centre for hennadii udovenko international...

CENTRE FOR INTERNATIONAL

STUDIES

HENNADII UDOVENKO

DIPLOMATIC ACADEMY OF

UKRAINE

POLICY PAPER JULY 2018

Nadiia KOVAL, Borys ZAITSEV

CURRENT PROSPECTS OF REFORMING THE EU:

POTENTIAL IMPACT ON UKRAINE

This policy paper examines the main priorities of current EU reform in the key areas of institutional

arrangements, economic and monetary union, budget, migration policy, enlargement and neigh-

borhood policies, security and defense, and energy, while also estimating the depth of those re-

forms, probability and potential impact on the development of the EU, and the prospects for

Ukraine’s European integration.

INTRODUCTION

The decade after the signing of the Treaty of Lisbon

in 2007 was probably the most challenging in EU’s

history. The 2008 financial crisis demonstrated the

dangers of conducting a common monetary policy

without a common fiscal policy, and austerity poli-

cies contributed to the rapid development of Euro-

sceptic movements. These were further nourished by

the migration crisis of 2015, which ruined the Dublin

consensus and fomented several conflicts between

the EU states. Russia’s armed aggression in Ukraine

and Syria and the inconsistent policy of U.S. Presi-

dent D. Trump compelled the EU to considerably re-

vise its security and defense policy. Finally, the pro-

cess of Britain's exit from the EU raised fundamental

questions about the future of the European idea it-

self.

1 White paper on the future of Europe: Five scenarios. https://ec.europa.eu/commission/white-paper-future-eu-rope/white-paper-future-europe-five-scenarios_en 2 President Jean-Claude Juncker's State of the Union Ad-dress 2017 Brussels, 13 September 2017 http://eu-ropa.eu/rapid/press-release_SPEECH-17-3165_en.htm 3 Initiative pour l'Europe - Discours d'Emmanuel Macron pour une Europe souveraine, unie, démocratique.

The desire to use the deep crisis as an opportunity to

reach a new level of integration brought about sev-

eral reform proposals. In March 2017, the European

Commission (EC) published a report presenting five

scenarios for the development of the EU by 2025 –

ranging from the single market only to federaliza-

tion1. President of the EC J. C. Juncker developed

these ideas in his State of the Union speech in au-

tumn 2017 2 . French President E. Macron ambi-

tiously made EU reform a key element of his presi-

dency agenda 3 , structuring it around the idea of

multi-speed integration. The Franco-German

Meseberg Declaration of June 2018 4 reflects an

agreement between two "engines" of European inte-

gration on the desirable directions of EU reform. The

EU is discussing not only big projects but also the

necessary updates to common policies regarding mi-

gration, finance, banking, agriculture, energy, and

many others.

http://www.elysee.fr/declarations/article/initiative-pour-l-europe-discours-d-emmanuel-macron-pour-une-europe-souveraine-unie-democratique/ 4 Meseberg Declaration. Renewing Europe’s promises of se-curity and prosperity. Tuesday, 19 June 2018 https://www.bundesregierung.de/Content/EN/Pressemit-teilungen/BPA/2018/2018-06-19-meseberg-declara-tion.html

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The reformers not only try to circumvent the com-

plex and lengthy processes of revising the EU's trea-

ties, but also hope to launch key reforms before the

2019 European Parliament (EP) election. This elec-

tion may substantially change the composition of the

EP, the EC, and the Executive Board of the European

Central Bank (ECB). An increased risk of a triumph

of populist parties may close the window of oppor-

tunity and completely reverse the political agenda of

the EU. Conscious of this problem, President of the

European Council D. Tusk scheduled the EU Lead-

ers’ Agenda from October 2017 to June 2019 to ad-

dress the key issues of EU reforms5.

In 2017, with the full ratification of the Association

Agreement and visa liberalization, Ukraine com-

pleted an important phase in its relations with the

EU. The Association Agreement defined the scope

5 Leader’s Agenda. Building Our Future Together. October 2017. www.consilium.europa.eu/media/21594/leaders-agenda.pdf 6 The Address of the President of Ukraine to the Verkhovna Rada of Ukraine 'On the Internal and External Situation of

and timing of the reforms, which are necessary for

maximal deepening of relations, and provided broad

opportunities for sectoral integration. As to the pro-

spects of Ukraine’s further integration with the EU,

President P. Poroshenko set the following priorities

in 2017: association with the Schengen Area, joining

the Customs Union, Energy Union, Digital Single

Market, and obtaining full membership in the Euro-

pean Common Aviation Area6. However, both imple-

menting the Association Agreement and striving for

further integration must take into account the con-

text of numerous dynamic changes in the EU – fac-

tors which are analyzed in this paper.

INSTITUTIONAL REFORM

In recent years, the crises have made the EU’s insti-

tutional malfunctions painfully visible: the usage of

Ukraine in 2017', », 7 September 2017 http://www.presi-dent.gov.ua/news/poslannya-prezidenta-ukrayini-do-ver-hovnoyi-radi-ukrayini-pr-43086 [in Ukrainian]

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ad hoc mechanisms, “manual control” management,

common unscheduled mini-summits, intergovern-

mentalism, and the increased influence of particular

states. These mechanisms offered quick-fix solu-

tions but did not structurally and systematically

solve problems within the EU legal framework. Indi-

rect consequences such as loss of trust, accusations

of non-transparency, self-willed actions, and demo-

cratic deficit have fostered Euroscepticism and na-

tionalist sentiments.

Even though a lot of attention is devoted to the ur-

gency of institutional reform7, the probability that a

breakthrough will be achieved by June 2019 is very

low. The European Council meeting of 27 leaders on

23 February 2018 outlined numerous ambitious

ideas, all of which were contested for various rea-

sons. Some of those ideas included reducing the

number of European Commissioners, expanding

qualified majority voting on foreign policy and fiscal

policy matters, merging the positions of the EC’s and

the European Council’s Presidents, and creating a

pan-European list of candidates for the 2019 EP

election. Disagreements were due largely to differ-

ences in the priorities of member states and fears of

losing sovereignty or altering the balance of power

between the EU institutions.

For the 2019 EP election, the “lead candidate”

(Spitzenkandidat) process, established in 2014 and

which permits the victorious party’s leader to be-

come the EC’s President, will still be utilized. How-

ever, Spitzenkandidat procedure remains a half-

hearted measure. On the one hand, any EP candidate

must be approved by the European Council. On the

other hand, the voting process democratizes the se-

lection of the EU leadership only partially, because

voters still do not have a direct influence over this

procedure. A meaningful reform of the Spitzenkan-

didat procedure is possible only with the introduc-

tion of transnational lists and the inclusion of votes

from constituents in all member states. And yet, a

7 In addition to the above-mentioned documents, see also: Communication from the Commission to the European Par-liament, the European Council and the Council. A Europe that delivers: Institutional options for making the European Union's work more efficient. The European Commission's

reform of this kind will not happen until 2024 at the

earliest.

The Franco-German Meseberg Declaration only

proposes to work on reducing the number of Com-

missioners and establishing the transnational lists of

candidates for the 2024 EP election. Further institu-

tional reforms were not discussed during the Euro-

pean Council meetings on 28-29 June 2018. Finding

a solution to the problematic paragraphs of the trea-

ties, especially the almost impossible application of

Article 7 sanctions against infringing states, was also

postponed.

ECONOMIC AND MONETARY UNION

A reform of the Economic and Monetary Union

(EMU) has two key dimensions. On the one hand,

there is the urgent need for a reform of the EMU in-

stitutional arrangements, which will correct short-

comings that complicated the resolution of the 2008

eurozone crisis and prevent similar crises in the fu-

ture.

On the other hand, the creation of powerful institu-

tions of the euro area will contribute to the for-

mation of a nucleus of closely integrated member

states and will create the multi-speed EU de facto.

The reform of the EMU was already an aspiration of

French President E. Macron, whose initial proposals

included the creation of a separate budget and par-

liament for the euro area as well as creating the po-

sition of the EU Minister of Economy and Finance.

However, German Chancellor A. Merkel was con-

cerned about Germany's eventual excessive financial

commitments to other countries' debts, which thus

led to support for smaller reform steps – a method

which is also supported in the Netherlands and

Northern European states.

It took eight months for France and Germany to

reach an agreement, which is outlined in the

Meseberg Declaration. Germany agreed that the

common eurozone budget will be launched in 2021,

with a vague structure outlining both national and

contribution to the Informal Leaders' meeting of 23 Febru-ary 2018. https://ec.europa.eu/commission/sites/beta-po-litical/files/communication-institutional-options-for-mak-ing-the-european-union-work-more-efficient_en.pdf

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European funding, most probably via a controversial

tax on financial transactions. France and Germany

still have disproportionate ideas on the necessary

funding contributions (France would like to see a

budget over 250 billion EUR, Germany supports just

a few dozen billion EUR). Further, the establishment

of the EU Minister of Economy and Finance is still

contested by Sweden, Denmark, Finland, Estonia,

Latvia, Lithuania, Ireland and the Netherlands. An-

other set of 12 states (Northern Europe, the Benelux

Union, Malta, Ireland and Austria) opposed even

these general statements, so the separate eurozone

budget was not even mentioned in the Statement of

the Euro Summit on 29 June 2018.

Regardless, there is a stronger consensus about the

implementation of the priorities agreed upon in De-

cember 20178 - strengthening of the banking union

and a reform of the European Stability Mechanism

(ESM).

Regarding the banking union, the EU managed to in-

troduce more effective control of the ECB over na-

tional banking systems and ensure intervention of

the Single Resolution Board to prevent a member

state’s debt rising in case of a collapse of a certain

bank. The Single Resolution Fund, which is financed

by the banking sector of the euro area, was estab-

lished to provide funding for the restructuring of im-

portant banks in case of crisis. To complete the

banking union, it is necessary to solve the problems

of risk sharing and non-performing loans. The Euro-

pean Deposit Insurance Scheme, which was pro-

posed by the European Commission and France, was

faced with opposition from Germany, the Nether-

lands, and the Nordic states. For them, the main pri-

ority is to reduce the risks in the banking systems of

problem countries such as Italy and Greece.

An accord on the incorporation of the ESM into the

EU legal framework, which was created in 2012 to

provide financial assistance to the eurozone coun-

tries, was reached. It was a compromise between the

positions of France and the EC, on the one hand, and

8 Commission sets out Roadmap for deepening Europe's Economic and Monetary Union. Brussels, 6 December 2017. http://europa.eu/rapid/press-release_IP-17-5005_en.htm

Germany, on the other. In line with the accord, the

ESM will be transformed into the European Mone-

tary Fund with broadened authority to supervise the

national economies’ conditions and their fiscal effi-

ciency. Moreover, the ESM will be used as a financial

backstop for failing banks. The accord was approved

by the European Council on 28-29 June 2018, but

the transformation of the ESM will still be rather

gradual. The timing of the ESM reform should be

planned until December 2018, and the transfor-

mation itself will begin no earlier than 2020.

Thus, a mutual understanding between France and

Germany of the euro area reform turned out to be

vague, and negotiations with other states threaten to

further erode its pace and scope. Opponents of polit-

ical reinforcement of the euro area are mainly EU

non-eurozone-members, especially those from East

and Central Europe, which are afraid of finding

themselves in lower echelons of multi-speed Europe,

and the eurozone countries that want to concentrate

their efforts on the agreed priorities of the banking

union and the ESM. The profound reform and

strengthening of the euro area before the 2019 elec-

tion are not expected while the EU will focus on par-

tial improvements.

EU BUDGET

The project of the Multiannual Financial Framework

(MFF) 2021 – 2027, proposed by the EC9, aims to

resolve the problems rising from the loss of the Brit-

ish contributions to the EU and to use this oppor-

tunity for reordering, restructuring, and changing

the priorities of EU funding.

First, there is a need to increase contributions from

the other states, since the UK, a net donor with an

annual contribution of approximately 13 billion

EUR, is leaving the Union. The EC proposes to in-

crease the overall size of the budget from 1% to

1.114% of the member states’ GNP. Currently, eight

countries in East and Central Europe have expressed

9 A Modern Budget for a Union That Protects, Empowers and Defends. The Multiannual Financial Framework For 2021-2027. https://Eur-Lex.Europa.Eu/Legal-Con-tent/En/Txt/Html/?Uri=Celex:52018dc0321&From=En

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their readiness to increase contributions from 1% to

1.4% of GNP. The Netherlands, Austria, Sweden,

Denmark, and Finland are opposed to the contribu-

tions increase and instead support a reduced budget.

The EC proposes to create financial resources for the

EU that would be independent of the states’ contri-

butions. The sources might include a 3% corporate

tax, 20% of the EU Emissions Trading System reve-

nues, and a tax on plastic packaging. However, not

every state is willing to allocate tax collecting author-

ity to the EC.

Second, an increase in contributions/budget reduc-

tion is connected with the evolution of funding pri-

orities. In the current budget proposal, the EC has

taken a course towards strengthening common de-

fense, security, and migration policies. In addition,

the EC proposes a significant rise in funding for ed-

ucation and applied research, infrastructural pro-

jects in the energy sector, transportation and tele-

communications, and in the digital sphere. The EC

aspires to incorporate the European Development

Fund (EDF) into the budget, shifting from function-

ing strictly via intergovernmental agreements. Thus,

the budget for foreign policy related activities will be

increased by almost 30%, from 94 to 123 billion

EUR.

The EC also proposes to reduce traditional expendi-

tures. Funds for the Common Agricultural Policy

(CAP) are to be reduced by 5% (CAP currently ac-

counts for 38% of the EU budget spending), while fi-

nancing conditions for Eastern and Central Euro-

pean countries are to be improved. Expenditures for

the cohesion policy (currently, one-third of the

budget expenditures) are proposed to be reduced by

7% with the reduction of the Cohesion Fund by a to-

tal 45%. Priority will be given, instead, to the Euro-

pean Regional Development Fund (ERDF), which

already funds poorer regions of the EU.

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As is the case with other reforms, the basic principles

of future budget reform should be adopted before

the 2019 EP election. However, the absence of a

mechanism for resolving financial disagreements

between states gravely complicates reaching a con-

sensus. In addition, the EC developed a plan that will

make the distribution of funds in the cohesion policy

framework dependent on the states’ compliance

with the rule of law. Adoption of such a plan might

trigger a vetoing the whole budget by Poland or Hun-

gary.

EXTERNAL BORDERS, THE SCHENGEN

AREA, AND MIGRATION

The urgency of migration policy reform became ap-

parent during the 2015 crisis, when the Dublin Reg-

ulation, which placed the burden dealing with mi-

grants on the state of their arrival, failed in the face

of the massive migration inflows. The open-door

policy of Chancellor A. Merkel reduced the initial

pressure, but gradually antagonized many countries

and a part of German society, subsequently promot-

ing the growth of anti-migration political forces.

After the controversial mandatory migrant reloca-

tion plan, which operated during 2015-2017 and

ended with a mere 30% efficiency, the focus of mi-

gration debate gradually shifted. The policy of open-

ness and solidarity, expressed in quota resettlement

of migrants in all member states, was replaced by an

emphasis on the need for stricter protection of the

EU external boundaries and maximum restriction of

the migrants’ “secondary movements” between the

EU member states.

In 2017-2018, in numerous EU member states (Aus-

tria, Italy, or Hungary) politicians have grasped

power or maintained it mainly by adopting an anti-

migrant rhetoric, and otherwise moderate govern-

ments have adopted stricter postures (strengthening

migration rules in France; compromise within the

German coalition). Generally, as of 2018, the idea of

the heavily guarded EU external borders and more

selective migration policy has become the basis for

mutual understanding for countries as different as

10 Migration Compact Contribution to an EU strategy for ex-ternal action on migration. Italian Non-Paper

Denmark, Italy, and the Visegrad Four states. How-

ever, the overhaul of the Dublin regulation is ham-

pered due to the extremely diverging interests of the

individual states.

The European Council meetings on 28-29 June 2018

became a key event for the migration debate. First,

leaders have agreed on the concept of ‘regional plat-

forms’ outside the EU (mostly in Northern African

countries), the main task of which will become the

separation of those who have legal rights for asylum

from economic migrants. The EU leaders are now set

to begin negotiations with respective partners. How-

ever, there is no certainty whether certain countries,

such as Tunisia or Egypt, will agree to create a “plat-

form” because of the risk of internal political desta-

bilization. Furthermore, such migration centers can

be voluntarily created in various EU states.

Second, EU states have agreed to counter migrants’

secondary movements within the EU through bilat-

eral agreements. In particular, France, Spain, and

Greece have already agreed to take back migrants

who registered in these countries but moved to Ger-

many later on. However, Italy continues to oppose

this approach and demands that all Mediterranean

ports to take in rescue ships with refugees – a de-

mand which France and Spain disagree with.

Third, cooperation with external partners remains a

very important element of the migration policy. The

EC will provide Turkey with the second tranche of 3

billion EUR to counter illegal migration, and it will

increase assistance to EU partner states in Africa by

500 million EUR. The draft Migration Compact pro-

posed by Italy in April 201810 corresponds to the ear-

lier ideas of Hungary and the EU External Action

Service, which links EU development assistance to

cooperation pertaining to the issues of migration

and which also predicts a certain prioritization of re-

lations with Africa.

The above-mentioned decisions cannot be consid-

ered final, as the EU leaders have not managed to

agree on the future of the Dublin regulation. The

perspectives of the establishment of the EU Agency

for Asylum, which would deal with the border issues

http://www.governo.it/sites/governo.it/files/immigra-zione_0.pdf

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on the basis of common European asylum legisla-

tion, remain unclear. Preservation of the freedom of

movement within the Schengen Area still presents a

challenge. Austria has scheduled an informal Sum-

mit on Migration in Salzburg on 20 September, with

the strengthening of external borders as the main

topic.

EUROPEAN NEIGHBOURHOOD POLICY

AND ENLARGEMENT NEGOTIATIONS

In 2018, the EU enlargement policy became a victim

of a gradual collapse in pro-European optimism.

Prior to that reduced focus, European institutions

considered the rapid integration of the Western Bal-

kans states as an integral part of EU reform. The EC

had to demonstrate the persistent attractiveness of

the European project, so negotiations substantially

intensified.

In February 2018, the EC published an “enlargement

strategy”11 and in April 2018 it recommended that

negotiations begin pertaining to EU membership for

Macedonia and Albania. However, with influence

from France, the Netherlands, and Denmark, the fi-

nal declaration of the EU-Western Balkans summit

on 17 May 2018 stated only the overall European

perspective for the Western Balkans, not their future

accession to the EU. Finally, a compromise was

reached by the end of June: negotiations with Alba-

nia and Macedonia will start no earlier than June

2019. Until that time, these states should fulfill a

number of obligations, in particular regarding their

fight against organized crime and corruption. Nego-

tiations with Serbia and Montenegro in regards to

their accession are ongoing, although the scheduled

membership date, which is 2025 according to the

EC, looks overtly optimistic.

The terms of the March 2016 agreement on cooper-

ation with Turkey in resolving the migration crisis

included political decisions to open several blocked

negotiation chapters of the accession process as well

as visa liberalization. However, the authoritarian

11 A credible enlargement perspective for and enhanced EU engagement with the Western Balkans. Strasbourg, 06.02.2018 https://ec.europa.eu/commission/sites/beta-political/files/communication-credible-enlargement-perspective-western-balkans_en.pdf

tendencies of the Turkish government, which inten-

sified after the 2016 aborted military coup, led the

EU states and institutions to oppose the member-

ship of Turkey even more openly (namely, France,

Germany, the Netherlands, and the European Par-

liament). Nevertheless, Turkey remains an im-

portant economic and political partner (especially in

the context of migration) with no formal termination

of the accession process in sight.

The EU neighborhood policy maintains a course to-

wards stabilization of the external circle of the neigh-

boring states and promotion of their internal resili-

ence, as previewed in the 2016 EU Global Strategy.

Moreover, it is planned to structure the next EU

budget in line with this logic12. On 14 June, the EC

proposed a Neighborhood, Development and Inter-

national Cooperation Instrument (NDICI), that

should absorb several existing instruments, includ-

ing the European Neighborhood Instrument, and

the European Development Fund, which previously

operated as an interstate mechanism. Development

assistance will become the focal point for this geo-

graphically broad and flexible agreement, with more

than 90% spent in compliance with the official de-

velopment assistance rules.

Thus, in the enlargement policy, the principle of

“deepening first”, which makes internal reforms a

priority, gained popularity. In the neighborhood pol-

icy, an emphasis on stabilization and development

assistance for the geographically broad region is the

main course. This trend, which is partly explained by

the consequences of the migration crisis and the

logic of the upcoming election, may cause the growth

of Euroscepticism in neighboring countries and pro-

mote intensification of the external players' influ-

ence in the EU’s Neighborhood.

12 EU Budget for the Future. The Neighborhood and the World https://ec.europa.eu/commission/sites/beta-political/files/budget-proposals-neighbourhood-world-may2018_en.pdf

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DEFENSE AND SECURITY COOPERATION

The reasons that induced the EU to strengthen secu-

rity and defense cooperation were the uncertainty

about US security guarantees, the withdrawal of the

militarily strong United Kingdom, and a wide com-

bination of security challenges (ranging from Rus-

sian aggression in Eastern Europe to international

terrorism). Given the fragmentation, inefficiency,

and underfunding of the defense industries, almost

all member states recognized the need for increased

cooperation.

The disagreements concerned only the priorities of

such cooperation and its scope. Initially, the German

view of slow progress of the biggest possible number

of EU states prevailed over the French concept of

deeper cooperation of the strongest EU states.

In December 2017, the European Council approved

Permanent Structured Cooperation (PESCO), which

involved 25 of the 28 EU member states (except

Denmark, Malta, and the United Kingdom). The co-

operation of the EU member states in defense and

security-related projects allows each state to use its

specialization and comparative advantages. In

March 2018, 17 initial projects and their participants

were approved with even more projects expected to

be approved by November 2018.

Despite the fact that this cooperation is voluntary,

mandatory elements were also introduced. The EU

states have to adopt national plans with commit-

ments within PESCO, which will be regularly evalu-

ated by the European Defense Agency and the High

Representative for Foreign Affairs and Security.

The countries of Eastern and Central Europe were

initially skeptical about PESCO, underlining the

risks of weakening NATO's role and the potential

threat to their own defense industries from large

Western European companies. However, the risks of

being excluded from a common defense policy and

not receiving relevant funding from the EU budget

have outweighed these reservations.

By the end of 2018, the rules for third countries’ par-

ticipation in PESCO projects should be approved.

First of all, they aim to involve the United Kingdom

(since the EU is losing this member, which ac-

counted for 23% of its total defense expenditure),

and to a lesser extent Norway.

In the fall of 2018, the Coordinated Annual Defense

Review (CARD), an analytical report from the Euro-

pean Defense Agency containing recommendations

for joint research programs and military coopera-

tion, will be published. In addition, the European

Commission proposed to launch an EU Defense In-

dustrial Development Program to intensify joint de-

velopment and production of high-tech defense

equipment. The funding for this Program will be

progressively increased.

While PESCO is promoted as an initiative which is

compatible and complementary to NATO, it still has

the potential to further strengthen the EU's strategic

autonomy. In addition, more ambitious cooperation

returned to the agenda in June 2018, after Germany

supported President E. Macron’s plan of creating a

European rapid response force, which also implies

Great Britain's involvement. Other potential partici-

pants include Germany, Italy, Spain, the Nether-

lands, Belgium, Portugal, Denmark, and Estonia.

Given the weak starting positions, the development

of defense and security cooperation within the EU is

quite dynamic. However, the scope of a strengthen-

ing of European security and defense still depends

on the financing problem. Only Great Britain, Esto-

nia, Greece, Poland and France adhere to the NATO

standard for 2% GDP of defense spending. By 2021,

Germany has to increase its defense budget to 42.4

billion EUR (1.2% of GDP).

ENERGY SECTOR AND ENVIRONMENTAL

PROTECTION

The EU's common energy policy and creation of the

Energy Union have been increasingly linked to is-

sues of climate change and environmental protec-

tion. Relatively less attention has been paid to the se-

curity dimensions, such as diversification of supply

sources and chains.

By 2020, the European Commission aims to achieve

a 10% increase in the interconnection of the EU

states’ power grids by stimulating joint energy pro-

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jects. Among those, projects to strengthen connec-

tion of the electrical grids of the Iberian Peninsula

with France, of the Western Balkans’ grids with Cen-

tral-European networks, and of the Baltic states’

grids with the EU network. Currently, the most iso-

lated are the energy systems of Cyprus, Poland,

Spain, and the UK.

In line with the aims of decarbonization, the EC

works on projects to diversify economies of the re-

gions which depend on fossil fuels (namely, some re-

gions in Poland and Slovakia). However, particular

states, especially in Eastern and Central Europe,

continue to subsidize transport and other industries

that are dependent on fossil fuels, complicating the

decarbonizing process.

The EU has succeeded in achieving the goal of reduc-

ing greenhouse gas emissions by 20% by 2020, but

it seeks to accelerate decarbonization of sensitive

sectors such as transport and automotive industry by

introducing new emission standards or by stimulat-

ing innovative production. In addition, the Emis-

sions Trading System (ETS), which encompasses

11, 000 industrial sites in 31 states (the EU + Liech-

tenstein, Iceland and Norway), are required to buy

credits for harmful gas emissions, which they trade

with other EU states in further attempts to reduce

emissions. The ETS increases the price of fossil fuels

usage and impels to states to increase efficiency and

search for alternative energy sources.

Decarbonization should be considered in the context

of the general perception that natural gas is a more

environmentally friendly fuel. This indirectly sup-

ports the expansion of gas supplies from the Russian

Federation (currently 40%), and partly explains the

EU’s insufficient counteraction to the construction

of the Nord Stream 2 pipeline as well as the relatively

soft decision against monopolization by Gazprom,

the Russian state-controlled energy entity. Such a

policy contributes chiefly to divisions among the EU

states. The development of Nord Stream 2 project

contradicts the aims of diversification and energy se-

curity and increase the risk of energy monopoliza-

tion. The EC's decision on the legality of the Nord

Stream 2 construction, which is expected this au-

tumn, will be one of the key markers not only for the

future of the Energy Union, but also for the EU itself.

COMMON DIGITAL POLICY, SCIENCE, AND

RESEARCH

The main priorities of digital integration are the

completion of the Digital Single Market and in-

creased cybersecurity. The fundamental principle of

the EU’s digital policy is to stimulate innovations

while also protecting citizens’ rights. In the EC’s pro-

posal for the next EU budget for 2021-2027, the

funding for Connecting Europe Facility is planned to

be increased in order to improve the access of house-

holds and enterprises to information technologies.

Furthermore, the EC suggested launching a separate

Digital Europe Program to coordinate joint initia-

tives in information technologies. By the end of

2018, the priorities of the EC will be the completion

of the Digital Single Market, protection of economic

competition and intellectual property, and establish-

ment of digital contracts.

The European Commission and the European Coun-

cil have a consensus on the need to strengthen cyber-

security. In the data protection policy, the EU cur-

rently institutionalizes specialized agencies and

launches joint initiatives. The EC proposed to create

an EU certification framework for information tech-

nology products and services to standardize cyberse-

curity requirements. The European Council meet-

ings of 28-29 June postponed a decision to introduce

digital taxation, with EU member states agreeing to

further examine the EC’s proposals.

From 2014 to 2020, the “Horizon 2020” program

functions to support scientific research and innova-

tion with a budget of 79.4 billion EUR. The program

focuses on the development of innovations in bio-

technologies, information technologies (including

cybersecurity), and alternative energy as well as

technologies for the implementation of a circular

economy. The mid-term evaluation of “Horizon

2020” by the expert team and the European Com-

mission points to the need for deeper coordination

between the EU’s research funds and for a wider

availability of research results. For the 2021-2027

budgetary period, the EC proposes to allocate 97.6

billion EUR to “Horizon Europe” — the next research

and innovation framework program.

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CONCLUSIONS

The analysis of the progress in the EU reform pro-

cess shows that the leadership of the EU has not

taken advantage of favorable conditions, formed due

to the electoral success of pro-European forces in

2017 and creative impulses of different reform plans.

In key areas, reforms that could dramatically en-

hance the attractiveness of the European project or

correct the existing flaws have not been agreed upon.

Moderated ambition and a tendency to postpone the

tough decisions have severely slowed the more am-

bitious initiatives.

In particular:

• A return to the discussion of the EU institutional

reform may be expected after the 2019 EP election,

perhaps in the form of a new treaty. The introduction

of transnational lists for the European Parliament

election or the reform of the Spitzenkandidat proce-

dure is also postponed until at least 2024.

• The reform of the euro area’s institutions has

stalled halfway, because the eurozone states cannot

resolve the dilemma between the urgent need for in-

stitutional reinforcement and the fears that EU

member states will divide into more and less privi-

leged. The forecast for completion of the banking un-

ion and the transformation of the ESM is more opti-

mistic. Nevertheless, the process remains quite slow.

• The draft EU budget contains a number of reform

proposals both in funding (increasing individual

states’ contributions, creation of independent

sources of income) and in shifting priorities (reduc-

ing the funding for common agricultural policy and

cohesion policy, while spending more on migration,

defense policy, digitalization, and research). The

main threat to successful negotiations over the

budget are the contradictory interests of states,

which may directly prevent reaching a necessary

consensus before the 2019 EP election.

• EU member states could not come to final deci-

sions in migration policy, but the majority of them

reached a common perspective that includes protec-

tion of the EU external borders and maximal out-

sourcing to third countries of solution to the refugee

problem as priorities. At the same time, controver-

sial issues such as secondary movements of migrants

and asylum seekers within the EU were postponed

until autumn at the earliest. This may indirectly in-

fluence overall functioning of the Schengen Area.

• There are visible steps backward in the enlarge-

ment policy in recent months, most vividly in the at-

tempts to further put off the accession of the West-

ern Balkans countries into the EU, despite the prior

agreement on this issue and the shaky political and

security situation in the region.

• The neighborhood policy is developing in line

with directions identified in 2015-2016, with an em-

phasis on stabilization and development of resili-

ence. This priority was also highlighted this year in

the new budgetary instrument for financing the EU

foreign policy, which combined funding for the

neighborhood policy with several other expenditure

areas.

• The start of the enhanced military cooperation

of the EU states in the form of Permanent Structured

Cooperation (PESCO), the coordination of national

defense policies in the Coordinated Annual Defense

Review (CARD), the intensification of military re-

search in order to achieve strategic autonomy as well

as Germany's support for the future European Inter-

vention Force are examples of relatively successful

initiatives.

• The EU energy policy shifts attention away from

security to environmental issues. Therefore, most in-

itiatives are related to climate change and intercon-

nection of the member states' energy systems. The

result is a rather weak policy towards the Nord

Stream 2 pipeline, which continues to threaten divi-

sions within the EU.

Consequently, having missed the chance to swiftly

implement ambitious reforms, the EU concentrated

on the slow progress of a maximum number of mem-

bers. This model could be described as “doing a little

more together". The understanding of the impossi-

bility of significant breakthroughs before the 2019

election is generally accepted. Thus, in the coming

months, we will observe the transition from the logic

of reform agenda to the logic of election and political

struggle. Moreover, Ukraine is entering the turbu-

lent pre-election period almost simultaneously with

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the EU, which only hinders the development and im-

plementation of long-term goals. There is no expec-

tation of a breakthrough solution within the next

year.

The 20th EU-Ukraine Summit, held in Brussels on 9

July 2018, demonstrated that the EU leaders are not

currently ready for the new organizational forms of

Ukraine’s European integration outside of the Asso-

ciation Agreement, but are ready to deepen cooper-

ation in its existing form. Therefore, the Association

Agreement will remain the main framework of coop-

eration and sectoral integration, and the course to

deepening integration in key areas appears to be the

best strategy for the years to come. On the other

hand, intensification of domestic political discus-

sions on further integration can revitalize Ukraine's

implementation of the Agreement, increase public

support for the pro-European course, and stimulate

the development of areas and policies where Ukraine

is ready to do more.

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