31 May 2022

CER: State of the Union: The EU, three months into Putin's war

Russia’s invasion of Ukraine has shifted priorities and frayed alliances in the EU. It has also created winners and losers in Brussels....Of the four challenges facing the EU, energy is the most urgent, while enlargement is probably the trickiest.

It has been exactly three months since Russian President Vladimir Putin invaded Ukraine, triggering courageous and unexpectedly successful resistance from the Ukrainian people. Putin’s war has shaken things up in Brussels, with both the EU institutions and the member-states responding nimbly. But now the EU’s unity is starting to wear thin.

The war has had a massive impact on four policy areas: energy, EU enlargement, the economy, and defence and security. But it has had a surprisingly limited effect effect on two difficult files: rule of law and migration. Hitherto unbreakable friendships, such as Hungary and Poland's, have become strained; and for the first time in more than a decade, EU countries cannot look to Germany for leadership. The German president of the European Commission, however, is having a comparatively good war.

Of the four challenges facing the EU, energy is the most urgent, while enlargement is probably the trickiest. The economic consequences of the war for Europe, including rapidly rising costs of living, while dire, in some ways echo problems that the EU has dealt with before – particularly during its rather successful management of the economic fall-out of the COVID-19 pandemic. The supply of weapons to Ukraine has been an extraordinary tour de force for the EU, but did not come out of the blue: the Union had been preparing for a situation where it might want to do more than its usual military assistance measures. The European Peace Facility, a little known pot of money that allows the EU to supply weapons to other countries at a short notice, has been operational since July 2021.

Energy
The question of how to rapidly extricate Europe from its dependence on Russian oil and gas is as pressing as it is complicated: since the war began, Europe has paid more than €58 billion to Russia for oil and gas. Because of soaring energy prices, the EU is paying a premium of around 54 per cent for Russian fossil fuels in comparison to 2021. Revenues from fossil fuels account for a significant chunk of Russia’s public budget (40 per cent at 2021 prices), so EU payments for oil and gas are not only helping Putin to fund his war but also offsetting some of the impact of the current economic sanctions. Additionally, Putin has asked buyers to pay for gas in roubles, which helps to prop up Russia’s currency.

EU countries are currently negotiating a sixth package of sanctions which should include oil, but not gas. This is a mistake. As the CER and others have argued, there is no easy way out of the Russian energy conundrum, but the EU should accelerate its phase-out of all fossil fuel imports from Russia as soon as possible. While a full embargo may be too much too soon for several member-states, the EU could consider imposing import tariffs on Russian gas.

In the meantime, even without new energy sanctions, the war in Ukraine has exacerbated pandemic-related supply chain bottlenecks and increased energy prices. Both contribute to inflation and rising costs of living in Europe. Higher prices for oil and gas disproportionately affect poorer households (which spend a larger part of their income on heating, for example) and those living in rural areas (who have little access to public transport and thus rely on cars). Europeans who were already wary of the Union’s plans to fight climate change are now being told they have to give up their fossil-fuelled cars and turn to electric vehicles quicker than expected.

The response of EU leaders has been understandable but wrong: to counter energy price spikes, many governments have effectively subsidised the use of fossil fuels by cutting energy taxes, as opposed to using this opportunity to support consumers in transitioning away from them. This is what European Commission President Ursula von der Leyen is trying to do with her new ‘REPower EU’ plan to reduce the EU’s energy dependency and boost the use of climate-friendly energy sources. EU leaders should follow the Commission’s lead, focusing on making the use of green energy more affordable and easily accessible for all Europeans, instead of spending money to prop up fossil fuels.

Enlargement
On April 8th, von der Leyen surprised officials in Brussels and EU capitals by handing over an EU membership questionnaire to Ukraine’s President Volodymyr Zelenskyy in Kyiv. The questionnaire is a technical document to clarify the inner workings of the applicant country. The Commission uses the document to inform its advice on whether the EU should open accession talks. Filling out the questionnaire is often a long and tedious process. War-torn Kyiv, however, managed to deliver its answers within ten days, sparking suspicion that the European Commission may have drafted at least part of the responses to speed up the process. Von der Leyen wants to convince member-states to grant candidate status to Ukraine at their next summit in June.

The Commission’s pressure on EU governments is working. Many think that Ukraine is not ready to join the EU yet, but they know the EU cannot afford to keep it in the waiting room for years, as it has done with other candidates like North Macedonia. That is why Emmanuel Macron has come up with the idea of a ‘European political community’, which would bring together the EU and like-minded countries such as Ukraine, Moldova and Georgia, and also the UK. Macron’s efforts to reconcile the EU’s goodwill towards Ukraine with the harsh reality of EU accession are laudable, but he has so far offered little explanation of how such a political community would work. A good place to start would be former MEP Andrew Duff’s idea of affiliated membership, which would upgrade current agreements like the ones the EU has with Ukraine, the UK and Switzerland for example, by offering participation in more EU policies in exchange for a commitment to respect EU values and the EU’s foreign policy positions...

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