Reacting to the security threat posed by Russia’s invasion of Ukraine, the leaders of the 27 EU countries decided, on Friday 11 March to implement, with renewed urgency, their sovereignty agenda for the EU by increasing defence spending, renouncing Russian fossil fuels “as soon as possible” and strengthening the EU’s resilience in five strategic sectors of activity.
The Versailles agenda is an acknowledgement that European sovereignty is not “a slogan” or “a French fantasy”, but “an imperative” and, with the Covid-19 pandemic and now the war in Ukraine, “we are measuring how much our food, our energy, our defence are also subjects of sovereignty”, said French President Emmanuel Macron, host of the Versailles European summit. “We want to be open to the world, choose our partners and not depend on them”, he added.
In the Versailles Declaration, which remains true to earlier plans (see EUROPE 12906/3), EU leaders promise to end dependence on Russian hydrocarbons “as soon as possible”.
“We need to get rid of Russian fossil fuels as soon as possible. On the one hand, we have sanctions which are very hard but on the other hand we are supporting and actually financing the Russian war by purchasing oil, gas from Russia”, said the Finnish Prime Minister, Sanna Marin.
The EU imports from Russia between 40 and 45% of its gas consumption, 46% of its coal consumption and 27% of its oil consumption.
To reduce the EU’s dependence, the EU27 call on the European Commission to propose, by the end of May, a RePowerEU action plan to: - diversify supply sources (increased use of LNG, biogas); - develop the hydrogen market; - accelerate the development of renewable energies; - improve the interconnection of European gas and electricity networks; - reinforce EU contingency planning for security of supply; - improve energy efficiency.
For the President of the European Commission, Ursula von der Leyen, the end of European dependence on Russian fossil fuels is possible “by 2027”. This date was echoed by the Belgian Prime Minister, Alexander De Croo. This means a reduction of two-thirds in Russian energy supplies from 2022. But this measure, according to Mrs von der Leyen, does not correspond to an embargo on Russian hydrocarbons.
“We will move away from fossil fuels at an accelerated pace”, said German Chancellor Olaf Scholz. He said the target was “fair” from a climate point of view and ensured the “viability and stability” of the EU.
But some countries will move faster than others. Lithuanian President Gitanas Nausėda said his country was already “resilient” because it had done its homework over the past decade. On the other hand, Hungarian Prime Minister Viktor Orbán welcomed the fact that the Europeans had not imposed an embargo on Russian hydrocarbons, so that “Hungary’s energy supply is secure in the upcoming period”.
By mid-May, the Commission will present “options to optimise the design of the electricity market” so that it better supports the green transition, said Mrs von der Leyen.
In addition to guidelines on the regulation of energy prices in these exceptional circumstances (see EUROPE 12906/4) and a new Temporary Framework for State Aid to support companies in difficulty (see EUROPE 12908/4), the President of the European institution mentioned the possibility for Member States to “tax the windfall profits of energy groups”.
According to Italian Prime Minister Mario Draghi, many Member States are considering a levy on the excess profits of European energy companies, which he has estimated at “€200 billion”.
In order to protect consumers, the Commission will present, by the European Council of 24-25 March, options to limit the contagion effect of rising gas prices to electricity prices.
Finally, an ad hoc working group will be set up to prepare the EU for winter 2022-2023 through the design and implementation of a filling plan. “The EU needs to define a longer-term European gas storage policy. This is why the Commission will present a proposal to fill underground gas storage facilities to at least 90% of their capacity by the 1st of October of each year”, said Mrs von der Leyen.
Increase defence spending “substantially”
The European Heads of State and Government have committed themselves to a “substantial” increase in military spending with a significant share of investment and collaborative development of defence capabilities within the EU.
They invited the European Commission, in coordination with the European Defence Agency, to present, by mid-May, an analysis of military investment gaps and to propose any additional initiatives needed to strengthen the European defence technological and industrial base.
The deadline for the analysis coincides with an extraordinary European Council scheduled for mid-May.
“We are embarking on a very operational strategy which aims to identify the fields of action and investments that will be necessary, but also to identify how we can deploy a European industrial base by taking into account the various challenges”, explained the President of the European Council, Charles Michel.
“Having a Europe that spends more on defence, if it is to import more equipment made elsewhere, would not make much sense in terms of sovereignty”, Mr Macron warned. He called for the continuation of partnerships and, in parallel, the construction of “defence industrial sectors with fewer standards, but which correspond to a fully integrated market”.
In recent weeks, several Member States have announced their intention to increase their defence spending. After Germany and Denmark, Sweden - which is not a member of NATO - will increase its military spending to 2% of GDP, up from the current 1.5%.
“The world has changed since 24 February. We need to go back to basics: how to cooperate, how to get capabilities together”, said Estonian Prime Minister Kaja Kallas, for whom reaching 2% of GDP for defence spending, as is the case in NATO, should be a minimum requirement.
On Thursday, the President of the European Parliament, Roberta Metsola, called for an increase in national defence budgets and an intelligent use of the European budget so that, if necessary, collective funding could be provided to cover capability needs.
Reducing the EU’s strategic dependence
EU leaders identify five areas of activity where action will be needed to reduce the EU’s strategic dependence on foreign powers: - critical raw materials (stockpiling and increasing resource efficiency); - semi-conductors (target: produce 20% of global production in the EU by 2030); - health; - digital technologies (artificial intelligence, the cloud, 5G); - food, in particular the production of plant proteins).
On this point, the EU27 invite the Commission to “present options to address rising food prices and global food security as soon as possible”.
The European institution could adopt a communication on food safety on Wednesday 23 March.
Europe and Africa “will be very deeply destabilised in terms of food because of the war in Ukraine”, Mr Macron warned. “We need to re-evaluate our production strategies to defend our food and protein sovereignty in Europe, but also re-evaluate a strategy towards Africa, otherwise several countries in Africa will be affected in the period of 12 to 18 months”, he said.
The war in Ukraine has already pushed oil, wheat, soya, rapeseed, sunflower and maize prices to unprecedented levels. Agricultural commodity prices are also supported by the soaring price of fertiliser - of which Europe imports 30% of its needs from Russia - and the cost of fuel.
Mobilise all available budgetary resources
In order to achieve this sovereignty agenda, European leaders intend to mobilise public budgetary resources at national and European level, private capital and the financial means of the EIB Group.
France is campaigning for the introduction of a new European loan, drawing on the experience gained with the Next Generation EU recovery plan set up to tackle Covid-19. It is supported by Italy. Indeed, Mr Draghi argued that there was a need for a “European response” to the scale of investment required, because “there is no room in the national budget”.
Faced with the reluctance of countries like Germany and the Netherlands, Mr Macron, who is putting his national mandate on the line in April, has nuanced the idea without completely ruling it out. “The right strategy is to agree on the objectives” at the European summits in March and May and then “to develop the instruments that will enable us to achieve them”, he said.
Dutch Prime Minister Mark Rutte reiterated that the first step is to use the resources of the European recovery plan, which already allows for massive investment in the climate and digital transitions.
Swedish Prime Minister Magdalena Andersson pointed the finger at “some countries (that) always find new excuses why they shouldn’t pay for their expenses”.
See the Versailles Declaration: https://aeur.eu/f/qa (Original version in French by Mathieu Bion, Camille-Cerise Gessant, Lionel Changeur and Pascal Hansens)