Good morning and welcome to Europe Express.
A week packed with high-level meetings begins today. Ursula von der Leyen, European Commission president, continues to chalk up air miles, with stops in six capitals (including Berlin, Rome and Paris) over the next couple of days to give her blessing to national recovery plans. We will explore how budget hawks are preparing for a counter-attack over the EU’s fiscal outlook after the German elections.
EU leaders will gather for a two-day summit in Brussels on Thursday, focused on the pandemic response, migration and relations with Turkey and Russia.
In preparation for the talks, German Chancellor Merkel will receive Mario Draghi, the Italian prime minister, for a co-ordination meeting this evening. Such pre-summit discussions have typically been reserved for the French president, whom Merkel met on Friday, hinting at the growing influence Rome wields within the EU under Draghi.
In Paris, politicians are still digesting the results of the first round of France’s regional elections, in which the party of far-right leader Marine Le Pen fared worse than expected. That provided some comfort for Emmanuel Macron, who is likely to face her in the presidential run-off next year.
Political storms have also been gathering up north, as the Swedish prime minister faces a no-confidence vote today which he seems set to lose. We will explore what that means for Stefan Lofven and why his ability to govern with unwieldy coalitions may have come to an end.
A striking feature since the €800bn recovery fund was agreed last July has been just how little public discord there has been over the EU’s fiscal policy. But capitals are preparing themselves for a potential counter-attack this autumn, writes Sam Fleming in Brussels.
Once von der Leyen’s jet-setting endorsement exercise is complete, it will be up to member states to formally approve each other’s spending plans — a process that is expected to begin in July.
The hawks have shown no appetite to poke holes in other governments’ green and digital spending plans (though it is worth watching to see if the rubber-stamping exercise gets rocky when it eventually comes to the Hungarian, Polish and Czech proposals).
The commission suspended the Stability and Growth Pact early in the pandemic, as part of its response to the economic crash triggered by lockdowns across Europe and the world. Brussels confirmed this month it would extend the suspension by another year until the end of 2022. The decision sparked little pushback from member states.
But meetings of finance ministers in Luxembourg late last week suggested the truce would not last much longer.
Behind the scenes, capitals are already beginning to size up the field as they prepare to debate the eventual exit from the massive stimulus packages enacted by governments during the Covid-19 crisis.
A letter from Austria’s finance minister to his counterparts seeking to marshal early support from fiscally hawkish capitals in northern, central and eastern Europe served as an early taste of what was to come. Gernot Blümel complained that some in Europe were “questioning a rules-based framework or diluting the value of sustainability”.
Blümel later explained to the Financial Times that he was seeking to form an alliance on fiscal stability. “It is not too early to start this debate,” he said.
The letter was dismissed by some as an attention-grabbing stunt by a politically embattled government. But that does not mean Blümel is alone in his concerns about the possibility of a “softer, and more feeble and flexible Stability and Growth Pact”.
The commission is preparing to table reform proposals after September’s elections in Germany. We can expect hawkish northern European countries to strengthen their calls for a return to strict fiscal rules as that moment approaches. (Wolfgang Schäuble, the former German finance minister, already made the case for it in the FT.)
In the opposing camp, reformers will insist on carve-outs for green or digital investments at a minimum, as well as the softening of mechanistic rules requiring a ratcheting down of debt-to-GDP ratios towards 60 per cent.
Some will call for more ambitious changes, arguing that the entire notion of an SGP aimed at reining in fiscal indiscipline is at odds with this era of activist fiscal policy. The commission has sought to make the use of existing flexibility within the labyrinthine pact but there are limits to how far this can be pushed.
If deficit hawks bolster their collective weight by coalescing into broad coalitions, southern states can be expected to follow suit. After a brief period of relative calm, the EU states are starting to re-draw their fiscal battle lines.
The Delta coronavirus variant first identified in India that swept the UK has become dominant in Portugal and appeared in clusters across Germany, France and Spain, prompting European health officials to warn further action is needed to slow its spread. The dominant variant in Europe was the Alpha variant. (More here)
Stefan Lofven has become the unlikely Harry Houdini of Swedish politics in recent years but a government crisis will test his ability to escape from the tightest of spots, writes Richard Milne, the FT’s Nordic and Baltic bureau chief.
The prime minister is set to face a no-confidence vote this morning. If he loses — a majority in parliament have said they back the move — it would make him the first Swedish prime minister to suffer such an ignominy.
The Social Democrat leader and former trade union boss has been widely criticised as ineffectual. But Lofven’s ability to wriggle himself and his centre-left government out of difficult situation after situation has allowed him to defy predictions of his coalition’s imminent demise time and again.
The main problem is that Sweden’s politics are so fragmented — especially since the emergence of the populist, anti-immigration Sweden Democrats — that forming any coherent majority coalition is difficult.
Several ways remain out of the crisis, which was sparked by the ex-communist Left party’s concerns over proposals to scrap rent controls on new flats.
Lofven could find a compromise, although his first attempt on Sunday was met with derision from the Left. He could call snap elections, something that has not happened in Sweden since 1958 and something few seem to have much appetite to pursue. Or he could resign, leaving the speaker of parliament to see if he can find another government. Lofven could then return, either in charge of a caretaker administration or in a somewhat rejigged coalition.
A centre-right government in the current parliament is tricky. Even with the support of the Sweden Democrats — no longer the pariahs they once were — the centre-right opposition parties are a vote short of a majority.
Swedish politics have been looking increasingly volatile and unpredictable in recent years. There seems little sign of that abating any time soon.
. . . and later this week