Four Take Aways from the Composition of the EU Commission

The posts for the new EU Commission under Juncker have been announced.  Over the last several years, its role and institutional capacity increased since the onset of the crisis.  It has been an equal partner with the ECB and IMF in the Troika oversight, implementation and enforcement of the various aid programs in Europe.  

From a high level, there are four takeaways for international investors.

First, there has been a real effort to include more women commissioners.   Nine have been named.  It is in this sense that the Commissioners are diverse.  However, in terms of the representation of a wider range of views, in line with the diversity of the EU parliament, it falls short. Most of the key posts have gone to Juncker's center-right allies.

Second, the main exception was the France's Moscovici (center-left) being given the Economic and Financial Affairs Commission.  It is quite remarkable that France got this plumb assignment.  A few hours prior to the public announcement, France's Finance Minister Sapin declared (apparently unilaterally) that it would overshoot the budget deficit target this year and next, which are now seen at 4.4% this year and 4.3% next year.  

This was partly a function of the official recognition of the poor state of the economy.  This year's GDP was cut to 0.4% from 1% and to 1.0% next year from 1.7%.  Germany's Schaeuble resisted this appointment and noted that since 2008, France has not submitted a budget confirming to the EU rules.  

Third, the UK's Lord Hill was given the financial services portfolio.  Although UK Prime Minister Cameron did not conceal his displeasure at the decision to accept Juncker as EC President, he did not retaliate.   This is exactly the post that Cameron wanted to secure for the UK, from which its interests can be defended.   While the Scottish referendum is the first order of business for Cameron, he does face a rebellion by many Tory backbenchers, who want to campaign harder on an anti-EU platform.  The combination of the financial services portfolio and the appointment of other center-right reform minded commissioners, will strengthen the hands of those wanting to remain in the EU as much as could be reasonably hoped.  

Fourth, the anti-trust portfolio was given to Denmark's Vestager.  This is important because of outstanding issues with Google and Gazprom.  Sweden's Malmstroem will guide trade policy, which includes the (troubled) EU-US free-trade negotiations. 

Germany cannot cut a break.   Oettinger, who previously had the energy portfolio, was named Commissioner for Digital Economy and Society.  This is seen as a secondary assignment, though it includes overhauling the EU telecoms industry.    Last week, the ECB took bold action, driving the deposit rate deeper into negative territory and pre-announcing an asset-backed securities purchase scheme, without details, over the German objections.    Although many are not talking about it, we think it is important not to forget that with Lithuania joining EMU on January 1, there will be fewer ECB policy making meetings, and central banks will vote on a rotating basis, including Germany. 

As noted, Germany resisted Moscovici's appointment as Economic and Financial Affairs Commissioner.  However, Juncker seems to have made a conciliatory gesture.  Moscovici will be hemmed in by other appointments.  Finland's Katainen, for example, who has been a vocal defender of fiscal discipline, will oversee eurozone budget issues and the former prime minister of Latvia Dombrovskis, who implemented a controversial austerity program.