What’s in store for the EU in 2024?

By
Pieter Cleppe
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To make sense of what may be ahead for the European Union in 2024, it is important to take a look back at the previous year. 2023 was not so much the year of major European political events, but rather the year when the consequences of the major developments of 2022 became visible. These were, of course, the Russian invasion of Ukraine, and the subsequent European energy crisis. Certainly at the ballot box, it became evident that none of these events remained without consequence.

Rising discontent 

A famous saying by top US investor Warren Buffett is: “You don’t find out who’s been swimming naked until the tide goes out.” That certainly applies to energy politics in Europe, which is largely driven by the EU policy level. Over the last 20 years, EU member states have been exhorted to phase out their own fossil fuel production and, on the contrary, invest in so-called renewable energy, especially wind and solar power. Warnings by experts that those energy sources are rather unreliable were largely ignored. All this was accompanied by a phase-out of nuclear power and it led to an ever-increasing dependence on foreign energy sources. When the tide turned in 2022, sanctions against Russia and Russian countermeasures created a looming gas shortage in Germany, pretty much the engine of the European economy.

The gas shortage was solved by large-scale imports of expensive LNG gas, with the result that energy prices threaten to remain permanently high for European industry. The result is a creeping deindustrialisation, with the energy-intensive part of German industrial production falling sharply this year.

For this reason, and also as a result of chaotic migration policies, Germany’s red-green ruling coalition, which also includes a nominal liberal pubic party, is taking heavy hits in the polls, while the right-populist and Christian Democrat opposition is riding high. Next year, elections are coming up in three eastern German states, and let that be precisely the region where the right-wing populist AfD is strongest. Moreover, the AfD could well become one of the largest groups in the European Parliament in the upcoming EP elections in June, together with Marine Le Pen’s French Rassemblement National, which is also currently riding high in the polls.

In the Netherlands, too, the ruling political class received a major blow last year. In spring, there was first the unprecedented victory of the farmers’ party – in which the overly strict EU nitrogen framework also played a major role – and the recent ballot for the Lower House may even bring Geert Wilders to power. Again, European policy choices – the energy supply experiments and again migration policy – played a big role.

In terms of migration policy, the main problem is that there remains a taboo at the European policy level on organising the asylum procedure outside EU territory, so that there is no longer an incentive to use people smugglers. Australia has been applying this successfully for years now, following an agreement with Papua New Guinea. The approach ended drowning deaths there, while thousands continued to die on the Mediterranean Sea.

A bright spot here is not only that the UK is trying to shape such a system with Rwanda, but that in Germany too, Chancellor Olaf Scholz’s party as well as the Christian Democratic opposition are inclined towards this approach. The litmus test will be whether they manage to reach agreements on this with countries outside the EU territory, but the ongoing migration chaos is thus finally forcing European mainstream politicians towards this solution.

Other important elections took place in Poland, where the ruling PiS party had to cede power after years to Donald Tusk, who despite the hopes of eurocrats has no intention of agreeing to a new round of power transfers to the EU, and in Spain, where the centre-right opposition won, but too little, allowing the politically convenient socialist Prime Minister to remain in power with the help of Catalan regionalists.

In any case, 2024 looks set to be a successful year for anti-system parties. In just about every country where national elections are scheduled – Belgium, Portugal, Romania and Austria – they are becoming increasingly popular.

EU green policies under fire

Certainly when it comes to “green” policies, the prevailing discontent in Europe already seems to be influencing policy, although turning the tanker around is proceeding very slowly. The European Parliament still agreed in early 2023 to an effective internal combustion engine ban by 2035, but remarkably, even then, the largest group, the European People’s Party, which is ideologically in the centre, was critical of this. Then in the summer, the EPP opposed the European so-called “nature restoration law”, another round of green rule-making.

In both cases, the EPP failed to stop the legislation, but it is clearly a sign of the times. Also, the increasingly fanatical actions of “climate activists”, in which they, for example, tie themselves to public roads, are met with disapproval by a majority of the population in a Dutch poll, in contrast to, say, farmers’ protests. So it does little for the support base for more and more “climate politics”, which the all in all lousy score of European “climate pope” Frans Timmermans in the Dutch elections also made clear.

Unfortunately, however, it is not so easy to reverse the European tanker, and certainly in terms of energy policy, this is about long-term politics where certain wrong or right choices are difficult to reverse in the short term. In any case, the political consensus seems to be turning away from the dogmatic green narrative, evidenced for example by the fact that nuclear power was cited for the first time ever at the COP28 climate conference as a solution for reducing greenhouse gas emissions.

Even with European fossil fuel extraction, the knob seems to have been turned, with the renewed openness to oil and/or gas exploration in countries such as the UK, Italy and Denmark. This does contrast sharply with the decision by the Dutch government to halt extraction of one of the world’s largest gas reserves, in Groningen, despite high European energy prices, on the basis of excessive damage to local residents. Only a few dared to criticise this, calling the parliamentary committee of inquiry “selective in its truth-telling”.

An alternative approach?

Still, a fundamental abandoning of the EU’s central green planning mindset has not yet happened. Perhaps the alternative approach to reduce carbon emissions, promoted by members of the “Climate & Freedom International Coalition” group, may start to get some more attention. The idea here is to abandon the Paris accord and instead agree an alternative international treaty whereby countries that sign up to it enjoy the trade benefits provided they pursue climate-friendly free market policies.

The Accord would involve nations to agree to abolish dirigiste climate policies that impair free market decarbonization – burdens which raise costs, stifle innovation, and drive industry, investors, consumers, voters and allies away. The idea would then to instead replace these with free market streamlining. Minimizing burdens, barriers and costs creates positive inclusive incentives for everyone to join a framework that accelerates innovation. Reducing the cost and barriers to all new investment speeds up the deployment of new equipment, which is almost always more efficient and cleaner than older, dirtier technology.

Signatories would agree to open markets to trade, competition and inclusive economic rights because the Accord bakes in several strong supply-side incentives – both familiar and new capital accelerant mechanisms that drive investment into newly opened markets, and towards decarbonization. For instance, in every Accord nation, entrepreneurs and financiers could raise internationally reciprocal, private tax-exempt CoVictory Bonds, Loans and Savings Funds, to finance all property, plant and equipment (PP&E) in any Accord nation.  Tax free interest reduces the cost of debt by some 30% or more, driving investment in newer, cleaner technologies, while unlocking capital flows across borders.

Other suggestions are for nations to implement several kinds of new incentives for technological or market innovation, alternatives to carbon taxes, regulation and subsidies:

  • Clean Tax Cuts (CTCs) pick metrics, not technologies, to reward emission reductions with lower tax rates across the four sectors that produce 80% of GHG emissions: transportation, energy and power, industry, and real estate.
  • Demonopolization Tax Cuts accelerate competition-driven decarbonization by eliminating gains taxes for investors who break up monopoly and government-owned companies into a purely private, competitive framework.
  • Game Changer Tax Cuts reward firms that achieve difficult breakthrough innovations that eliminate a large share of greenhouse gas emissions, with 15 years of tax exemption on such profits.
  • Other fiscal streamlining proposals follow a similar strategy of reducing costs for new investment and innovation, to accelerate inclusive participation in expanding markets, globally.

In 2023, the climate consensus has come under fire throughout Europe, and the ground is fertile for an alternative approach. At the core of these suggestions is really the idea to simply end large-scale government involvement into the energy sector, thereby scrapping all convential energy subsidies. Perhaps if the increase in the trend of long term interest rates continues, also this may serve as an extra incentive to opt for this path.

A European Union without a compass

Meanwhile, the European policy level stumbles on, without a clear compass. On the one hand, there have been moves towards centralisation in recent years, such as the EU’s Covid recovery fund, which is financed by common debt and for that reason threatens to become permanent, but when it really matters, the ultimate political power still lies with the member states, thankfully.

This was already evident in the Covid crisis, with the closure of national borders, but also in foreign crises, such as the war in Gaza, member states – rightly – follow their own preferred course. More and more, this is also the case with the attitude towards Ukraine, where the erratic Hungarian Prime Minister Orban has recently gained an ally – his Slovakian colleague Fico.

None of this stops the Eurocrats from continuing to daydream about a unified European foreign policy, with ditto army, but meanwhile the European policy level is neglecting its own core tasks, such as opening up the services market, or making it easier to buy a car in another member state, with some member states even introducing additional trade barriers for doing business within the EU in recent years.

In response to US protectionism, the EU is now coming up with its own protectionism, not only by relaxing its own rules on unfair state aid, but also by creating a vehicle to start handing out EU state aid itself.

On top of that, the EU is threatening old-fashioned trade tariffs on steel imports, should the US do the same again, and just introduced a climate tariff that will saddle African economies with new toll barriers of as much as €25 billion.

Moreover, instead of a focus on improving the business environment in Europe, there is an obsession in Brussels with US “big tech”. If it is not via the rather unilateral application of competition policy rules, it is via new European legislation for digital service providers that European Commissioners are sharply cracking down on platforms such as Elon Musk’s Twitter/X, with the so-called “unbridled free speech” and “disinformation” allegedly prevailing there being an additional thorn in the flesh and something the Commission prefers to curb. Besides, it is questionable whether European initiatives on this are in line with national constitutional protection of freedom of expression.

Also telling of the direction in which the EU is heading is the most recent political agreement on an EU law to start regulating artificial intelligence. Strangely, just afterwards, this was strongly criticised by none other than French President Emmanuel Macron. Who warned that such new rules could put European tech companies at a handicap compared to rivals in the US and China, as well as the UK, which he said would not introduce such regulations. It may be a lesson to those who think the UK will not benefit from Brexit because there is no political will to abolish old innovation-hostile regulations from the time of EU membership. In doing so, Macron stated, “We may well decide to start regulating much faster and much more sharply than our main competitors. However, in doing so, we will be regulating things that we no longer produce or invent ourselves. That is never a good idea.” According to a diplomatic source, France will therefore block the proposed legislation.

DigitalEurope, the federation of the European technology sector, has warned that the EU is coming up with much more such nonsense. According to them, there are also “other sweeping new laws like the Data Act”, which “will cost companies a lot to comply with, resources that will be spent on lawyers instead of hiring AI developers.”

European Commission President Ursula von der Leyen is one of the drivers of the EU’s current policy direction. On the new AI law, she recently stated, “The AI Act transposes European values to a new era.” On climate, too, it’s never enough for her. At the COP28 conference in Dubai, she said, “In climate finance, we have to move from billions to trillions. To get there, we need new sources of revenues. New levies, green bonds and of course – carbon pricing.”

One of the big political questions of 2024 is whether the ideologically left-green von der Leyen will get a new mandate as Commission president. The past five years should make clear the importance of appointing a person to the position who is more in touch with – dominantly centre-right – public opinion in Europe, but whether European heads of state and government realise this sufficiently is very much in doubt.

European trade policy off course

In fact, the European Union has not been putting much energy into removing internal trade barriers for a long time – to the detriment of more and more European regulation and bureaucracy – but when it comes to external trade policy, it was able to continue to achieve successes all in all. The Brexit deal with the UK, for instance, was anything but straightforward, and it must be said that the EU showed the necessary pragmatism at the end here too.

However, 2023 was not a good year for European trade policy. With Australia, talks stalled due to European agricultural protectionism, which is also the main reason why it ultimately failed to reach an agreement with the Latin American trade bloc Mercosur. One bright spot is the approval of the trade agreement between the EU and New Zealand, but all in all this is of limited significance.

Ironically, EU member states also failed to curb trade when they wanted to. Energy trade with Russia, for instance, remained on track despite all the sanctions.

A worrying development this year has been the deterioration in the relationship between the EU and the emerging trading nations of South-East Asia, which may offer an alternative to China for Europe, given the growing tensions between the West and that country. The trigger for the conflict was the EU’s new deforestation directive, which imposes onerous new bureaucratic requirements on importers of palm oil, and let this be a major export product of growth magnets like Indonesia and Malaysia. Both countries responded by freezing trade talks with the EU just before the summer.

The UK’s approach shows how things can be done better. The UK simply recognises local programmes to reduce deforestation, such as Malaysia’s Malaysian Sustainable Palm Oil (MSPO) certification programme, as equivalent, not least because earlier this year, the NGO Global Forest Watch found that Malaysia was making great progress in reducing deforestation. British policy on this was also one of the reasons why the UK became the first European country to be admitted to the Trans-Pacific Trade Agreement CPTPP, the biggest trade deal for the British since Brexit.

Here, the ITC, a joint agency of the UN and the World Trade Organisation, warned that the EU’s approach could have a “catastrophic” effect on global trade, as smaller producers in particular risk being “cut off” from market access. The European approach is part of a wider movement where the EU is increasingly seeking to impose specific policy choices and conditions on trading partners, who of course often do not accept it. The most recent example is the new European “due diligence” directive, which requires importing companies to check not only whether human rights violations are committed by their suppliers, but also whether they respect all kinds of specific ecological standards. According to a German industry federation, “With this, the EU is putting the next nail in the coffin of European industry’s competitiveness.”

2024: All eyes on Trump

A major development for Europe’s geopolitical future will take place in the Americas next year, with the big question being whether Donald Trump manages to get re-elected as US President.

Some warn that Trump will pull out of NATO or that he will cancel the US pledge to protect the Baltic states from Russia. More likely, Trump is suggesting such things to wake up sleep-deprived European countries and urge them to finally take their own defence seriously, but the question is whether Europe wants to risk effectively turning the tide.

For Russian President Putin, 2023 was a real roller coaster: the rapid advance of the private Wagner mercenary army across Russia in June has raised doubts about how strong his internal position is. In turn, the turning of Russia’s war chances in Ukraine later this year strengthened him. That he achieved this thanks to the upgrading of Russia’s war industry should be a “wake-up call” for Western Europe that not sanctions – which have largely failed– but a strong defence are what will keep us safe. So far, however, complacency reigns.

 

A version of this article was originally published in Dutch at TPO.nl.

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