by Ross Elwood
BRUXELLES (Public Policy Europe) – This week is once again defined by the US President. His threats to bomb a civilisation out of existence came to nothing, and the subsequently announced ceasefire deal already seems to be unravelling, with everyone else left scrambling to save it. One thing the EU knows for sure though is that the effects of the energy crisis are here to stay. At least one thing is certain…
The Facts
Commission Discussion on Middle East Crisis: On Monday the EU Commission will hold a structured dialogue on the situation in the Middle East and its broader impacts on Europe. A strategic debate on China had been scheduled for the same Monday but has been postponed.
No to Tolls in the Strait of Hormuz: The EU Commission states it will not pay tolls in the Strait of Hormuz, as international law guarantees freedom of navigation. “The Strait of Hormuz, like any other sea route, is a public good for all humanity. The law is clear: freedom of navigation is a public good and must be guaranteed.”
EU-US Digital Dialogue: The European Commission has confirmed it is working on a digital dialogue with the US, aimed at improving cooperation on digital technologies and markets and clearing up misunderstandings. The Commission stated it will not negotiate EU laws, as it has full authority to create and enforce its own regulations.
CBAM Fertiliser Exemption Not Decided: Fertiliser exemptions remain the most controversial issue in the revision of the Carbon Border Adjustment Mechanism, according to diplomatic sources cited by Public Policy following a meeting of the EU Council working group. The next working group meeting is scheduled for April 21, with the presidency still aiming to reach a general approach by June.
ETS Draft Revision: According to a draft revision of the ETS, the European Commission’s proposed benchmark changes for 2026-2030 would heavily favour district heating, cogeneration and energy installations, whose heat and fuel benchmarks would roughly triple, meaning far more free allowances. The big losers are heavy industries (steel, cement, glass, ceramics and aluminium) which would see benchmarks lowered, forcing them to buy more permits. Paper, cardboard and some chemicals would also benefit from upward revisions.
The Analysis – Will Hungary Change Europe Under Magyar?
On Saturday the Hungarian general election will take place. Many good articles have been written on the election and how the main opposition to Orbán, Magyar, has a strong lead ahead of the vote, but what will the effect on EU policy be if Magyar wins?
Magyar broke away from Orbán’s Fidesz party and formed his new party Tisza just before the European Parliament election in June 2024, in which he and six other members of his party were elected as MEPs. They have aligned themselves with the EPP group. Magyar has not been very active as an MEP, having spent most of the time campaigning, and his MEPs in the Parliament have very much been in campaign mode, taking antagonistic positions against the EPP line on issues such as voting to send the Mercosur deal to the ECJ and not voting for von der Leyen in her vote of no confidence. This makes it seem that they are just the same as Fidesz, but I would argue they are in campaign mode and trying to stay ahead of Orbán’s attacks.
In fact, the Tisza party has already outlined itself as firmly pro-European. Its shadow foreign minister, revealed only two months ago, is a transatlanticist who has recently stated that Hungary must “stop being a stick in the spokes and start being a spoke in the wheel,” that she wants to end Hungary’s dependence on Russian gas, and most interestingly, wants to build alliances with its neighbours, most especially Poland. This is of high interest for the political workings of the Council, as it could signal a strong new power bloc of eastern European European countries, or a revived Visegrád group (Czechia, Poland, Hungary, Slovakia). It should be noted however that Tisza will maintain a hard position on sending money and weapons to Ukraine and on migration, the former being dealt with in a constructive way. In other words, Tisza sees itself as a strong independent power inside EU dealmaking, and this could prove very interesting for the future EU power dynamic, with already a lot of power shifting eastward with the rise of the Polish economy and its growing importance on issues such as security and defence.
In this way Magyar sounds like a Hungarian Macron: a political insider who defected from the ruling party, built a new one from scratch and swept to victory within just a few years, all while running it as a one-man show. Sounds familiar. So don’t read too much into the relatively negative and populist record of his MEPs in the Parliament as they have been in campaign mode only. Do read into the fact that we may be witnessing the birth of a new nationalist European, a new Macron, and with the EU’s Orbán-sized thorn finally removed from its side, a new EU impetus to move faster and more assertively.
The Analysis – Member States See Windfall Tax on Energy Prices As Key
With so many elements of the ceasefire between the US and Iran up in the air – whether they both understood what they agreed on, whether the Strait of Hormuz is actually open, and if open, what “open” actually means – it seems the one thing we know for sure is that high energy prices will not be short-lived. That is according to the Commission, who on Wednesday stated as such.
Member states have been keen to go after the windfall profits of energy companies, with Finance Ministers from Germany, Italy, Spain, Portugal and Austria sending a letter to the Commission last Friday asking for a common EU approach similar to that during the energy crisis of 2022 – however with greater legal footing and with aims to go after large multinational oil companies, including their profits from abroad.
Dombrovskis on Thursday elaborated by stating that member states can do this themselves, however the Commission is also looking into taking a coordinated approach. Member states are between a rock and a hard place in terms of finding short-term solutions to high energy prices, as highlighted by Dombrovskis during his ECON hearing on Thursday, because there is much less room for manoeuvre – due to the high levels of debt incurred from the last crisis, interest rates, and the no-turning-back priorities of defence and competitiveness. Dombrovskis said that aid “must be targeted and temporary and must not increase the demand for fuel,” and criticised the approach taken by member states during the 2022 energy crisis, saying “that the measures adopted by the Member States were poorly targeted and applied for too long compared with how they should have been.”
This lack of room to manoeuvre will create enormous domestic political pressure for EU governments, and the ramifications of that are always unknown, because that’s where governments feel it most: at home, not from the geopolitics of the world. The choice is only ever a bad one. Protect yourself in the short term and weaken yourself in the long by diverting the spending needed to hold the course on competitiveness and defence toward short-term energy relief measures, or hold that line and weaken yourself in the short term by facing down angry citizens with high energy bills, fed up of crisis after crisis. This will also put huge pressure and political emphasis on the upcoming MFF (the EU’s long-term budget) due to be finalised at the end of this year. The wrangling so far has centred on cohesion funding, which goes to poorer regions. Might some of that now be re-designated? (Public Policy Europe)
