- By Chris Kremidas Courtney
Giles Merritt sets out the factors that will shape the ‘new world order’ in the wake of the war in Ukraine, and foresees a heightened EU global role.
Russia’s invasion of Ukraine is crystallising the stand-off between the world’s authoritarian regimes and Western liberal democracies. Put starkly, a new Cold War looms in which China, flanked by Russia, confronts the United States. What of the growing calls for a ‘new world order’ capable of defusing these dangerous tensions, and Europe’s place in it?
The European Union is widely expected to stand alongside the US, yet that’s far from certain. With the US presidential election of 2024 on the horizon, memories are still fresh of the Trump administration’s contempt for the transatlantic relationship, and fears persist of America’s political volatility and unreliability.
It’s foolhardy to speculate on the outcome of the Ukraine conflict and its aftermath. But it is possible to sketch the strengths and weaknesses of China and Russia on the one hand, and Europe and America on the other. Surprisingly for some, Europe’s voice and influence on the world stage could be greatly strengthened.
Europe has much to gain from a shake-up that would weaken America’s unilateral powers
Russia will be seriously diminished. Whatever the full impact of sanctions proves to be, Russia’s dependence on commodities exports threatens its overall economic health. Outdated industrial structures, under-developed financial services and a population that’s ageing and shrinking so rapidly as to “haunt” Vladimir Putin are a debilitating combination. Instead of a renewed Russian empire, the invasion of Ukraine looks set to mark the onset of long-term decline.
China too has deep-seated difficulties that cast doubt on its “inexorable rise”. Its abandoned ‘one child policy’ is now proving so demographically catastrophic that China’s economic growth spurt is forecast to eventually stall. The size of its population guarantees China will be the world’s largest economy within a decade, but that’s not the end of the story. Its workforce of active younger people recently peaked in size, and is beginning to shrink fast. Once Latin American immigration resumes, the US is expected to recover the top slot by the end of this century.
What of the medium-term, the years to mid-century? We can expect to see Beijing and Washington unpicking the knots of their economic inter-dependence. This will perhaps be a bit less painful for the US. About half of the goods worth $430 billion it imported last year from China are electronics and machinery that can be ‘re-shored’ and manufactured in America or elsewhere.
US resilience to these shocks will be anchored in the transatlantic relationship with Europe, which represents a third of global GDP, half of all personal consumption worldwide and almost $1.5 trillion a year in two-way trade in goods and services. But while the EU and US are closely tied economically, their geo-political links are less firm. Europe has much to gain from a shake-up that would weaken America’s unilateral powers.
The euro is well placed to pick up more business
China’s calls for reforms of the almost 80-year-old Bretton Woods institutions – IMF, World Bank and WTO – will be fuelled by the upheavals of the war in Ukraine. If the international economy is to be divided into two competing spheres – the authoritarians versus the liberal democracies – proposals for Bretton Woods reforms may influence non-aligned countries’ adherence to one side or the other.
Ageing Europe is heading down towards five per cent of the global population, yet there are pointers to a future in which its voice and heft on the world stage will grow stronger. Putin’s hopes of fragmenting NATO and the EU have clearly backfired as both have been strengthened. Europe stands to be revived in security, economic and political terms.
For its part, the US has gained neither in authority nor popularity. Its weaponisation of the dollar to freeze around half of Russia’s foreign currency reserves has provoked a backlash from other central banks. Wary of America’s power over international financial markets, several governments are reportedly reconsidering their monetary arrangements.
This could open the way to a greater role for the euro. Already second only to the US dollar as a trade and reserve currency, the euro is well placed to pick up more business. Sixty countries now link their currencies to it, and 37 per cent of international payments are denominated in euros. Resentment of America’s dominance and distrust of its unreliable politics could drive more governments towards the euro.
Putin’s war, coupled with Covid, is sure to deal a body blow to the EU economy
The other beneficiary could be the Chinese renminbi, but its limited convertibility and the Beijing government’s opaque and at times protectionist policies are serious disadvantages. Trust in the issuer of debt is vital and the eurozone, with its well-developed capital markets, scores substantially higher than China.
The EU’s trustworthiness extends well beyond monetary and economic policies. It has yet to spread its wings as a prime mover in global affairs, but it has earned a reputation for careful diplomacy and achievable ambitions. These have had to reflect divergences between its member states, yet still leave the EU in an enviable position once the conflict in Ukraine is ended.
Looking towards this, policy analysts in Brussels are dusting off ideas for sharpening the EU’s external responses. These include cutting out foreign ministers from the toughest decisions and going straight to EU heads of government in just the way they have handled much of the Ukraine crisis. On top of that, the focus of debate is on a radical widening of qualified majority voting to overcome dissenting voices, and the overhaul of European Commission and European External Action Service structures to strengthen economic and defence considerations.
Putin’s war, coupled with Covid, is sure to deal a body blow to the EU economy. But it is also triggering a much-needed re-think of Europe’s priorities, and the changes needed to achieve them.
This concludes a two-part article on the possible consequences of the war in Ukraine. Part one, published on 26 April, discussed likely pressures on the EU’s structure.
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