Saturday, January 30, 2021

The dangerous escalation between the EU and the UK on covid-19 vaccines (EN)

The snowballing developments over the past few days, after AstraZeneca (AZ) announced a significant cut in its scheduled supplies of covid-19 vaccine to EU countries, have escalated to a war-like rhetoric between the UK and the EU, a raid by Belgian authorities at the AZ production site in Seneffe and the introduction of export controls on EU-manufactured vaccines. What's happening, really, and where is this coming from?

The narrative in the media about these events has been so far surprisingly simplistic and one-sided - not just in British tabloids like The Daily Mail, but also in usually much more sober outlets like The Guardian or the BBC and in many continental newspapers. It basically says that, due to its well-known bureaucratic heaviness, the EU was late to pass contracts with vaccine suppliers, slow with approving and distributing the jabs for use in its Member States and ineffective in the whole set-up of the vaccination campaign, which is in shambles. By contrast, the UK has been much nimbler with both purchases and approvals and as a result is way ahead of continental Europe with its vaccination efforts. Faced with a shortfall in vaccine supply, the EU has been throwing its weight around and trying to bully Britain into surrendering its own stocks. 

It's fair to say that, at least for the time being, the EU is losing the narratives' war.

The actual story, however, might be considerably more complicated. 

In this post I will present an alternative interpretation, largely based on information in the public domain, but also in part on speculation since some pieces of the puzzles are still missing. The near future may shed light on these aspects.

In a nutshell, my hypothesis is that the escalation is not simply due to the EU bureaucrats having 'lost the plot', but rather provoked by the conduct of AZ and of its CEO (which has been the immediate trigger for the crisis) and by perceived foul play from the UK on a very sensitive, politically explosive issue. 

All parties have made mistakes and the situation is getting out of hand. The stakes are huge and the logic is increasingly that of a zero-sum game, which risks durably poisoning the post-Brexit relations.

Has the EU been slow with vaccines?

Not really, not by EU standards in any case. It has been supporting vaccines development from an early stage and concluded advance purchase agreements with a number of manufacturers for over two billion doses, well ahead of the completion of required clinical trials and of the approval for use. The process to agree a common approach among 27 countries can indeed take some time, but again it was rather quick in this particular case. And such a common approach is more of a feature than a bug of the EU, as it allowed it to get by far the best deals worldwide on vaccines (paying for instance half the price Britain paid for the Pfizer vaccine, and a third of Israel's). Considering that the alternative was to let EU countries compete with each other on getting vaccines in a 'free for all' rush, blowing up the solidarity that keeps the block together and leaving the poorer members empty-handed, the outcome is arguably not so bad.

Admittedly, the EU wasn't as fast as the UK in approving the vaccines either. But it should be mentioned that the EU's approval is substantially different from the one granted by the UK - and one significant difference is who is liable if something goes wrong with the vaccines. To put it briefly: the UK chose to take more risks upfront, including liability in case of problems. This is a legitimate choice and is understandable considering the impact of the epidemic on its territory. It may also explain why the UK is so much more inclined than EU countries to tinker with the interval for administering the second dose, or even 'mixing and matching' different vaccines - they don't risk losing any guarantees from the producers, since these were already waived.

Why is the EU so furious at AZ's announced cutting of supplies?

The dramatic reduction of vaccine supplies to the EU in the first quarter of 2021 (by 60%) was announced unexpectedly at the last moment, just as the block was preparing to approve the Oxford/AZ vaccine for roll-out and the pace of vaccination was picking up in member states. This in itself would have been very unfortunate news. But what really turned an unpleasant situation into a full-blown crisis was the attitude of AZ CEO Pascal Soriot, who - with apparent backing from the UK - behaved incredibly arrogantly trying to gaslight the EU and to talk himself - including through media interviews - out of contractual obligations. When the history of these events will be eventually written, Pascal Soriot may well go down as the guy who singlehandedly (or rather with some help from London) turned an industrial mishap into an explosive political row.

The EU asked for clear explanations for the unexpected cuts and for a plan to remedy that. It also wanted to know how comes that AZ is still able to deliver on schedule to the UK as it lets the EU waiting. Soriot's 'explanations' were found to be revolting and nothing more than a smokescreen. He quoted the "best endeavours" clause to mean that there is no binding commitment to supply - in fact, that is a standard clause intended to cover for situations such as the vaccine not being approved (very likely a similar clause would exist in AZ's contract with the UK government). He claimed that AZ was bound to deliver its scheduled supplies to the UK before those to the EU because the UK had signed a contract first. But the obligation derives from the agreed scheduled for deliveries, not from the date when the contract was signed - and there is no clause in the contract with the EU suggesting that a third party would get preferential treatment. And he said that the supply chains are separate and therefore vaccines produced at UK sites cannot be delivered to the EU. But that's nonsense, because in the contract AZ listed its production sites in the UK along the ones in continental Europe, without distinction. Moreover, last December vaccine doses produced by AZ at its facilities in the EU were shipped to the UK.

You may wonder: why would a big pharma CEO behave so provocatively in relation with his biggest client, risking significant damage to the business (indeed, the AZ shares lost some 6% since the row started)? That's a good question, and we will get back to it. Only a hint for now: this might be less about economic and commercial interests, and more about politics. Indeed, Mr. Soriot has behaved more like a politician than a businessman.

And you could also legitimately ask: since the UK made a contract first, shouldn't they have an advantage? The answer is: fair enough, they have the advantage of choosing the quantities to contract while there is still spare capacity and of getting earlier deliveries before others also place their orders. But there is no reason to expect a preferential treatment vs other buyers in case of supply problems - unless such a preference is provided for in the contract. We don't know whether this is the case, since the UK and AZ keep their contract secret and even the timeline of actual deliveries is considered by the UK as a national security secret. But if such a clause existed, the fact that a third party has preference should have been mentioned in the contract with the EU, which is not the case. The EU is thus fully entitled to expect to be treated fairly and in line with the contract that it signed; and if there are supply problems, there is no reason why they should affect the EU deliveries exclusively.

Why is the EU so desperate?

In addition to EU's palpable anger at how it has been treated by AZ (and by the UK, will come to this later), there is also something else - an increasing panic. The EU is generally working in a very calculated way, avoiding strident statements or sudden, radical action. Not so this time: the announcement of export controls (disguised as a "transparency mechanism"), the introduction and then the dropping of exceptional controls at the super-sensitive Irish border, are not characteristic for how the EU works.

The reason for the panic is what political leaders in Brussels and across the EU know is coming: a devastating third wave of the pandemic, driven by the more contagious 'UK variant' of the virus, which is spreading fast and becoming increasingly prevalent. What has happened over the past two months in the UK will be replicated across continental Europe in the next two months - indeed, it has already started in Portugal and Spain. Make no mistake: there will be tens of thousands of dead in Europe between now and Easter, we will see again horror scenes with overwhelmed hospitals and funeral services, all this in a context where people are already tired of the lockdowns, of the travel restrictions and increasingly feeling the economic hardship.

To be sure: even a rapid vaccine roll-out at this stage cannot prevent this unavoidable tragedy. The coming wave will be the deadliest so far in Europe, with or without the vaccine. 

But this happening against the background of a bungled vaccine roll-out due to supply shortages, while across the Channel the UK is emerging from the third wave and immunizes its citizens at a much faster clip, will be politically explosive. A full vindication of Brexit would be the cherry on the pie. The collapse of the EU itself cannot be ruled out. The joint action on vaccines by the 27 member states, hailed as a big triumph for European solidarity only one month ago, could become its undoing in the coming few weeks.

Hence, for the EU getting its vaccine roll-out back on track as fast as possible is an existential stake. This is why it is so desperate and would go to any lengths at least to be seen doing all the possible. And this is what the UK might have miscalculated.

What has the UK government done?

By late 2020, the Johnson government had had a really bad pandemic: highest number of deaths per capita in Europe, a devastating third wave driven by a mutant variant of the virus, a track record made of numerous blunders and u-turns, Boris himself catching the virus and ending in intensive care, Dominic Cummings breaking lockdown rules by driving across the country with his family etc. The Prime Minister had lost much of his stardust from the 2019 elections and was regularly clubbed by the leader of the opposition at questions time in the House of Commons, Labour was riding high in the polls.

While the EU wasn't doing well itself, it still appeared to have a more deliberate approach and to keep its act together by e.g. coordinating among countries on restrictions to free movement or agreeing on a large economic recovery package funded through common debt. The comparison with Britain was not particularly flattering for the latter.

In this context, the UK adopted a high-risk strategy, betting it all on vaccines, including buying ample supplies without haggling on price, going for super-fast track emergency approval, accelerating the roll-out by ignoring the interval for the second jab prescribed by the producers. 

For now, as of end January 2021, it seems to have paid off: the UK is by far the fastest vaccinator in the Western world and the pandemic wave is receding. In contrast, the EU is struggling with vaccination, is facing social unrest and is bracing for the coming wave of the pandemic, certainly the biggest so far.

But has there been foul play by the UK? This is a critical question in the context of the current row.

The honest answer is: we don't know, at least not yet. But there is some circumstantial evidence to suggest that something might be rotten, and not in Denmark this time.

When the former Belgian minister who is now EU Commissioner for Justice and consumers speaks of the UK having started a 'vaccine war', when the Croatian prime minister speaks of 'vaccine hijacking', when EU leaders barely contain their anger and put speedily in place the legal base for banning vaccine exports to the UK, one can be forgiven for thinking that political leaders might know more than has been in the public domain.

Putting the different bits and pieces that have transpired together, it seems to me quite plausible that the UK government has secretly secured preferential treatment from AZ to the detriment of the EU, possibly rather recently (not at the time of the initial contracts) and with an aim not only to secure sufficient supplies for the British, but also to sabotage vaccine roll-out in the EU. This is admittedly just speculation at this stage. But it would explain a lot of what's been happening - from Boris's secrecy over contracts and deliveries to AZ's boss defiant behaviour to the rage of the EU and of many member states.

But, you may ask, why would Boris do such a thing?

Vaccine politics and the link with Brexit

The premiership of Boris Johnson is closely tied to making Brexit a success. Not only was "get Brexit done!" the slogan with which he won the last elections, but his decision to support the leave campaign back in 2016 likely tipped the referendum result.

With all the talk about continued friendship and partnership between the EU and the UK, both parties are also competitors and have an existential stake in being seen as doing better than the other. For the UK brexiters and for the prime minister in particular, the promised 'sunny uplands' need to materialise to justify leaving the block. At the very least, the UK should be seen by their voters as doing better outside the EU than inside. The EU itself being perceived as a failure, or even collapsing altogether, would be the ultimate vindication of Brexit.

The EU, on the other hand, needs to justify its continued existence by demonstrating to its members the advantages of being part of the club. This necessarily means that an exiting country, like the UK, should not be able to benefit from the same advantages while dodging the costs and obligations of membership. And ideally the UK should not 'mightily prosper' outside the EU more than the EU itself, or else it might give second thoughts to other members.

By early January 2021, the situation was looking rather bleak for Boris. His last-minute trade deal with the EU, sold internally as an achievement of 'cakeism', was proving very disappointing in practice. People discovered that the newly introduced border frictions - due to the UK leaving both the Single Market and the Customs Union - meant that it became very costly and cumbersome to sell or buy online to and from the EU (abruptly ending UK's role as the main European hub for business-to-consumer e-commerce), that countless business models based on seamless flows of goods had become unsustainable overnight, that one would even get their sandwich confiscated at the border. At the same time, the huge surge in cases in the pandemic's third wave was followed by a sharp increase in covid deaths. Home to a more contagious variant of the virus, Britain was cut off from other countries and branded 'plague island'. The demise of Donald Trump and the fading prospects for a quick trade deal with the US were further undermining the Brexit narrative. There was renewed talk of Scottish independence. And to top it all, the miserable weather in January brought recurrent floods and freezing to large areas of the UK, while vacationing in the Alps or in southern Europe was no longer an option.

Fast forward a couple of weeks and the tables seem to have completely turned. The EU's slow start on vaccination was gradually picking pace, but unexpectedly ran into trouble when supplies were reduced temporarily by Pfizer and received a brutal blow with AZ's announcement that it could only provide the EU with 40% of the vaccines contracted for the first quarter (while still delivering on schedule, two million vaccines a week, to the UK).

When last year the UK opted out of the EU's joint vaccine procurement action, this should have raised alarm bells in Brussels. More than a natural option for a departing ex-member (the UK had left de jure at the end of January 2020 and was in a standstill 'transition' period until end of the year), it signaled that the UK had decided to double down on its Brexit logic, together with its insistence to end the transition period on 31 December 2020 and enact its de facto exit from the EU in the middle of a pandemic, deal or no deal. Mixing the vaccine action with Brexit-related politics turned vaccines into a political issue. Which side does better on vaccines would become either a vindication, or a discredit for Brexit and its proponents.

The politics of the vaccines were on display early on. In December, when the UK was first to approve the Pfizer vaccine, this was hailed as a Brexit triumph. It allowed to start rolling out the EU-produced jabs in the UK, weeks ahead of EU countries - a moment of national pride that allowed the government to change the narrative. It is quite clear that Brexit proponents in the UK benefit politically from EU's troubles with the covid vaccines.

Has the EU threatened the Irish protocol?

There has been a lot of emotion in the media and political circles about the EU's initial announcement, quickly reversed, that it would trigger Article 16 of the Northern Ireland protocol (part of UK's EU Withdrawal agreement) to ensure that the Irish border would not be used as a backdoor for vaccine exports to the UK.

To be sure, this was a blunder, especially as the announcement was apparently made without consulting Ireland beforehand. The fact that it was soon reversed doesn't cancel the damage - the British tabloids were quick to denounce EU's reckless endangering of peace in Northern Ireland and the hypocrisy of doing so after posing as an upholder of rules and having condemned the UK for considering to unilaterally override the protocol through its Internal Market act (abandoned in the meantime).

But the charge is disingenuous. Through its proposed Internal Market act, the UK was seeking to establish a legal reality contradictory with the Northern Ireland protocol, effectively cancelling it. By invoking Article 16 of the protocol, on the other hand, the EU was only using a built-in emergency stopgap. Technically perhaps the correct thing to do, but politically inept.

What can be done?

The current escalation between the UK and the EU with regard to vaccines is extremely toxic and dangerous. It has acquired a 'zero-sum' dynamic that needs to be urgently altered, if we are not to count the collateral damage of post-Brexit competition in human lives (covid casualties).

The EU and the UK will not easily become very friendly after the bad blood accumulated in recent years. But they need to work with each other because they have many common interests and geography is stubborn. 

It is therefore essential to rein in the hotheads on both sides and come clean on vaccines and other medical supplies. No party should try to get an unfair advantage at the expense of the other. If there are supply shortages, the UK and the EU should share the burden and should work together to remedy them. And if there is good faith and transparency on both sides, there is no need for export bans.

But one person should go for the atmosphere to clear up: Pascal Soriot has become a liability for AstraZeneca and an irritant in the EU-UK relation.

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