Why EU capitals are rather wary of Liz Truss

Good morning and welcome to Europe Express.

With UK prime minister Boris Johnson on his way out and Liz Truss most likely to succeed him this week, we will explore what her premiership would mean for the EU and why the Northern Ireland issue remains so problematic.

Over in Brussels, the Financial Times has obtained the European Commission’s latest draft proposals on wide-ranging powers to require businesses to stockpile supplies and break delivery contracts in order to shore up supply chains in the event of another Covid-19-like emergency.

Expect a backlash from businesses over what can be construed as hefty dirigisme.

And with EU energy ministers set to gather later this week to discuss the proposed electricity price cap and the other measures aimed at mitigating the energy crisis, we will look at how climate ambitions have slipped down capitals’ priority list.

Back to Northern Ireland

Liz Truss is expected to be named leader of the Conservative party in the UK today and will visit the Queen tomorrow to take over from Boris Johnson as prime minister.

The foreign secretary’s emergence as the favourite to win the party’s leadership contest after Johnson resigned means Brussels is gripped by one of its favourite pastimes — politely called scenario planning, also known as “what iffery”, writes Andy Bounds in Brussels.

The future of EU-UK relations is at stake after Truss effectively broke off meaningful talks on reforming a post-Brexit deal on trading with Northern Ireland in June in favour of unilateral action.

Truss launched legislation to rip up much of the Northern Ireland protocol — the agreement that keeps the region in the EU’s single market for goods to avoid a trade border on the island of Ireland that could threaten the fragile peace there.

Hardline Conservatives, who have backed her for the leadership, want to scrap all checks on goods moving from Great Britain to Northern Ireland that are not destined for EU member Ireland.

The FT has also reported that Truss is preparing to invoke Article 16 of the protocol, which would temporarily suspend many checks while the two sides negotiate over its application.

EU officials have made clear that would be seen as a hostile act and that talks cannot make progress while the UK has the “loaded gun” of legislation on the table.

Diplomats say EU Brexit negotiator Maroš Šefčovič believes that the new prime minister should be given an opportunity to make a fresh start. He met Conor Burns, the UK’s minister of state for Northern Ireland, at a conference of the British-Irish Association in Oxford at the weekend. Burns said there “could well be the appetite to have another go at this [negotiation on the protocol]”.

Many diplomats are pessimistic. Truss’s evocation of former premier Margaret Thatcher, who loved handbagging European leaders, has not gone unnoticed.

“Her proposals to breach international law with the Northern Ireland protocol bill at the very moment western allies were rallying behind Ukraine — precisely to defend a liberal, rules-based world order — are proof of a stunning geopolitical shortsightedness,” one said.

“So while the EU continues to stand ready to engage constructively with the UK, we’re bracing for another UK leader who would rather use the EU as a decoy to distract from domestic problems than to actually engage and work on mutually beneficial solutions.”

And domestic problems there are aplenty. A quick trawl of headlines across the British media yesterday found very few about Brexit.

Inflation, the ongoing energy crisis and the prospect of civil unrest were front and centre. Perhaps more worrying for the EU was a story in the Evening Standard: “Tory MPs ‘plotting leadership vote before Christmas’ to bring back Boris Johnson”.

Chart du jour: UK energy price rise

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Read Martin Wolf’s take on why assistance to low-income households, and possibly price controls and energy rationing, should be among the most urgent priorities of the new British government taking office this week.

REPower platypus

The EU machinery is pushing full force on its efforts to stabilise energy markets this week, but the gears are crunching far slower on another key piece of its efforts to move away from Russian fossil fuels, writes Alice Hancock in Brussels.

The REPowerEU proposals published in May set out a detailed plan for how the EU would replace the 155bn cubic metres of gas it previously imported from Russia with energy from elsewhere.

Crucial to the package were targets that went beyond what had already been proposed on clean energy and energy efficiency. Renewables, for example, should make up 45 per cent of EU power by 2030, REPower said, up from 40 per cent suggested in the commission’s ‘Fit for 55’ plan from 2021.

Other ideas included speeding up permitting for wind farms and solar parks and increasing energy efficiency by 13 per cent compared to 2020, rather than 9 per cent.

Parliament is set to vote on the renewable energy and energy efficiency directives in Strasbourg in just over a week’s time and is likely to back REPower’s more ambitious numbers in its mandate for negotiations with the commission and council, which started in earnest last week.

But what about the council?

When chairing the rotating EU presidency in the first half of this year, France decided that trying to get member states to back even more ambitious targets would be “opening Pandora’s box again”, said one EU diplomat.

So the council in June agreed to the original 40 per cent target and left it up to the current Czech presidency to work out what to do with the more ambitious goals. But there seems to be little bandwidth for that in the Czech camp: full focus is on the energy market crisis ahead of an emergency council meeting this Friday.

There is also a lurking question of where the remaining €20bn-worth of financing needed for REPowerEU will come from, which is as yet unanswered. (The commission’s plan to sell more carbon allowances to that end has so far failed to gain any traction).

Another EU diplomat blamed the general confusion over REPower on it being “like a platypus”, an egg-laying, web-footed, hybrid mammal. “It’s something that doesn’t really fit into any policy track or timeline,” they said.

What to watch today

1. Ukraine’s Prime Minister Denys Shmyhal is in Brussels for the EU-Ukraine association council

2. Israel’s President Isaac Herzog visits Germany

3. Russia holds Eastern Economic Forum in Vladivostok

. . . and later this week

1. European Central Bank expected to raise interest rate on Thursday

2. EU finance ministers meet in Prague for an informal council on Friday

3. EU energy ministers meet in Brussels for an emergency council on Friday

Notable, Quotable

Germany stands together in a difficult time. No one will be left behind

• German windfall tax: The German government announced a windfall tax on electricity producers, with the proceeds being used to finance a new €65bn package of relief measures to soften the blow of soaring inflation and higher energy bills.

• Beer problem: Belgian beer producers, including the makers of Delirium Tremens, are warning about the energy crisis leading to increased CO₂ prices (up to 13 times higher), a product that is essential for brewers, but also for makers of soft drinks and frozen food, VRT reports.