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EU leaders gather for pageantry and unresolved issues

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Good morning and welcome to Europe Express.

For their last summit of the year, EU leaders are gathering today in an unusual format: a commemorative meeting with nine Asian counterparts celebrating 45 years of diplomatic relations.

According to a draft joint statement seen by Europe Express, they will “reaffirm our mutual respect for the principles of sovereignty [and] territorial integrity” and “a fundamental commitment to the rules-based international order”, in language nodding at condemnation of Russia’s war against Ukraine — without actually condemning it.

One leader who won’t be there is France’s Emmanuel Macron, who is instead jetting to Qatar to watch Les Bleus in their World Cup semi-final against Morocco. Europe Express understands Macron has nominated Germany’s Olaf Scholz as his representative and that he’ll jet back to Brussels in time for the EU summit.

Tomorrow, leaders will be reverting to all the unresolved problems of the year — undoubtedly sprinkled with eyerolls and sideline chats about the Qatar corruption scandal that has engulfed the European parliament. We’ll run you through that longish list of issues and what other points they are likely to discuss.

We’ll also bring you the latest on funding EU’s push away from Russian fossil fuels after an agreement was reached.

A hard day’s night

Faced with the prospect of a messy and divisive summit, EU member states have spent this week working deep into the night trying to settle some of the most contentious disputes on their agenda, write Sam Fleming and Henry Foy in Brussels.

The results have been decidedly mixed. On the one hand, a stand-off with Hungarian prime minister Viktor Orbán over his vetoes of funding for Ukraine and a new corporate tax regime was successfully settled late on Monday night, with Budapest agreeing to withdraw its blockades in return for approval of its long-delayed recovery plan.

But on a range of other files, including energy policy, tax policy, sanctions against Russia and Europe’s response to US green subsidies, the situation remains far less harmonious.

Take energy policy. Back in October, leaders vowed to stay staunchly united over “Russia’s weaponisation of energy” while proving themselves anything but. The key point of contention remains how to impose a price cap on natural gas that has bite while not undermining the EU’s ability to compete for LNG in a global market.

Energy ministers yesterday reached “95 per cent” of an agreement on a gas price cap, said Germany’s Robert Habeck, but decided to take some more time until Monday to iron out remaining differences.

On tax policy, the Czech presidency of the EU declared a deal had finally been done on Monday on the long-delayed implementation of a minimum effective 15 per cent corporate tax in the EU, following Budapest’s decision to lift its veto.

But it became apparent yesterday that Warsaw, for one, was not yet convinced. A senior Polish official said the country was “still analysing some issues internally” regarding the tax deal, adding caustically that a declaration by the council on Monday night that there was already unanimous agreement was inaccurate.

Poland is digging in on the issue of linking the tax with a related effort to make big companies pay tax in the countries where they do business and make money, and Warsaw will make clear its position today, the official said.

On the EU’s ninth package of sanctions, too, discussions among member states are going down to the wire.

As Europe Express reported yesterday, member states including Germany, France and the Netherlands wanted to revise existing sanctions on Moscow to make a clearer exemption for supplies of Russian grain and fertiliser, but they were encountering resistance from hawkish member states including Poland who feared it amounted to a watering down of the sanctions’ impact.

Meanwhile, Hungary is seeking to slim down the list of individual listings by removing the names of three senior Russian political officials from the latest round of penalties.

And then there’s the bigger question of how the EU responds to the massive subsidy programme in America’s Inflation Reduction Act — a topic that is likely to feature prominently at the summit.

As one senior EU official put it, the positions were “rather varied and divided” on how member states should act. While some officials are counting on the US to extend some of the benefits of the rules to EU companies during implementation, Brussels has made it clear it sees the need for a domestic response.

That will entail a further easing of EU state aid rules to make it easier to funnel subsidies to green investments in the EU. However some member states are deeply suspicious of any initiatives that tilt the single market in favour of deeper-pocketed capitals including Berlin.

Meanwhile, Germany and other fiscally conservative allies remain resistant to the idea of fresh common borrowing to fuel EU-wide subsidy programmes. Don’t expect a meeting of minds on the topic by the end of what promises to be a very long night.

Chart du jour: Falling behind

At least 81 new chip facilities will be built between 2021 and 2025; 10 will be built in Europe and the Middle East combined, compared with 14 in the US and 21 in Taiwan, according to the most recent data in September from SEMI, a US-based semiconductor industry organisation.

Power to RepowerEU

It has been a week of late nights for those trying to finalise negotiations on large parts of the EU’s efforts to cut its carbon emissions and up its energy supply, writes Alice Hancock in Brussels.

In the early hours yesterday, lawmakers from the European parliament and Czech negotiators representing the member states agreed a provisional deal on a carbon border tax for the EU which, if implemented, would be a world first.

This morning, they clinched agreement in principle on RePowerEU, the legislation announced by the European Commission in May designed to wean the bloc off Russian hydrocarbons.

The biggest fight was over financing an additional €20bn worth of grants needed for RePowerEU to hit the estimated €210bn worth of investment the commission reckons the bloc needs before 2027 for the plan to work.

Member states, after a series of heated discussions in the early autumn, agreed that 75 per cent of the money could come from the Innovation Fund, which is targeted to investments in clean technologies, and 25 per cent could be found by selling more permits to companies to cover their emissions.

The European parliament, however, wanted all of the €20bn to come from the sale of emissions allowances, essentially allowing companies to pollute more for the next few years. It also insisted on 20 per cent of the fresh money to be made available immediately to member states “as pre-financing”, said Siegfried Mureşan, the Romanian centre right MEP spearheading the negotiations.

Several EU countries were strongly opposed to messing around with the EU’s emissions trading system, even if they feel it is better than the commission’s original proposal which was to sell emissions permits from its reserve fund thereby allowing more pollution.

The two sides struck an early morning compromise: the Innovation Fund would provide 60 per cent and ETS allowances 40 per cent. The 20 per cent pre-funding was agreed. Countries can also transfer money from other EU budgets, such as cohesion funds, to spend on RePowerEU.

“Member states will benefit from increased pre-financing to quickly implement reforms and investments,” said Mureşan. “We delivered on what we promised.”

The provisional deal will need to be rubber stamped by member states and the full parliament.

What to watch today

  1. EU-Asean summit takes place in Brussels

  2. Detained suspects in Qatar-EU corruption probe appear before a judge in Brussels

  3. France-Morocco play in World Cup semi-finals in Qatar

Notable, Quotable

  • Qatar MO: Qatar offered European lawmakers World Cup tickets, free trips to the Gulf state and other valuable hospitality as it sought to persuade them to soften their criticism of its treatment of workers ahead of the tournament.

  • Danske culpa: Denmark’s largest bank has pleaded guilty to defrauding US banks and agreed to pay a $2bn penalty to resolve one of the biggest money-laundering scandals in recent years. Danske Bank will also pay $672mn to Danish authorities.

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