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The Commission proposes the next generation of EU own resources

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The Commission has today proposed to establish the next generation of own resources for the EU budget by putting forward three new sources of revenue: the first based on revenues from emissions trading (ETS), the second drawing on the resources generated by the proposed EU carbon border adjustment mechanism, and the third based on the share of residual profits from multinationals that will be re-allocated to EU Member States under the recent OECD/G20 agreement on a re-allocation of taxing rights (“Pillar One”). At cruising speed, in the years 2026-2030, these new sources of revenue are expected to generate on average a total of up to €17 billion annually for the EU budget.

The new own resources proposed today will help to repay the funds raised by the EU to finance the grant component of NextGenerationEU. The new own resources should also finance the Social Climate Fund. The latter is an essential element of the proposed new Emissions Trading System covering buildings and road transport, and will contribute to ensuring that the transition to a decarbonised economy will leave no one behind.

Johannes Hahn, Commissioner in charge of Budget and Administration, said: “With today’s package, we lay the foundations for the repayment of NextGenerationEU and provide essential support to the Fit for 55 package by putting in place the financing of the Social Climate Fund. With the set of new own resources, we, therefore, ensure that the next generation will truly benefit from NextGenerationEU.”

Today’s proposal builds on the Commission’s commitment undertaken as part of the political agreement on the 2021-2027 long-term budget and the NextGenerationEU recovery instrument. Once adopted, this package will strengthen the reform of the revenue system started in 2020 with the inclusion of the non-recycled plastic waste-based own resources.

EU emissions trading

The Fit for 55 package of July 2021 aims to reduce net greenhouse gas emissions in the EU by at least 55% by 2030, compared to 1990, to stay on track to reach climate neutrality by 2050. This package includes a revision of the EU Emissions Trading System. In future, emissions trading will also apply to the maritime sector, auctioning of aviation allowances will increase, and a new system for buildings and road transport will be established.

Under the current EU Emissions Trading System, most revenues from the auctioning of emission allowances are transferred to national budgets. Today, the Commission proposes that in future, 25% of the revenue from EU emissions trading flows into the EU budget. At cruising speed, revenues for the EU budget are estimated at around €12 billion per year on average over 2026-2030 (€9 billion on average between 2023-2030).

In addition to the repayment of NextGenerationEU funds, these new revenues would finance the Social Climate Fund, put forward by the Commission in July 2021. This Fund will ensure a socially fair transition and support vulnerable households, transport users and micro-enterprises to finance investments in energy efficiency, new heating and cooling systems and cleaner mobility, as well as, when appropriate, temporary direct income support. The total financial envelope of the Fund in principle corresponds to an amount equivalent to around 25% of the expected revenue from the new emissions trading system for buildings and road transport.

Carbon border adjustment mechanism

The objective of the carbon border adjustment mechanism, which the Commission also proposed in July 2021, is to reduce the risk of carbon leakage by encouraging producers in non-EU countries to green their production processes. It will put a carbon price on imports, corresponding to what would have been paid, had the goods been produced in the EU. This mechanism will apply to a targeted selection of sectors and is fully consistent with WTO rules.

The Commission proposes to allocate to the EU budget 75% of the revenues generated by this carbon border adjustment mechanism.Revenues for the EU budget are estimated at around €1 billion per year on average over 2026-2030 (€0.5 billion on average between 2023-2030).CBAM is not expected to generate revenue in the transitional period from 2023 to 2025.

Reform of the international corporate taxation framework

On 8 October 2021, more than 130 countries that are members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting agreed on a reform of the international tax framework: a two-pillar solution to tackle tax avoidance and aims at ensuring that profits are taxed where economic activity and value creation occur. The signatory countries representing more than 90% of global GDP. Pillar One of this agreement will reallocate the right to tax a share of so-called residual profits from the world’s largest multinational enterprises to participating countries worldwide. The Commission proposes an own resource equivalent to 15% of the share of the residual profits of in-scope companiesthat are reallocated to EU Member States.

The Commission has committed to propose a Directive in 2022, once the details of the OECD/G20 Inclusive Framework agreement on Pillar One are finalised, implementing the Pillar One agreement in line with the requirements of the Single Market. This process is complementary to the Pillar Two Directive for which the Commission adopted a separate proposal today. Pending the finalisation of the agreement, revenues for the EU budget could amount to roughly between €2.5 and €4 billion per year.

Legislative process

In order to incorporate these new own resources in the EU budget, the EU needs to amend two key pieces of legislation:

First, the Commission proposes to amend the Own Resources Decision to add the three proposed new resources to the existing ones.

Secondly, the Commission also puts forward a targeted amendment of the regulation on the current long-term EU budget 2021-2027, also known as the Multiannual Financial Framework (MFF Regulation). This amendment offers the legal possibility to start repaying the borrowing for NextGenerationEU already during the current MFF. At the same time, it proposes to increase the relevant MFF expenditure ceilings for the years 2025-2027 to accommodate the additional expenditure for the Social Climate Fund.

The Own Resources Decision needs to be approved unanimously in Council after consulting the European Parliament. The decision can enter into force once it is approved by all EU countries in line with their constitutional requirements. The MFF Regulation needs to be adopted unanimously by the Council after obtaining the consent of the European Parliament.

Next Steps

The European Commission will now work hand in hand with the European Parliament and the Council towards swift implementation of the package within the timelines set in the interinstitutional agreement.

Furthermore, the Commission will present a proposal for a second basket of new own resources by the end of 2023. This second package will build on the ‘Business in Europe: Framework for Income Taxation (BEFIT)’ proposal foreseen for 2023.

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NATO does not believe in Ukrainian victory

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In Ernest Hemingway’s novel, ‘The Sun Also Rises’, a formerly wealthy, now down on his luck character is asked how he went bankrupt. “Two ways”, he replies, “gradually and then suddenly.” Someday we may ask how Ukraine lost the war and receive much the same answer, believes Big Serge, the well-known international blogger. In his article, he analyzes the situation in Ukraine and gives his military-political forecast:

“It is safe to say that western regime media has set a very low standard for reporting on the war in Ukraine, given the extent to which the mainstream narrative is disconnected from reality.

Even given these low standards, the way the ongoing battle in Bakhmut is being presented to the population is truly ludicrous. The Bakhmut axis is being spun to western audiences as a ‘perfect synthesis of all the tropes of Russian failure’. British officials, in particular, have been highly vocal in recent weeks insisting that Bakhmut has little to no operational value.

The truth is the literal opposite of this story.

Bakhmut is an operationally critical keystone position in the Ukrainian defense, and Russia has transformed it into a death pit which compels the Ukrainians to sacrifice exorbitant numbers of men in order to hold the position as long as possible. In fact, the insistence that Bakhmut is not operationally significant is mildly insulting to the audience, both because a quick glance at a map clearly shows it at the heart of the regional road network, and because Ukraine has thrown a huge number of units into the front there.

All this to say, Ukraine has been very anxious to hold the Bakhmut line, as this is a vastly preferable position to hold, and accordingly they have been pouring units into the sector.

Russian forces, primarily Wagner PMC and LNR units, have been slowly but surely collapsing this Ukrainian stronghold by making liberal use of artillery. In November, now former Zelensky advisor Oleksiy Arestovych admitted that Russian artillery on the Bakhmut axis enjoyed roughly a 9 to 1 tube advantage, which is turning Bakhmut into a death pit.

At the moment, the majority of Russian combat power is uncommitted, and both western and Ukrainian sources are (belatedly) becoming increasingly alarmed about the prospect for a Russian offensive in the coming weeks.

In the opening months of the war, the extant Ukrainian army was mostly wiped out. The Russians destroyed much of Ukraine’s indigenous supplies of heavy weaponry and shattered many cadres at the core of Ukraine’s professional army.

In the wake of this initial shattering, Ukrainian combat strength was shored up by transferring virtually all of the Soviet vintage weaponry in the stockpiles of former Warsaw Pact countries. This transferred Soviet vehicles and ammunition, compatible with existing Ukrainian capabilities, from countries like Poland and the Czech Republic, and was mostly complete by the end of spring, 2022. In early June, for example, western sources were admitting that Soviet stockpiles were drained.

With Warsaw Pact stockpiles exhausted, NATO began replacing destroyed Ukrainian capabilities with western equivalents in a process that began during the summer. Of particular note were howitzers like the American M777 and the French Caesar.

Russia has essentially fought multiple iterations of the Ukrainian Army – destroying the pre-war force in the opening months, then fighting units that were refilled from Warsaw Pact stockpiles, and is now degrading a force which is largely reliant on western systems.

This led to General Zaluzhny’s now-famous interview with the economist in which he asked for many hundreds of Main Battle Tanks, Infantry Fighting Vehicles, and artillery pieces. In effect, he asked for yet another army, as the Russians seem to keep destroying the ones he has.

On January 20, NATO convened a meeting at Ramstein Airbase in Germany, against a backdrop of a massive new aid package being put together for Ukraine. This aid package contains a huge amount of artillery pieces. The aid announced includes nearly 200 artillery tubes. Multiple countries, including Denmark and Estonia, are sending Ukraine literally all of their howitzers.

Furthermore, the United States has taken new, unprecedented steps to supply Ukraine with shells. Just in the past week, they have dipped into its stockpiles in Israel and South Korea, amid reports that American stocks are so depleted that they will take more than a decade to replenish.

The number of tanks that can be reasonably given to Ukraine is relatively low, simply because of the training and sustainment burden. All of these tanks use different ammunition, special parts, and require specialized training. Receiving a mixed bag of western tanks will create a difficult training, maintenance, and sustainment burden for Ukraine.

The ideal solution for Ukraine would be to receive only Leopard A24s, as these might be available in decent numbers (perhaps a couple hundred), and at least they would be standardized. But, we should also note, of course, that these western tanks are not likely to be game changers on the battlefield. The Leopard already showed its limitations in Syria under Turkish operation. Western tanks like the Leopard have limited combat value and will be destroyed like any other tank.

It does not appear that NATO wants to give Ukraine main battle tanks.

Why? NATO does not believe in Ukrainian victory.

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NYT: The European Union is far from ready to accept Ukraine

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From left to right: Charles MICHEL (President of the European Council), Volodymyr ZELENSKYY (President of Ukraine), Ursula VON DER LEYEN (President of the European Commission) Copyright: European Union

European Union leaders visiting Kyiv last week offered financial help and lasting support to Ukraine as it tries to defeat Russia, but they stopped far short of granting Kyiv its key goal of accelerated membership in the bloc, – informs ‘The New York Times’.

President Volodymyr Zelensky of Ukraine met with the European Commission president, Ursula von der Leyen, and the European Council president, Charles Michel, with an aim of extracting commitments to let Ukraine soon join the bloc’s 27 member nations, which represent about 450 million people. Mr. Zelensky has said he expected E.U. nations to recognize Ukraine’s progress toward membership and touted overhauls designed to cement support.

But the path to membership is typically a protracted one and the bloc is far from ready to accept Ukraine — a country that will need billions in additional aid to rebuild after the war — into its ranks.

For officials in Brussels that presents a dilemma: how to encourage Ukraine to continue making changes to meet the E.U.’s high standards for governments without making promises they are not prepared to keep.

The European leaders walked a careful line, validating Ukraine’s aspirations but gently applying the brakes on talk of fast-track accession.

“The accession process is a merit-based process,” Ms. von der Leyen, a staunch supporter of Ukraine’s  E.U. bid, said. “In other words, there are no rigid timelines. But there are goals that you have to reach reforms.”

Mr. Michel noted to Mr. Zelensky that to proceed with accession talks all E.U. members have to agree unanimously. It was just one reminder that the bloc is not prepared to cut corners.

Under pressure from public opinion and the United States to illustrate the bloc’s long-term commitment to Ukraine, E.U. leaders agreed to grant the country, as well as Moldova, candidate status in June. But Ms. von der Leyen and Mr. Michel have no authorization from the 27 E.U. members to make promises to Mr. Zelensky or to imply that they will bend the bloc’s stringent rules to let Ukraine in faster or with looser demands.

The E.U. accession process typically takes a decade or longer and requires deep changes aimed at aligning with the rest of the bloc. Issues for many countries include economic overhauls, safeguarding judicial independence and a free press, ensuring a competitive democratic political system, and fighting corruption.

Ambassadors from E.U. capitals meeting in Brussels to prepare for a visit by top officials to Kyiv disagreed over wording for a closing statement, with several diplomats insisting that the word “progress” be changed to “efforts” — and refusing to budge.

The episode, recounted by four diplomats and officials who participated in the meetings and spoke anonymously because they were not authorized to share details of the confidential discussions with the news media, showcases a dilemma for the bloc as Ukraine pushes for fast track membership: How to offer hope for a better future soon, without making false promises.

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RAND Corp.: U.S. Policy in the Russia-Ukraine conflict

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The American howitzer М777 is in action. January 10, 2023. By Konstantyn & Vlada Liberov

RAND Corp. could not stand aside and published its assessments and proposals, which show that instead of an analysis of the situation in Ukraine, RAND prefers to use convenient political cliches, which are sometimes far from the real state of affairs. In any case, RAND believes that it is the USA that should be the winner in the war between Russia and Ukraine. And this is a fundamental mistake in the report.

However, we will quote some points from this text “Avoiding a Long War. U.S. Policy and the Trajectory of the Russia-Ukraine Conflict”:

“How does this end? Increasingly, this question is dominating discussion of the Russia-Ukraine war in Washington and other Western capitals.

The trajectory and ultimate outcome of the war will, of course, be determined largely by the policies of Ukraine and Russia. But Kyiv and Moscow are not the only capitals with a stake in what happens.

This war is the most significant interstate conflict in decades, and its evolution will have major consequences for the United States. It is appropriate to assess how this conflict may evolve, what alternative trajectories might mean for U.S. interests, and what Washington can do to promote a trajectory that best serves U.S. interests.

Our analysis suggests that duration is the most important of the remaining dimensions for the United States. The negative consequences of a long war would be severe. So long as the war is ongoing, escalation risks will remain elevated. Duration and escalation risks are thus directly linked.

Additionally, a longer war will continue to cause economic harm to Ukraine as well as to Europe and the global economy.

For the United States, a longer war will entail both increased direct costs (such as more budgetary and military support to Ukraine) and increased opportunity costs in terms of pursuing other foreign policy priorities.

There are possible benefits to protracted conflict: a further weakening of Russia and the opportunity for Ukraine to make territorial gains.

There are other risks to consider, however.

The United States has expended considerable effort building and holding together a global coalition to sanction Russia. Presumably, the United States would aim to gain support from members of this coalition before signaling the possibility of sanctions relief to Russia, but it may not be possible to get all members to agree, which could limit the amount of relief the United States could offer.

Even if coalition members were unified on a plan for sanctions relief, a risk would remain. As the members of the coalition begin to unwind sanctions as part of a negotiations process, some states might become reluctant to put them back in place if the Ukraine-Russia negotiations or agreements collapse. The coalition may not be as strong as it is now if it later needs to reimpose sanctions.

Moreover, U.S. leaders may pay a political cost domestically and with allies opposed to any sanctions relief. Our analysis suggests that this debate is too narrowly focused on one dimension of the war’s trajectory.

Territorial control, although immensely important to Ukraine, is not the most important dimension of the war’s future for the United States. We conclude that, in addition to averting possible escalation to a Russia-NATO war or Russian nuclear use, avoiding a long war is also a higher priority for the United States than facilitating significantly more Ukrainian territorial control.

Whereas the United States cannot determine the territorial outcome of the war directly, it will have direct control over these policies.

President Biden has said that this war will end at the negotiating table. But the administration has not yet made any moves to push the parties toward talks…. to help catalyze the eventual start of a process that could bring this war to a negotiated end in a time frame that would serve U.S. interests.

RAND analysts should be reminded that if they think the best option is ‘negotiations in the interests of the United States’, then they recognize the United States as a party to the military conflict.

Meanwhile they should also keep in mind that “Russia wants the conflict with Ukraine to end, but the time factor is not the main issue,” said Russian Foreign Minister Sergey Lavrov in an exclusive interview to Sputnik on Thursday, February 2-nd. That would serve Russian interests.

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