The European Commission enters the final stretch of its mandate. The commissioners who took office in 2014 will leave their posts after the next European elections (in May 2019). Before the current members of the Commission and the European Parliament are replaced, both institutions will conclude negotiations and approval of some of the EU’s priority measures.
The European Commission’s activities over recent years have revolved around ten strategic priorities that marked the start of its mandate in 2014. These priorities are: jobs, growth, and investment; digital single market; energy union and climate; internal market; a deeper and fairer economic and monetary union; a balanced and progressive trade policy to harness globalization; justice and fundamental rights; migration; a stronger global actor; democratic change.
Despite work done since then, there are still important initiatives that need to be approved. European institutions trust that these initiatives can be negotiated and approved before the European parliamentary elections next year. A summary of these pending items is provided below.
1. Prudential measures
- Implementation of Basel III: The “trialogues” (meetings between the European Commission, the European Parliament, and the Council of the EU) began this summer, and from September they will take place once or twice a month. The goal is to define each institution’s red lines and establish an agenda for negotiations. It is hoped that agreement is reached before Christmas and that the regulatory package is completely approved before the European parliamentary elections.
- Reduction of non-performing loans (NPLs): In March, the Commission proposed a series of measures to address Europe’s non-performing loans with the aim to avoid their future accumulation. This package is in the negotiation phase with the European Parliament and the Council of the EU (The EU’s two institutions with legislative powers). The goal is to reach a political agreement by December of this year, at the latest.
- European deposit insurance scheme (EDIS): This is the most controversial element of the Banking Union. The EC, the EBC, as well as the Single Resolution Board have emphasized that the eurozone banks’ risk has dropped sufficiently for EDIS to be implemented. Despite Germany and France’s agreement on the topic, opposition from countries like Holland resulted in limited agreement in the European Council’s June meeting, where only a roadmap for future policy negotiations was agreed.
- Single resolution fund: This relates to a €60 billion fund to be incorporated into the European Stability Mechanism (ESM) and is one of the more easily agreed items of reform. Nonetheless, its approval is tied to the ESM reform negotiations, which the heads of state and the EU government decided to postpone until the next meeting of the European Council in December. Until then, Parliament will work on the technical details of the agreement.
Jean-Claude Juncker, President of the European Commission since 2014.
- European Stability Mechanism (ESM): The president of the European Council, Donald Tusk, hoped to reach agreement to transform the ESM into a kind of “European Monetary Fund” equipped with anti-crisis tools. However, at the European Council’s June meeting, it was also decided to postpone this reform until the next summit, in December.
- Single resolution mechanism: Industry leaders and government authorities alike agree that one of the most urgent outstanding issues to complete the Banking Union is the lack of a clearly defined mechanism for providing liquidity during a bank’s resolution process.
- Basel IV and its implementation in Europe: The completion of Basel III will introduce changes such as limiting a bank’s reduction in capital obtained by using internal models or requiring banks to meet higher maximum leverage ratios. The Commission is preparing to implement Basel IV in Europe in 2019, and the European Banking Authority (EBA) is already working on its impact assessment.
- European Market Infrastructure Regulation 2.2: Despite the European Parliament’s having defined a position on this topic in May, there is still much disagreement about the proposal to regulate central counterparties and agree which authority would provide oversight. The Council of the EU has still not reached final agreement over this initiative; however, the goal of the European institutions is to begin “trialogues” as soon as possible so that agreement can be concluded prior to Brexit (March 2019).
- Brexit constitutes a complex and worrisome problem for the European Union. If the United Kingdom does not introduce a proposal to close the more controversial aspects of the withdrawal agreement soon – the border with Northern Ireland, for example – formalities will not be closed in October. This implies that that there will not be time for the European Parliament to ratify a withdrawal agreement before elections in March 2019. Without an agreement, there will not be a transition period which will have the negative consequences of a hard exit, with no roadmap to define the future relationship between the U.K. and the E.U.
3. Money laundering
- 5th anti-money laundering directive (AMLD 5): In July 2016, the European Commission proposed this new law in response to the 2015 and 2016 terrorist attacks in France and Belgium, as well as the disclosures revealed in the “Panama papers.” The legislation went into effect this summer, and the European Commission intends to begin proceedings to sanction members states that have still not implemented the previous directive (AMLD 4), among which is Spain.
4. Capital Markets Union
- Financial Services: sustainable financing has become a priority item on the European agenda. EU institutions have already begun to work on the sustainable financing Action Plan proposed by the Commission in May. The goal is to approve the measures before the end of the current mandate. An expert group formed by the Commission is already working on the development of a European classification system of sustainable activities; the creation of a Green Bond Standard; improving the dissemination of information about the climate; and producing low-carbon indices.
- Capital Markets Union: In March this year, the Commission presented an Action Plan aimed at bolstering the Capital Markets Union. The initiative includes the following measures: a proposal on covered bonds; legislation addressing the cross-border distribution of investment funds; and a proposal about determining applicable law in cross-border transactions where there is a dispute. These initiatives currently sit with the European co-legislators in the negotiation phase.
- ESAs Review: In September 2017, the Commission proposed a reform to strengthen the European system of financial supervision, composed of the European Systemic Risk Board and the European supervisory authorities (ESMA, EIOPA, and EBA). Significant progress on this matter, however, is not expected before the European parliamentary elections.
5. Digital Economy
- This is primarily concerned with closing the few regulatory initiatives that are in play and prepare the Commission’s new proposals. In this respect, the Fintech Action Plan, presented by the Commission in March this year, has special relevance. It includes the creation of an EU ‘fintech laboratory‘ to promote private-public sector dialogue; the identification of best practices in regulatory testing environments (‘sandboxes‘), and some measures to facilitate the industry’s adoption of innovative technology.
6. Emerging topics
- The European Commission’s recent Android decision reveals raising awareness with regard to unfair competitive conditions that could exist among the technology giants and the economies that depend on them, as in the case of Europe. The European Union ruled that companies with a dominant position have a responsibility not to abuse their position in the market.
Other interesting stories