Europe: Caught between a rule-of-law fight and a hard Brexit

As the end of 2020 approaches, the European Union finds itself caught in two highly consequential, high-stakes games of chicken. Their outcome could define the next year, as well as the political legacies of two of Europe’s most powerful politicians: German Chancellor Angela Merkel and European Commission President Ursula von der Leyen.

The first crisis is the stalling of U.K.-EU negotiations over a future trade deal as the end of the Brexit transition period looms on December 31. The second is a stand-off between Poland, Hungary and the rest of the EU over proposals to link the disbursement of EU funds to countries’ observance of the rule of law.

While seemingly independent, these crises are very much linked. Failure to secure a deal on one or both of these issues would represent a terrible failure of Germany’s presidency of the Council of the EU — in other words, its European leadership.

With the EU’s next long-term budget and recovery fund deadlocked, a cloud also hangs over the fate of the European economic recovery next year.

The deal EU leaders hammered out in July massively boosted investor confidence because market participants believed Europe had a credible economic plan to “build back” after the coronavirus pandemic.

With that agreement now in the balance, there are questions as to the EU’s appetite to accept a no-deal Brexit and whether EU capitals and the Commission could become more flexible — or, as von der Leyen suggested to the European Parliament on Tuesday, “creative” — in fudging a deal to avoid further aggravating Europe’s economic picture.

Some senior voices in London hope the EU’s last-minute troubles will give it pause for thought. But these challenges also increase the risk of miscalculation in negotiations,

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