too slow, I say to them be courageous and finally move to qualified majority voting,” she said, referring to blockages over finding unanimity among the EU’s 27 states.

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Brexit - EU starts infringement process for UK's failure to act in good faith

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As anticipated, the European Commission today (1 October) has sent the United Kingdom a letter of formal notice for breaching its obligations under the Withdrawal Agreement. This marks the beginning of a formal infringement process against the United Kingdom. It has one month to reply to today's letter.

The Withdrawal Agreement states that the European Union and the United Kingdom must take all appropriate measures to ensure the fulfilment of the obligations under the Agreement (Article 5). Both parties are bound by the obligation to cooperate in good faith in carrying out the tasks stemming from the Withdrawal Agreement and must refrain from any measures which could jeopardise the attainment of those objectives.

The UK government tabled the UK Internal Market Bill on 9 September the Commission consider this a  flagrant violation of the Protocol on Ireland Northern Ireland, as it would allow the UK authorities to disregard the legal effect of the Protocol's substantive provisions. Representatives of the UK government have acknowledged this violation, stating that its purpose was to allow it to depart in a permanent way from the obligations stemming from the Protocol.

The UK government has failed to withdraw the contentious parts of the Bill, despite requests by the European Union. By doing so, the UK has breached its obligation to act in good faith, as set out in Article 5 of the Withdrawal Agreement.
Next steps

The UK has until the end of this month to submit its observations to the letter of formal notice. After examining these observations, or if no observations have been submitted, the Commission may, if appropriate, decide to issue a Reasoned Opinion.

Background

The Withdrawal Agreement was ratified by both the EU and the UK. It entered into force on 1 February 2020 and has legal effects under international law.

Following the publication by the UK government of the draft ‘United Kingdom Internal Market Bill' on 9 September 2020, Vice-President Maroš Šefčovič called for an extraordinary meeting of the EU-UK Joint Committee to request the UK government to elaborate on its intentions and to respond to the EU's serious concerns. The meeting took place in London on 10 September between Michael Gove, Chancellor of the Duchy of Lancaster, and Vice-President Maroš Šefčovič.

At the meeting, Vice-President Maroš Šefčovič stated that if the Bill were to be adopted, it would constitute an extremely serious violation of the Withdrawal Agreement and of international law. He called on the UK government to withdraw these measures from the draft Bill in the shortest time possible and in any case by the end of the month of September.

At the third ordinary meeting of the Joint Committee on 28 September 2020, Vice-President Maroš Šefčovič again called on the UK government to withdraw the contentious measures from the bill. The UK government on this occasion confirmed its intention to go ahead with the draft legislation.

The Withdrawal Agreement provides that during the transition period, the Court of Justice of the European Union has jurisdiction and the Commission has the powers conferred upon it by Union law in relation to the United Kingdom, also as regards the interpretation and application of that Agreement.

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Irish foreign minster says EU-UK trade deal breakthrough possible

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There is a window of several weeks for Britain and the European Union to reach a breakthrough in trade talks before Britain’s upper house of parliament considers the contentious Internal Market Bill, Ireland’s foreign minister said, writes Conor Humphries.

“I believe there is a window for negotiations that I hope the two negotiating teams, in particular the UK, will take in terms of giving the signals that are necessary to move this process into a more intensive phase,” Simon Coveney (pictured) told parliament. “It is possible to get a deal here.”

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As Brexit talks intensify, banks see sharply higher risk of no-deal exit

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The chances of Britain leaving the European Union without a trade deal have risen dramatically in the last three months, according to major investment banks, most of which now see the probability of such an outcome at 50% or higher, writes Elizabeth Howcroft.

Britain left the EU in January but is currently in a status-quo transition period, which ends on 31 December irrespective of whether or not a deal is agreed. On Monday (28 September), the two sides started a decisive week of talks, with one diplomat noting an improvement in “mood music”. But all six banks which participated in a Reuters poll in June are more pessimistic, with most citing UK legislation that would breach parts of the withdrawal agreement signed with the EU in January. The move has drawn threats of legal action from the EU.

The most dramatic re-assessment was by Societe Generale, which said the bill “gravely damaged” trust. The probability of no-deal now stands at 80%, according to the bank, which had assigned a 17% chance in June.

Germany’s Commerzbank, meanwhile, puts the probability of no-deal at slightly below 50%, versus 10% in June, a scenario which strategist Thu Lan Nguyen warns could hit the pound hard, possibly resulting in depreciation of “something around 10%”. The currency has fallen around 5% this month but with three months still to go before the transition period expires, options markets are pricing in more volatility ahead.

ING now believes the risk of no deal is 50%, up from 40% three months ago. Only a small proportion of this risk premium is priced by sterling, according to economist James Smith, who sees the currency possibly heading towards parity versus the euro.

In a more detailed forecast, Standard Chartered stuck with a one-in-two chance of an agreement by the end of the year but also saw a 20% chance of the transition period being extended and a 30% chance of exiting without a deal. JPMorgan, not included in the Reuters poll, expects the worst-case outcome to wipe at least three percentage points off UK gross domestic product in 2021. It puts the risk of no-deal at one-in-three but told clients that “with brinkmanship part of the process it may appear higher than that before agreement is reached”.

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