Monday 31 May 2021

POLITICO

POLITICO

Wall Street struggles to sell Washington on Bitcoin for the masses

Posted: 31 May 2021 05:16 AM PDT

WASHINGTON — A strong push by Wall Street to open up access to Bitcoin investment is meeting resistance from a bipartisan group of lawmakers and regulators in Washington, setting up a lobbying fight over the future of digital currency.

Major financial industry players including Fidelity Investments and Anthony Scaramucci's SkyBridge Capital are pressing the Securities and Exchange Commission to approve their plans to launch funds on public stock markets that would let small investors tap into the rise of Bitcoin prices.

Wall Street says it's getting in the game and trying to launch so-called exchange-traded funds linked to cryptocurrency in response to surging demand, with the market for Bitcoin alone exceeding $670 billion. Firms are pouring money into lobbying to shape regulation and to convince skeptical policymakers that digital currency is viable for wider adoption for the masses.

But lobbyists face an uphill battle that has gotten even tougher after dramatic price swings in recent days, with Bitcoin plunging nearly 40 percent since early May. The investor risks are building on broader concerns about whether cryptocurrency fuels money laundering, aids tax evaders and could threaten the safety of the financial markets themselves if broadly adopted.

“Our country needs to take a deeper dive on how to deal with cryptocurrency before any regulations are put in,” Sen. Elizabeth Warren (D-Mass.), a member of the Banking Committee, said in an interview. “The wild swings of crypto prices sound an alarm that every regulator hears.”

The debate over Bitcoin exchange-traded funds, or ETFs, will be an important indicator of how far Washington is willing to let digital currency markets flourish amid growing questions about whether crypto serves any value to society or is just a speculative fad that carries real risks for investors.

Bitcoin is the biggest of the virtual assets, which unlike the dollar are distributed outside of government control and often operate on a decentralized basis. The pending proposals for Bitcoin ETFs would allow more investors to gain exposure to the digital currency without having to purchase it directly.

The funds would essentially replicate the prices of Bitcoin and other cryptocurrencies. Investors could buy shares of the funds and sidestep the need to have so-called digital wallets to hold the digital currency. The complications of handling and trading the virtual assets would be left to fund managers.

The SEC has long taken a skeptical view of the funds, going as far as rejecting earlier proposals by the Winklevoss twins — of Facebook fame — because of worries that the agency could not guarantee safeguards against fraud and manipulation.

In addition to pending fund proposals backed by Fidelity and Scaramucci's SkyBridge, One River Digital Asset Management is being advised by former SEC Chair Jay Clayton as it pitches a "carbon neutral" Bitcoin ETF. Clayton led the agency in the Trump era and didn't sign off on any of the cryptocurrency fund proposals during his tenure. While in office, Clayton highlighted concerns that cryptocurrency markets were ripe for fraud and manipulation and said that regulators had a host of issues to resolve before permitting ETFs.

The SEC, which is responsible for allowing the funds to launch, appears to be in no hurry to expand access to Bitcoin investments. The agency's new chair, Gary Gensler, has emerged in recent weeks as a clear crypto skeptic. That surprised some advocates who were hoping he'd be more amenable to Bitcoin after teaching and researching digital finance at MIT.

Gensler has flagged fundamental concerns about the operations of the underlying cryptocurrency market that the ETFs want to track. He says exchanges that facilitate the buying and selling of digital currency aren't adequately regulated and that market data is lacking.

"Altogether, this has led to substantially less investor protection than in our traditional securities markets, and to correspondingly greater opportunities for fraud and manipulation," Gensler said in House testimony Wednesday.

Despite the growing industry enthusiasm, Wall Street is also split on the future of cryptocurrency. Some executives are dismissing the push to expand access even as their firms try to satisfy customer demand.

JPMorgan Chase CEO Jamie Dimon said in House testimony Thursday that his company — the nation's largest bank — was debating how to make it available in a safe way. But Dimon’s personal advice? "Stay away from it."

"That does not mean the clients don’t want it," Dimon said. "It goes back to how you have to run a business. I don’t smoke marijuana, but if you make it nationally legal I’m not going to stop our people from banking it."

One of Gensler's colleagues is urging him to act. SEC Commissioner Hester Peirce, a Republican on the agency's five-member board, said Gensler's recent warnings "conveyed the overly conservative approach that has typified the SEC in the crypto arena." She said the agency should move forward with approval of crypto funds on their merits.

Six applications are pending with the SEC to list cryptocurrency ETFs on stock exchanges run by the New York Stock Exchange and Cboe Global Markets. Wall Street titans are lining up to provide services for the funds, including Morgan Stanley, Bank of New York Mellon and State Street.

"Given the growth of the market and increased interest, the stakes are high as people compete to be the first approved,” Peirce said.

By not bringing digital currency into the regulatory mainstream, Peirce and industry players say the SEC is allowing crypto activity to remain outside the purview of government watchdogs.

"What that does is it allows the wild Wild West to continue," said Tom Quaadman, executive vice president of the U.S Chamber of Commerce Center for Capital Markets Competitiveness.

Jan van Eck, the CEO of the $71 billion asset manager VanEck, said those who oppose Bitcoin ETFs — like the one his firm is proposing — “are effectively forcing investors into inferior fund structures and less regulated venues.”

Critics of moving forward with the funds say the SEC needs to first address underlying risks in the cryptocurrency market.

"The regulatory concerns about Bitcoin and other cryptocurrency markets go far beyond ETF issues,” said Joseph Cisewski, senior derivatives consultant and special counsel to the Wall Street reform group Better Markets. “The crypto exchanges operate almost entirely in the dark, and we've repeatedly seen how risks increase and evolve when they are allowed to develop in the cracks of our regulatory system.”

On Capitol Hill, lawmakers from both sides of the aisle — including staunch Bitcoin advocates — are unconvinced or on the fence, indicating that the SEC will face political pressure to continue to slow-walk the issue.

The companies "need to show their contribution to our economy, and in that sense, they really haven't done well," Senate Banking Chair Sherrod Brown (D-Ohio) said in an interview.

“I would caution the commission against prioritizing the review of cryptocurrency ETFs over fulfilling the legal directives of Congress,” said Rep. Brad Sherman (D-Calif.), who leads SEC oversight in the House and wants the agency to finish rules languishing from the 2010 Dodd-Frank law.

Republican lawmakers who champion free markets and digital currency said in interviews that they too are taking time to study the issue before backing the efforts.

"I’m not clear yet on exactly what we should do," said Sen. Cynthia Lummis (R-Wyo.), who in May launched the bipartisan Senate Financial Innovation Caucus to encourage policy development in crypto and other financial technologies.

Sen. Thom Tillis (R-N.C.), who with Lummis serves on the Senate Banking Committee, said he’s concerned about the accuracy of the underlying reference prices for the funds because crypto trading occurs on venues that aren't regulated by the SEC.

Tillis said the fund applications "have to be scrutinized, mainly from a consumer protection perspective."

"We need to figure out how we deal with this," said Sen. Jon Tester (D-Mont.), a member of the Banking Committee. "Otherwise you're going to have a lot of people lose a lot of money.”

EU justice chief: Some data privacy cases should be fast-tracked

Posted: 31 May 2021 02:07 AM PDT

The European Commission is working out how to expedite decisions on data privacy investigations that are more time-sensitive, EU Justice Commissioner Didier Reynders said Monday.

Speaking at POLITICO's AI Summit, Reynders said the data leak at Facebook, which exposed the personal information of more than half a billion accounts (including Reynders' own) is an example of a case that is taking "maybe too long."

"When we have such kind of problem, we first need to ask the Irish data protection authority to engage in a dialogue with Facebook to see what the possible remedies are, and if it's not [working], to go further with actions. It's maybe long, so we need to think about some kind of fast-track."

Still, the commissioner pushed back against reforming the enforcement mechanism embedded in the EU’s privacy code, the General Data Protection Regulation (GDPR), which his predecessor, Luxembourg's Viviane Reding, who helped write the rules, is calling for.

Instead, Reynders said: "We have to ask the member states to invest technical, financial and human resources in the authorities, and I have many discussions with the president of the European Data Protection Board (EDPB) for better coordination within the EDPB."

The Belgian politician also said the EU could suspend its decision to allow the bloc’s data to move to the U.K. if Britain decided to change its data protection standards.

"It will be possible to suspend or stop the process, if there's a divergence in the future," Reynders said, following comments by a U.K. government minister last week that the country stood ready to risk its deal with Europe in exchange for a "greater prize."

"We will be … very vigilant … we need to be ready to react if there is some change in the future."

The commissioner also hoped for a quick resolution to data flows across the Atlantic after Privacy Shield, the EU-U.S. data sharing agreement, was annulled by the Court of Justice of the EU last year. "I hope we are talking months," Reynders said, indicating that an update could be presented at an EU-U.S. summit on June 15.

Vincent Manancourt contributed reporting.

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France to send US new Statue of Liberty

Posted: 31 May 2021 12:17 AM PDT

Liberty is the gift that keeps on giving. In this case, it’s also the gift that keeps being given.

France will send the U.S. a new Statue of Liberty on June 7, Le Journal du Dimanche reported on Sunday. The statue will arrive in New York on the 4th of July, the U.S.’s Independence Day, and represents the historic links between France and the U.S. The statue will be much smaller than her big sister, reaching 2.83 meters.

The Statue of Liberty that can be seen off the coast of New York today was a 19th century gift from France to celebrate the first century of U.S. independence. “We wanted to reconnect with this Franco-American history,” the French ambassador to the U.S. Philippe Etienne said, adding that the Statue of Liberty “is a double symbol, of liberty, but also of welcome.”

Le Journal du Dimanche reports that, when the idea was conceived in July 2019, it was meant to show to the U.S. that “France stayed loyal to the spirit of friendship” between the two countries that originated in their shared history. France supported what would become the U.S. in the American Revolutionary War.

The project was postponed however, due to the COVID-19 pandemic, and taken up again during the winter. The statue will be celebrated on its departure from Paris, its first arrival to the U.S. in New York, and then when it reaches its destination on July 14.

The monument will be placed in the garden of the French ambassador’s Washington, D.C. residence, where it will remain for ten years as a loan from the Conservatoire du Quai d’Orsay.

France’s gesture comes as the U.S.’s approach to Europe feels the effects of Biden’s election. Relations are vastly improved, although some have complained of persisting exceptionalism.

Sebastian Kurz (and his mom) battle Austria’s judiciary

Posted: 30 May 2021 07:44 PM PDT

Politicians in crisis tend to either lash out at their opponents or try to change the subject. Sebastian Kurz enlists his mother. 

"My mother is extremely sad and worried," the Austrian chancellor told the daily Kronen Zeitung earlier this month. "She says she wished something else for me than politics and this treatment." 

Kurz's mother is right to be concerned. Her son, 34, faces a criminal investigation into whether he lied to a parliamentary inquiry — a crime that carries up to three years in prison. Kurz isn't the only one in trouble; several members of his inner circle, including his close friend and consigliere, Finance Minister Gernot Blümel, are under investigation for crimes ranging from bribery to obstruction of justice in connection with a scandal that first came to light in 2019 amid evidence that senior politicians were trading favors and influence for top jobs at an Austrian casinos operator.

All of those under investigation maintain their innocence. Kurz has signaled that he wouldn't resign if indicted. He has refused to address what he'd do if convicted, dismissing the notion as unfathomable.  

What's really at stake in the sweeping scandal, constitutional scholars say, is not the future of the bold-faced names involved but the rule of law in Austria. Kurz's use of his mother as witness to the supposed poor treatment he's been subjected to at the hands of investigators and the political opposition is one of the more harmless examples of what many see as an orchestrated attempt to discredit the probe. Particularly worrying, they say, are the persistent attacks against prosecutors and investigators that Kurz and his cohorts have engaged in in recent months. 

"The danger is that when the chancellor or some other senior official attacks the judiciary, something is going to stick," said Heinz Mayer, a leading Austrian constitutional expert. "Kurz is very professional about it." 

It's a pattern familiar across Central Europe, where the likes of Hungarian Prime Minister Viktor Orbán and the leaders of Poland's Law and Justice party have systematically neutered their countries’ judiciaries over the years. Those moves have drawn the ire of the European Union, but Brussels has so far proved powerless to do much about it. 

While Austria's independent judiciary is still intact, critics warn that Kurz's government has launched an all-out assault on it. (Kurz's office did not respond to a request for comment.) 

The most eye-popping salvo occurred came earlier this month when Blümel, who is under investigation for alleged bribery, escalated a standoff with the constitutional court by refusing to comply with an order that he hand over thousands of pages of documents to a parliamentary inquiry probing the alleged corruption. The minister backed down only after Austrian President Alexander Van der Bellen, calling Blümel's move unprecedented, threatened to dispatch the military to execute the order. 

The president, whose role is largely ceremonial, was so troubled by the episode and what he regarded as the broader erosion of standards among the governing class that he felt moved to deliver a video primer from his Vienna palace on the importance of the rule of law, calling it the "immune system of our state." 

"Our judicial institutions have to be able to carry out their work in peace without interruption," he said. "We have to take these institutions seriously." 

Whether such appeals are a match for Kurz's PR machine is a matter of debate. 

The chancellor's strategy is to gradually discredit the integrity of the judicial system through relentless attacks and innuendo, Mayer said. 

Last year, for example, Kurz told journalists during a background briefing that the office of the corruption prosecutor was a tool of the opposition Social Democrats. Though Kurz later said he was misquoted, the reports played in his favor by casting suspicion on the prosecutor's office. 

Then earlier this year, Kurz accused prosecutors of leaking false information. One of the lead prosecutors on the case, Matthias Purkart, told parliament in testimony last week that his office has been the subject of persistent behind-the-scenes "diversions" by government officials that have hindered its work. 

In the wake of corruption prosecutors' decision to name Kurz a suspect, for example, supervisory authorities triggered an internal investigation into whether they followed appropriate procedures, Purkart said, adding that it "bothered" him. 

Long-term concerns

Corruption prosecutors enjoy broad autonomy to pursue cases, but they ultimately report into the hierarchy of the justice ministry. Though the ministry is now under the control of the Greens, Kurz's junior coalition partner, it was long the preserve of the chancellor's own People's Party (ÖVP) and many of the top civil servants there have close connections to his camp. 

One of those officials is Christian Pilnacek, who until recently oversaw all criminal prosecutions and counted as the ministry's most powerful civil servant. Pilnacek is under investigation for allegedly sharing confidential information with parties outside the ministry and other suspected misconduct. The senior prosecutor, who was suspended in March, denies any wrongdoing.

Blümel's chief of staff turned to Pilnacek for advice in February after the minister learned authorities were going to seize his communications and other evidence. In a text exchange with Blümel's aide later revealed by Austrian investigators, Pilnacek called the move by corruption prosecutors a "putsch."

At the very least, Pilnacek's communications with Kurz's camp reveal a level of collaboration between a powerful prosecutor and senior government officials that could jeopardize the integrity of the independent judiciary, critics say. 

It’s the potential for such long-term institutional damage that worries even some in Kurz's own conservative circle. Franz Fischler, a former Austrian EU commissioner from the chancellor’s party, said his country faces a similar dynamic to the U.S. under former President Donald Trump, whose relentless attacks on those investigating his alleged wrongdoing have shaken the public’s confidence in the legal system.

"But like the U.S., I think the Austrian system is ultimately strong enough to withstand these risks because in the end the people won't put up with it," Fischler said.

Not everyone is so sure. Mayer, the constitutional scholar, warned that many Austrians aren't paying close attention to what's happening and are fed up with the political infighting.   

"When a state's system of governance begins to slide, it can quickly reach a point of no return," he said. "I worry that we're sliding." 

At least Kurz has his mother to catch him. 

Let the European Union spend

Posted: 30 May 2021 07:00 PM PDT

Paul Taylor, a contributing editor at POLITICO, writes the "Europe At Large" column.  

PARIS — Europe's budget discipline rules, more honored in the breach than in the observance, are outdated, over-complicated and increasingly misguided.  

The EU would do better to circumvent the Stability and Growth Pact in order to promote public investment in the green and digital economy, rather than waste energy trying to reform a complex legal framework that has always produced more good intentions than compliance. 

Intended to curtail debts and deficits, the pact had to be suspended early in the COVID-19 pandemic, to allow governments to borrow and spend massively to support households and keep businesses on life support during the crisis. An escape clause allowing that emergency spending will remain in force this year and next. 

What happens after that is up in the air. The Commission announced this month that the fiscal rules will be back in 2023. Brussels plans to hold consultations on how to reform the system later this year before making proposals to finance ministers. 

"Consultations" understates the hardball negotiations that are coming. Influential figures such as Italian Prime Minister Mario Draghi, EU Economic and Monetary Affairs Commissioner Paulo Gentiloni and French Europe Minister Clement Beaune have all called for a comprehensive reworking of the rule book to support investment that raises growth, and to differentiate targets by country rather than imposing one-size-fits-all goals. 

'Paper tiger' 

Unfortunately, the chances we’ll see a radical reform that draws lessons from what worked during the pandemic — as well as what didn’t during the eurozone debt crisis — are close to zero. The guardians of fiscal orthodoxy in northern Europe will not countenance it. 

Anchored in the 1992 Maastricht Treaty that gave birth to the euro, the rules require governments to keep public debt below 60 percent of Gross Domestic Product and cap their budget deficit at 3 percent of GDP. The reasoning was: since the EU has a macro-economically tiny central budget, and no mechanism for redistributing wealth, each member state of the single currency must maintain sound public finances, to avoid harmful spillovers to its partners. 

The 1997 Stability Pact, adopted under German pressure before the launch of the euro, was intended to give teeth to those limits. It provided for graduated sanctions culminating in heavy fines on countries that repeatedly miss the targets. They have never been applied despite serial breaches by southern European countries and have long since lost any credibility. 

The whole debate, says economist Nicolas Veron of the Bruegel think-tank and the Peterson Institute for International Economics, is "a political theater of the absurd with no consequence. 

"The lesson of the 22 years of the euro's existence is that sanctions will never be activated and don't serve as a deterrent even in extreme cases. Hence, all fiscal rules are a paper tiger," he said. 

Many economists argue that the Maastricht criteria were devised for a bygone era of climbing interest rates, inflation and growth. That’s no longer appropriate at a time when borrowing costs have shrunk, the European Central Bank is vacuuming up government bonds, inflation is durably low and growth potential has also declined. The treaty’s limits simply aren’t realistic today, with Italy's national debt swollen from 130 to 160 percent of GDP during the pandemic, France's and Spain's from below 100 to 120 and Greece's from 185 to 210 percent.  

Changing the criteria, however, would require amending the EU treaties with the unanimous agreement of every EU government and parliament — unlikely given that defenders of EU fiscal discipline are loathe to abandon the most important weapon in their arsenal. 

Irish Finance Minister Pascal Donohoe, who chairs the Eurogroup of finance ministers, has ruled out calls by experts — including former IMF chief economist Olivier Blanchard — to replace the pact with fiscal standards that set broad objectives tailored to each country, supervised by independent national fiscal boards, rather than enforced by the Commission or EU ministers. 

Austrian model 

Fortunately, there are changes that could be made without amending EU law, or painfully rewriting a treaty. For that, we can thank the Austrians. 

In the 1990s Vienna found a way around the EU debt limits by setting up a state-owned company.  Called ASFINAG, it exists to build and maintain Austrian motorways — a massive project with borrowing equivalent to about 5 percent of GDP. At the time, Austria was struggling to meet the criteria to join the euro, making any kind of spending a subject of nervous scrutiny. 

But the company's state-guaranteed borrowing on capital markets was not counted as public debt, because it was serviced by dedicated revenue streams, from truck tolls and an annual user fee for cars. ASFINAG even pays a small annual surplus to the state. Clever. 

"It was created to circumvent the pact and allow investment," recalls Franz Nauschnigg, the economist who helped devise the scheme. "It's self-financing and gave us a very modern highway network much more cheaply that if you'd done it through public-private partnerships." 

Germany's Bundesbank, a stickler for fiscal rectitude, challenged this off-balance-sheet borrowing vehicle at the EU Statistics Office. But Eurostat upheld the Austrian model's exemption from the "general government debt" calculation. Berlin has since adopted a similar system for German motorway construction and maintenance via a company called Autobahn GmbH. 

"You could do the same to fund public investment in smart energy grids, solar parks, trans-Mediterranean electricity cables or high-speed broadband," said Nauschnigg, who has presented his ideas in Brussels, Paris, Berlin and Rome. "It could be done EU-wide, or by creating a system of national ASFINAGs which link together." 

The idea of bracketing more public investment out of budget constraints has gained traction in the campaign for September’s German elections, as politicians debate whether and when to reactivate the constitutional "debt brake" that severely limits government borrowing.  

The Greens, running neck-and-neck with the conservative CDU/CSU in opinion polls, have proposed a €500 billion public investment fund for the transition to clean, renewable energy. The center-left Social Democrats, while advocating an early return to the so-called "schwarzer Null" debt limit, also want to exempt certain categories of investment from the calculation. 

All these schemes aim to avoid repeating the mistakes of the EU's response to the euro zone crisis, when synchronized austerity caused public investment to collapse, triggering a double-dip recession, reducing growth potential and aggravating a shortfall in private sector investment. 

What's not to like?  

Well, the changes are bound to trigger a fight over what constitutes good and bad debt. Some countries, such as France, have long advocated excluding defense equipment purchases from the debt calculation, for example. Others argue that education spending is the most growth-enhancing investment of all — and should be exempted. 

Fiscal hawks, meanwhile, warn that financial markets — the ultimate arbiters of the sustainability of a country's debt — will not be hoodwinked for long by creative accountancy.  

As conservative German MEP Markus Ferber puts it, "Debt is debt. Of course it matters whether I borrow to pay for a nice holiday or to buy a car to get me to work. But I caution against starting a public debate on good and bad debt. We have to look at the reality of debt sustainability."  

The fundamental problem, said Ferber, is that countries like France and Italy did not reduce their debt in good times and will struggle when interest rates rise again. That's a fair point, and Europe will continue to need sensible rules for balancing current expenditure with revenues. But it must not prevent the EU from bypassing obsolete debt ceilings to promote vital public investment.

Danish secret service helped NSA spy on Merkel, EU officials: report

Posted: 30 May 2021 04:39 PM PDT

Denmark’s secret services helped the U.S. National Security Agency spy on European officials, including German Chancellor Angela Merkel, under the Barack Obama administration, according to reports by multiple European news outlets.

Reports of the NSA spying on U.S. allies first came to light in 2013 through disclosures by whistleblower Edward Snowden, but the new investigation published Sunday details alleged support from the Defense Intelligence Service (FE) in Denmark, Germany’s northern neighbor.

Citing multiple unnamed sources, Danish public broadcaster DR and other news organizations in Germany, France, Norway and Sweden reported that a confidential Danish intelligence analysis reviewed the NSA’s relationship with FE from 2012 to 2014. This so-called Dunhammer report, conducted by four specialized FE agents following the Snowden revelations and concluded in 2015, found that the NSA was able to use Danish eavesdropping systems on submarine internet cables, with Denmark’s knowledge and agreement.

The media reports describe a system of Danish-American cooperation used to surveil and stock data from underwater internet cables. DR reports that a data center was even built for that purpose at a Danish intelligence facility on the island of Amager, south of Copenhagen.

Merkel was reportedly among the targets, as well as two of her past rivals for the chancellery, Social Democrats Peer Steinbrück and Frank-Walter Steinmeier, the latter of whom is now the German president. DR also reported that other high-level officials had been surveilled from France, Norway and Sweden, though did not name them.

Contacted by the news organizations conducting the investigation, the German, Swedish and Norwegian governments said they had not been aware of the Danish intelligence report’s conclusions, while the office of the French president declined to respond.

Danish Defense Minister Trine Bramsen declined to comment to DR, writing only that “systematic interception of close allies is unacceptable.”

The media investigation was conducted in collaboration with French newspaper Le Monde, German paper Süddeutsche Zeitung, German broadcasters NDR and WDR, and public broadcasters from Sweden (SVT) and Norway (NRK).

In the wake of the 2013 Snowden reports, Obama committed to stop spying on allies. Le Monde said it was unclear at this point whether the spying via Danish systems happened prior to, or after, this promise.

Cyprus’ conservatives cling to top spot as far right surges in parliament vote

Posted: 30 May 2021 12:50 PM PDT

Cyprus’ ruling center-right Democratic Rally clung to its top spot in Sunday’s parliamentary election, but lost significant ground amid voter discontent over corruption scandals that fueled the rise of a far-right rival.

According to official results with all votes counted, the Democratic Rally, also known as Disy, secured 27.8 percent compared to 30.7 percent in the 2016 election — the party's worst result in 40 years.

The main opposition, the communist Akel party, was also weakened, winning 22.3 percent, down from 25.7 percent in 2016, while the centrist Diko party came in third at 11.3 percent compared to 14.5 percent in 2016.

The far-right Elam made the most substantial gains, jumping to fourth place with 6.8 percent from seventh in 2016 and doubling its support. The socialist Edek party came in fifth place with 6.7 percent, the centrists Democratic Front in sixth and the Greens in seventh place.

“We will roll up our sleeves and we continue," Disy's leader, Averof Neofytou, wrote on Twitter. "In the Democratic Rally, we will start working from the next day. I warmly thank our fellow citizens who trusted us once again. They withstood the intensity of the pre-election period. They recognized our effort."

Andros Kyprianou, secretary general of Akel, said he was ready to take responsibility for his party’s poor results, saying they had "failed to convince, mainly that we are not all the same. The result is not what we expected."

The election campaign was marred by corruption allegations, most prominently related to the country’s so-called “golden visa” cash-for-passports scheme. The government suspended it last November after Al Jazeera reported that high-ranking Cypriot officials, politicians, lawyers and developers were willing to help convicted criminals obtain citizenship through the scheme. The parliament speaker from Disy resigned after being implicated in the report, though he denied wrongdoing.

"The election process is dominated by the corruption scandals and the aftermath of the controversial passport for investment program," said Gregoris Ioannou, a political sociologist and research fellow at the University of Glasgow. He also pointed to turnout falling from 66.7 percent in 2016 to 63.9 percent on Sunday. "Dissatisfaction is evident in the decline in support for big parties and high abstention rate. There is also growing anger regarding the handling of the pandemic, as the management was considered in several cases authoritarian."

The result will not impact the composition of the government, which is determined by the executive, but is seen as a test of the administration’s popularity ahead of a presidential election in 2023. President Nicos Anastasiades is serving his second, five-year term and has previously said he won’t run for a third.

Sunday’s results will, however, likely make it harder for Anastasiades to pass legislation as his Disy party is expected to have 17 lawmakers in the country’s 56-seat parliament, down by one, while smaller parties gained more seats. A record of 658 candidates representing 15 parties ran in the election with a voting population of around 550,000.

Anastasiades was already having a hard time winning support in the fragmented parliament, which rejected his annual budget in December — a first for any government — before a deal was ultimately reached in January.

"I call on the patriotism that distinguishes, or must distinguish every political force, in order to respond to the mandate of the people, putting aside pre-election intentions," Anastasiades told reporters late on Sunday. "I am determined to move in this direction. I intend to invite the leaders of the parties of the new parliament so that we can jointly seek with consensus and conciliation the roadmap for the future of our country."

Elam is an offshoot of Greece’s neo-Nazi Golden Dawn party, whose leaders were last year found guilty of running a criminal organization and sentenced to several years in prison. 

"Disy is losing many voters to Elam," said Ioannou. "The far-right party managed not to be identified greatly with Golden Dawn and has not suffered damage, quite the opposite."

The decades-old question of reunification with the island’s Turkish north — whose statehood is recognized only by Ankara — was not a major topic in the election campaign. A recent U.N.-backed summit between leaders from the island failed to find enough common ground to resume formal talks on a settlement.

CORRECTION: A previous version of this article misstated the Diko party’s results in the 2016 election. It won 14.5 percent.

One group that’s embraced AI: Criminals

Posted: 30 May 2021 06:00 AM PDT

This article is part of "The age of surveillance," a special report on artificial intelligence.

Lawmakers are still figuring out how best to use artificial intelligence. Lawbreakers are doing the same.

The malicious use of artificial intelligence is growing. Officials are warning against attacks that use deepfake technology, AI-enhanced “phishing” campaigns and software that guesses passwords based on big data analysis.

“We have crime-as-a-service, we have AI-as-a-service,” said Philipp Amann, head of strategy at EU law enforcement agency’s Europol’s European Cybercrime Centre. “We’ll have AI-for-crime-as-a-service too.”

Most concerning to cybersecurity officials is deepfake technology — which uses reams of photos and videos to develop uncanny likenesses, or entirely new avatars. The technology has the power to generate pictures and videos that trick people into thinking they’re looking at the real thing, and that’s precisely what cybersecurity experts worry about.

If cybercriminals “manage to come up with ways of assuming your identity or my identity, or create somebody from scratch that doesn’t exist, and they then manage to get through the online verification processes, that’s a huge risk,” Amann said.

“Once you’ve broken the process, you can quickly generate a large number of accounts,” he said, adding that this would make money laundering easier, and help criminals carry out fraud on online platforms.

In one case, deepfake technology is thought to have been used to impersonate a chief executive officer for major corporate fraud. In other cases, the techniques have been used to generate fake profiles as part of elaborate phishing scams.

The fear of being duped by deepfakes is so present, it has sometimes been used as cover for being fooled in other ways. Politicians across Europe blamed deepfakes when they were tricked into taking meetings with a man posing as Russian opposition figure Alexei Navalny’s chief of staff Leonid Volkov. Russian pranksters said the stunt was theirs, and didn’t involve deepfake technology.

“Which technology is used to what extent, we often don’t know. But we’re constantly questioning ourselves, and questioning who we can trust,” said Agnes Venema, a tech and national security researcher at the University of Malta.

“Sometimes that’s simply the purpose: to spread doubts and raise question,” she said.

The threat goes beyond deepfakes. Malicious uses of artificial intelligence can range from AI-powered malware, AI-powered fake social media accounts farming, distributed denial-of-service attacks aided by AI, deep generative models to create fake data and AI-supported password cracking, according to a report by the EU’s cybersecurity agency published in December.

Europol, together with cybersecurity firm Trend Micro and the U.N.’s research institute UNICRI, found software that guesses passwords based on an AI-powered analysis of 1.4 billion leaked passwords, allowing hackers to gain access to systems quicker.

They also found cheap software offerings that can mislead platforms like streaming services and social media networks in order to create smart bot accounts. In France, a group of independent music labels, collecting societies and producers are complaining to the government about "fake streams," whereby tracks are shown to be played by bots, or real people hired to artificially boost views, benefiting the artist whose tracks are played.

Other fraudsters are developing AI tools to generate better fake “phishing” email content to trick people into handing over login credentials or banking information.

“The tools become better in quality every time. There’s also more tools available to detect and analyze [malicious use of AI], but the question is whether the average business already has access to [these tools]” as they gear up to fight the new threat, said Marietje Schaake, policy director at the Cyber Policy Center at Stanford University and a former member of the European Parliament.

Cybercriminals “aim for scale,” she said. In the case of phishing emails, for instance, “they can send millions of emails and can profit from just one of them.”

Want more analysis from POLITICO? POLITICO Pro is our premium intelligence service for professionals. From financial services to trade, technology, cybersecurity and more, Pro delivers real time intelligence, deep insight and breaking scoops you need to keep one step ahead. Email pro@politico.eu to request a complimentary trial.

Šefčovič warns UK over ‘unilateral actions’ like detention of EU citizens

Posted: 30 May 2021 05:37 AM PDT

European Commission Vice President Maroš Šefčovič on Sunday warned the U.K. government against “unilateral actions” like holding EU citizens in detention centers, and urged London and Brussels to “calm down” and “focus on the future.”

Media reports of “European citizens being put in detention cells or being fingerprinted just because they wanted to visit the United Kingdom, it doesn’t help the atmosphere,” Šefčovič told the BBC's Andrew Marr Show.

POLITICO recently reported that 30 EU citizens had been detained and held in immigration removal centers after trying to enter the U.K. for work without visas or residence status.

They included German, Greek, Italian, Romanian and Spanish nationals who had been detained at the U.K. border and held for up to seven days before being returned to their home countries.

"I think that what we need in our EU-UK relationship is more … cooperation, joint approach, and not unilateral actions because I think it would further sour our relationship,” Šefčovič told Marr.

“We need to calm down, focus on how we are going to resolve the problems and focus on future," he added.

During the program, Šefčovič verbally sparred with Edwin Poots, the newly elected leader of Northern Ireland's main British Protestant party, the Democratic Unionists.

Poots demands a reversal of the Brexit trade deal's Irish protocol, which creates a new trade border on goods shipped to Northern Ireland from the rest of the U.K.

Poots warned that Northern Ireland faced a potentially violent summer of unionist street protests unless the EU eases the protocol's requirement for full enforcement of EU customs and sanitary checks on goods arriving from Britain.

Šefčovič said the obvious solution would be for the U.K. and EU to agree common veterinary standards, which would eliminate the need for checks on animal and plant products, representing four-fifths of Northern Ireland's imports from Britain.

On Saturday, Šefčovič gave an interview to the Financial Times where cautioned the U.K. over growing impatience among EU countries over Northern Ireland trade issues and other post-Brexit problems.

"All these solutions are coming from our side," Šefčovič told the FT. "It's quite clear that, if we do not see positive developments, that the atmosphere would be more sour … The political environment would be much more challenging."

Since Brexit, EU citizens are prevented from entering the U.K. for employment unless they have a work visa or EU Settlement Scheme status, which guarantees residence rights for those living in Britain before it left the EU.

EU nationals can enter Britain visa-free for tourism and stay for up to 180 days. The U.K. Border Force is entitled to reject entry to EU nationals if officials have reasonable grounds to suspect they intend to work in the country but can't produce a work visa.

Shawn Pogatchnik contributed reporting.

French rock at live concert test for return of normal life

Posted: 30 May 2021 05:27 AM PDT

PARIS — The excitement was palpable at the Paris Accor Aréna.

An ecstatic crowd of 5,000 rocked their way through a test show headlined by veteran band Indochine on Saturday in the country’s first indoor live performance since the pandemic shut down concert halls over a year ago.

"I can’t wait to feel the vibrations," said Céline, a 40-year-old teacher ahead of the show.

She was unfazed by rules that forced her partner to stay home. "I’m up for future concerts with the same health protocols, if they're as well organized as this one."

The trial show, dubbed Ambition Live Again, was organized by Prodiss, a music industry union, and the Assistance Publique–Hôpitaux de Paris, which runs the city’s public hospitals.

It aims to assess the coronavirus infection risks for a standing audience with masks, but without social distancing. If effective, it will be duplicated across France for a full-capacity reopening of the country; 2,000 pandemic-stricken concert halls.

Concert-goers outside the trial show on Saturday afternoon | Laura Kayali/POLITICO

"Concert halls have been closed since March 2020, that's unfair. We wanted to assess what scientific response we could bring," said Angelo Gopée, one of the organizers of Saturday’s gig.

"We want to model a protocol applicable to any pandemic, so that we never have to close our venues again," explained Gopée, who is director general of Live Nation France, a leading concert promoter.

Other European cities, including Barcelona and Liverpool, have already tested indoor live shows without signs of increased infection. 

Ahead of Saturday’s event, Paris Mayor Anne Hidalgo blamed “bureaucracy” for delaying the start of similar trials in France.

Expectations are high for a reopening of the cultural sector, a cornerstone of the French economy and its soft power that accounted for 2.7 percent of gross domestic product before the pandemic. COVID-19 has decimated the live show industry. In 2020, Prodiss members suffered an estimated 84 percent drop in revenues, losing €1.8 billion.

In a testament to the concert’s symbolic importance, a battery of politicians — some of them campaigning for June’s regional elections — came for the show.

Hidalgo, Paris region President Valérie Pécresse (two potential rivals in the 2022 presidential election) as well as Culture Minister Roselyne Bachelot and Health Minister Olivier Véran were among those bopping along to Indochine hits like “J’ai demandé à la lune” and “L’Aventurier.”

In press conferences, the politcians were eager to show that a return to normal life is around the corner after more than 15 months of sanitary restrictions that have left the French weary and longing for change. 

Verdict in end-June

If successful, Indochine, who are celebrating 40 years as a group, and warm-up DJ Etienne de Crécy, could clear the way for more full-capacity concerts soon. The Killers, Dua Lipa and Elton John are among stars lining up Paris shows over the coming months.

Saturday’s event is also testing public acceptance of the pass sanitaire, due to go live on June 9 in France to facilitate travel and entry into large-scale events. Concert goers were invited, but not required, to plug their negative coronavirus test results into a TousAntiCovid app ahead of the show.

The event, which was postponed several times because of resurgent infection rates, has been months in the making. The cost, estimated at about €1.45 million, was supported by companies including Spotify, its French rival Deezer and media conglomerate Vivendi, as well as public money.  

Out of 20,000 applicants, 7,500 low-risk people aged between 18 and 45 were selected to attend, shutting out some of Indochine’s older fans.

Gleeful fans soak up the atmosphere as Indochine rock the Paris Accor Aréna | Jean-Louis Carli/Alea

From Wednesday to Friday, the Paris Accor Aréna — one of the country's flagship concert halls where international superstars such as Britney Spears and Lady Gaga have performed — morphed into a giant testing lab.

The 7,500 people chosen were tested for COVID-19, but only 5,000 were allowed into the concert. The 2,500 others were placed in a so-called control group and had to stay home. 

Attendees were tested a second time on Saturday, and both groups will need to do so again in a week to assess whether the gig increased contamination risks. Results will be known by late-June. 

Enthusiastic fans — many clad in Indochine t-shirts — started gathering outside the venue in the early afternoon sunshine. The concert started at 5 p.m. because of the continuing 9 p.m. curfew, a painful reminder that life is not exactly normal yet.

Nevertheless, for two hours, fans danced, jumped, clapped their hands and sung along to Indochine’s greatest hits. Singer Nicolas Sirkis was visibly moved to be back on a live stage. Bars and food shops were closed inside the arena, but organizers distributed water bottles at the entrance.

Smart cameras all around

Saturday’s test concert also tried out another first: Smart cameras assessing whether masks were properly worn.  

An algorithm developed by French AI startup Datakalab will process the cameras’ video streams and deliver statistics on whether the public kept their masks on during the concert.

Cameras were set up to track whether the music fans were wearing their masks properly | Laura Kayali/POLITICO

The technology is controversial. Last year, Paris’ public transport operator RATP stopped using Datakalab’s tools in the Metro after the data protection authority CNIL raised concerns.

However, France’s privacy watchdog greenlit the test concert’s protocols saying the public had given consent and safeguards were in place. 

Datakalab will store the images on hard drives, and delete them as soon as the Assistance Publique–Hôpitaux de Paris asks them to, said the company’s co-founder and director general, Xavier Fischer. “We process the images locally, because there can be security vulnerabilities on cloud services,” he explained.

Most concert goers seemed to accept the setup. "I’m aware of the controversy around the cameras but I don't really mind, as long as it's an experiment and it’s not used for mass surveillance,” said Aurore, a 29-year-old assistant TV producer. “As long as we consider that we are guinea pigs.”
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