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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.