Valdis Dombrovskis comes to a relaxed interview with WELT in Berlin. Far more work awaits him in Brussels than usual. In future, he will not only coordinate European economic, currency and labor market policy as one of the three executive vice-presidents of the EU Commission. In addition, the former Prime Minister of Latvia is to take over the post of trade commissioner on a permanent basis after the Irishman Phil Hogan resigned after a scandal.
Being Europe’s leading trade politician is considered an intense job, but that doesn’t seem to scare the conservative politician. “It’s a lot of work,” he says. “But I’m looking forward to it.” The interview with WELT is the first interview since he was nominated for the new post; an opportunity to learn more about his positions on key trading issues.
WORLD: No easy task awaits you. International trade policy has been tough since US President Donald Trump was in power. The trade rhetoric of Joe Biden, his challenger in the US presidential election campaign, also sounds very much like America First. Do you expect US trade policy to be different under President Biden?
Valdis Dombrovskis: I can’t foresee US trade policy, but the EU-US economic relationship is the largest in the world. Trading is worth over a trillion euros a year, so it’s important that we develop our relationship in a constructive way.
WORLD: The World Trade Organization (WTO) will soon give the EU permission to impose punitive tariffs on the US for US aid to Boeing. Are you going to do that?
Dombrovskis: First of all, we want to negotiate a solution to the dispute with the USA without imposing new tariffs, as the American government has done. In order for such constructive talks to be possible, the US must of course first lower its tariffs. But they have every reason to be. In principle, the US and Europe must work together to tighten international rules on aid in the aviation sector. If everyone follows the same rules, we can keep new, highly subsidized competitors at bay, and that’s in the interests of the US too.
WORLD: Is the WTO in its current form still a forum in which you can solve such problems?
Dombrovskis: I invite the USA to work with us to advance the reform of the WTO. We share many goals in the WTO reform. The WTO must become more modern and be able to react to current challenges. Industrial subsidies, forced technology transfer or systematic infringement of intellectual property; these are issues that we want to address, and so does the US. We believe that a multilateral approach at WTO level is more effective than an aggressive trade policy.
WORLD: Your list sounds like a list of the trade problems Europe has with China. The EU has been trying to conclude an investment agreement with China for years; You coordinate the negotiations. Recently, however, the relationship between Europe and China has suffered greatly; not only because of the repression in Hong Kong, but also because of the disinformation campaigns surrounding Covid-19. The economy is now also more sober about its business in China than it was a few years ago. Does the EU need to adjust its attitude towards China?
Dombrovskis: We have already adjusted our stance over the past two years. We work closely with China in some areas and less closely in others. You can see that from the fact that we sometimes call China a partner, sometimes a systemic rival and sometimes a strategic competitor. Our attitude towards China is more nuanced and more demanding than before.
WORLD: How is the Chinese side reacting to their changed attitude?
Dombrovskis: We have had several rounds of discussions on the problematic issues, most recently in July. And we see the Chinese side opening up. China also knows that the EU market is far more open than the Chinese one and has understood that we need more reciprocity. We want to end the talks on the investment agreement this year and that is still possible. For this, however, concessions from China in terms of market access are necessary.
WORLD: Despite the US presidential election? The government in Beijing will want to wait and see how it turns out, won’t it?
Dombrovskis: China also has an interest in concluding the talks this year. There will be very substantial talks in the coming weeks and I am confident that there will be considerable progress.
WORLD: The UK government has enacted law that would break the Brexit treaty with the European Union. Is it still possible to negotiate with such a counterpart if it is not even certain that the government will stick to the negotiated result?
Dombrovskis: We are concerned about the behavior of the British government. If the UK does not comply with the exit agreement, there will no longer be a basis for a free trade agreement between the EU and the UK. The UK government must correct this before we continue to negotiate our political and economic relations.
WORLD: The free trade agreement with the Mercosur states (these are the countries of South America) is suddenly being called into question again in the EU member states, mainly because of ecological concerns. What does that mean for Europe’s trade policy if this treaty, which has been negotiated for many years and is considered a great success for the EU, cannot come into force after all.
Dombrovskis: We have to respond to the concerns that exist in the Member States about Mercosur. The situation in the Amazon is worrying. However, the Mercosur Agreement re-establishes Brazil’s obligations under the Paris Agreement. And it gives us a platform to demand the implementation of other obligations, such as combating illegal clearing. However, when it comes to these issues, we need to be certain that all contractual partners will comply with their obligations. How this can best be done in the context of the agreement will rightly accompany and influence the debate on ratification in Europe.
WORLD: So far you have worked hard to ensure the stability of the European financial system. In the Corona crisis, the EU governments are supporting companies and employees with huge sums of money. Nevertheless, there is a risk of corporate bankruptcies in the coming months and then many loans could fail at the financial institutions. Do we have to prepare for a new banking crisis in Europe?
Dombrovskis: In principle, European banks are better capitalized than they were before the financial and economic crisis and, thanks to the current ECB policy, have more liquid funds. We are also not currently registering any increase in loan defaults. But there are signs that loan defaults are becoming more common. There is always a certain delay, so it will be a while before it really gets that far. That gives us time to present an updated strategy on how banks can deal with bad loans before the end of the year. Because of course it is better to tackle this problem, which could come up at some point, early and consistently across the EU. We cannot wait for loan defaults to pile up to become a problem. In principle, however, the problem will be smaller than in the last crisis.
WORLD: The Wirecard scandal continues to concern the German public and politics. The German banking supervisory authority Bafin apparently had considerable deficits in the control of the company. But should Brussels also draw conclusions?
Dombrovskis: The European Commission has mandated the European financial regulator ESMA to investigate the case. We expect the results by the end of October. With our judgment we should wait for these results and the results of the investigations in Germany. But it is clear that the investors were not truthfully informed about Wirecard’s financial situation, as stipulated in the EU Transparency Directive. Compliance with these should have been monitored by the Bafin. We are currently also reviewing the previous rules for information obligations and auditing, but to a certain extent Wirecard is a supervisory issue and the question is whether compliance with the existing rules has been adequately monitored and whether the rules have been adequately enforced.
WORLD: What does the Wirecard case and how it is dealt with basically say about Germany as a location for the financial industry?
Dombrovskis: I don’t want to anticipate the German and European research results. But obviously there were problems with supervision. The results of the investigation will show where exactly, how exactly and what that means for Germany.