These Are the Most Pressing Challenges Facing Europe's Leaders

EghtesadOnline: As summer draws to a close, the European Union will seek to tick off a number of boxes from the top of its to-do list, leveraging its new-found political capital following the ascent of pro-EU leaders on the continent.

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21 August 2017

Brussels will have its hands full as negotiations ramp up with the U.K. on its impending exit from the 28-nation bloc, with some eastern European countries testing the boundaries of anti-democratic initiatives and the euro area still working on reforms to protect its economic well-being.

According to Bloomberg, here are the main topics to look out for in the coming months:

Brexit talks

The U.K. and EU have three more rounds of negotiations on Britain’s departure from the bloc before a summit in October. It’s at that gathering in Brussels that leaders are supposed to give approval for the start of phase two of the talks -- dealing with how the relationship between the two sides will look once the U.K. has left in March 2019.

But there’s already doubt about whether there will be sufficient progress by then on phase one -- how the U.K. will protect rights of EU citizens and Britain’s financial obligations to the EU -- to allow that to happen as scheduled. And if timing is delayed, it raises the prospects of the U.K. slipping out of the EU without a deal, which would mean no foundation for a future trade agreement and no transitional period to soften the blow, something that neither side wants.

That makes the next few weeks crucial. The British government will publish documents setting out its positions on various issues as negotiators on both sides try to agree on complicated topics such as the border between Northern Ireland and the Republic of Ireland and the role of the European Court of Justice in post-Brexit Britain.

If Prime Minister Theresa May, under pressure at home and due to face members of her Conservative Party at its annual conference in the first four days of October, can leave the EU summit on Oct. 19-20 having won approval for the start of trade discussions, it will be a sign that Brexit negotiations are on course. But it’s a very big if.

Rule of law

In the coming months, Poland is facing the threat of unprecedented EU penalties from the first-ever probe of a member’s respect for the rule of law. The European Commission said last month there was excessive political influence over the legal system in Poland and launched action against the country for violating EU law in a process that could see the EU suspending its voting rights. The European Commission sent Warsaw a “letter of formal notice” in July, giving the government one month to reply. The next step in the infringement process would involve a final warning by the commission to the Polish government in the form of a “reasoned opinion,” after which a lawsuit could be filed.

The battle between EU regulators and the Polish government over its plans to weaken the judiciary’s independence underscores the emergence of a new fault line between eastern and western Europe and comes as scrutiny of democratic standards within the EU has moved up the bloc’s agenda. The government in Warsaw is at the sharp end of a campaign to rein in errant states, as populist leaders in Poland and Hungary have been emboldened by Donald Trump’s U.S. presidency and Britain’s decision to quit the EU.

The spat is unlikely to be resolved soon, and could become a key issue between the EU and some of its members in coming months as the bloc tries to balance sensitive Brexit negotiations.

Reform of the euro area

Discussions over how to reboot the euro have already started taking place in recent months, having been given fresh impetus by the election of Emmanuel Macron in France, a staunch advocate of further integration. While there is no consensus yet among the currency bloc’s 19 members on if and how the euro area should get its own finance minister, budget or a regional Monetary Fund, talks are expected to pick up steam after the German election in September. The EU’s biggest economy has so far resisted calls for further fiscal integration, but Chancellor Angela Merkel has signaled her willingness to discuss some of these issues in the future.

Euro-area leaders and finance ministers have repeatedly said that the currency union needs to adjust to be able to withstand future financial shocks. Whether this will come in the form of new responsibilities for the bloc’s bailout fund or greater integration in the areas of banking union and financial regulation will depend on the political constraints of member states and on their priorities. But the matter of further integration will likely feature prominently in finance ministers’ discussions over the coming months, while some decisions could be taken as soon as the end of this year.

Investment screening

The European Commission could make proposals as early as September on possible ways to better scrutinize investments from third countries into the EU, following pressure from leaders including Macron to move to protect the bloc’s industries from foreign takeovers in strategic sectors.

The proposed measures will come after the commission published a reflection paper on “harnessing globalization” in May and after EU leaders -- who met in June -- asked the commission to “analyze investments from third countries in strategic sectors while fully respecting member states’ competencies.”

But divisions on whether the bloc should take a more protectionist approach persist among its members, even as they combat a rise of populism backed by voters who feel left behind by globalization. While some governments want to bolster the EU’s defenses to protect industries from foreign takeovers, others are concerned that would be a step back from open-market commitments, especially at a time when the Europe wants to lead globally on free trade.

Greek review

Negotiations on the third review of Greece’s bailout are set to kick-start later this year, with the hope of concluding the talks and disbursing fresh loans by January. While the economic overhauls involved are not as contentious as in previous reviews, the negotiations will likely drag on, especially on issues such as the reform of the energy sector and government spending on social benefits.

Following the German election in September, questions will likely arise again over the International Monetary Fund’s participation in the Greek bailout. While the fund has agreed in principle to extend more loans to Athens, it has said it won’t do so until the country gets more debt relief from its euro-area creditors -- a step Germany has so far resisted. Meanwhile, another issue to look out for is whether Greek banks are asked to undertake another asset quality review and stress test to ensure they are adequately capitalized before the end of the program -- a step requested by the IMF.

More than two-thirds of the way into its three-year financial rescue program, Greece hopes that it will be able to exit its bailout successfully this time next year. This means the next few months will be crucial in paving the way for a likely exit and in determining what comes next for the debt-stricken state.