Daniel Daianu is Member of the Board of the National Bank of Romania, former Finance Minister of Romania and Trustee of Friends of Europe
In April 2018, French President Emmanuel Macron produced quite a stir by asking the European Parliament for what he called “European sovereignty”. Arguably, this question needs to be embedded in a wider context by considering trends which have been getting steam during the past decade.
The concept of “European sovereignty” automatically leads to the idea that the European Union needs more room to maneuver in world affairs, not least in economic terms. But how can one interpret such a goal in a world in which global supply chains have created powerful interdependencies? Does it mean that Europe should strive to be less dependent and more self-reliant economically?
For Europe to have more voice, power and global allies, it needs real and bold reforms
One could argue that such an objective is not devoid of common sense at a time when multilateralism is severely tested by the United States. Or, that economic and security rationales lie behind an inward-looking syndrome that shows up in the way Europeans tackle the challenges of immigration, protection of borders, fighting terrorism, dealing with cyberattacks, and so on. All these challenges would suggest that however much one is enamored of economic openness, of a borderless world, reality forces upon us tough choices and an inexorable motion toward an epitomised EU.
Decades ago, Richard Cooper wrote a book titled The Economics of Interdependence which was an interpretation of what underpins the transatlantic economic and political community. The Cold War was a period that reinforced the links between Europe and the US, in economic and military affairs. In spite of inevitable economic rivalries, ever deeper economic ties were a strong linchpin for containing the Soviet Bloc and for expanding the interests of Western democracies worldwide.
But the world nowadays seems to have turned upside down. Whereas emerging economies have been traditional advocates of fair trade, some advanced economies with the US in the lead now argue that global trade is not a level playing field, that unfair practices favour emerging powers and China in particular. Moreover, multilateral arrangements that were once fostered by the US are now being seriously questioned and bilateralism and plurilateralism are proliferating. China is seen across the Atlantic as a huge geopolitical rival whose ascendancy has to be slowed down, if not averted, by all means necessary – including trade and investment restrictions. But Europeans, too, are screening Chinese investments and transfers of know-how in strategic sectors, more or less linked with security related concerns.
Europe also resents tactics and methods used by Washington, with the latter flexing its diplomatic and military muscles in unconventional ways, while also trying to establish bilateral trade arrangements. This major change in the way American diplomacy is articulated and pursued, and diverging strategic stances between the US and the EU (for example on the case of Iran) has provoked a quest in Europe for more room of maneuver that one could call policy sovereignty or policy space.
But does Europe have, or can it have, the policy space the US has? It seems that the EU is severely disadvantaged in this regard, as it is not a federal state, and its decision-making mechanisms are much more complicated and cumbersome than those of the US. When it comes to the euro, the single currency is not a genuine rival of the US dollar when it comes to global reserves and payments and it continues to be crippled by design flaws and inadequate policy arrangements. While Europe is the world’s largest trading bloc, it struggles with fragmentation and a growing divide between the North and South, between West and East, on issues such as migration and the ‘rule of law’.
Multilateral arrangements that were once fostered by the US are now being seriously questioned
For Europe to have more voice, power and global allies, it needs a real and bold reform of the euro area, with an adequate combination of risk-reduction and risk-sharing arrangements and a reform of the Single Market which should make the European social model more inclusive. It also needs to foster a change in the way international financial institutions function and accept that regional arrangements will most likely be inevitable.
And this is not all. If the EU wants to maintain its soft power and voice in the world, it needs to spend more to support new technology projects and artificial intelligence; set up a more robust EU budget to fund EU public goods, such as border controls, and put in place an effective immigration policy that should find a balance between humanitarian concerns and the fact that the continent cannot become a shelter for all those fleeing countries in distress.
If the EU moves forward along the lines suggested above, it can gain more policy space as well as sovereignty.
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