This should be Europe’s moment. The United States is bogged down in Iraq and crippled by Wall Street’s collapse, yet the European Union’s role in the world is weakening. Despite all its high ambitions, the EU is listened to less today than 15 years ago.
It hurts to read the piercing analysis from one of Asia’s most prominent diplomats and academics, Singapore's Kishore Mahbubani: “Europeans are irrelevant to the world’s great issues, obsessed by internal process, culturally arrogant, craven in the face of the U.S. and blind to the rise of Asia,” he says.
The remedies needed are easy to spot. If Europe is to step up to a more important role in global leadership, it must reverse its economic decline. This requires that we stop looking inwards and start embracing our neighbours.
Consider the evidence of Europe’s relative economic decline:
o Ownership; After centuries in which European corporations dominated in the developing world, the trend is reversing. Indian, Middle Eastern and other investors are buying up European steel and carmakers. In the coming years, watch out for China and Russia.
o Exchange rates; When the dollar slumped a year ago and eroded European competitiveness still further, both the European-led International Monetary Fund and the European Central Bank proved impotent. Instead, European leaders flew cap in hand to Beijing to ask for support.
o Banks; When American and Swiss banks hit the wall, nobody approached Europeans for support. Instead, bank leaders pleaded with Middle Easterners, Singaporeans and Chinese to throw them a lifeline. Once Europe’s own banks became infected, eurosceptic British leadership was needed to overcome French and German dithering.
MATTERS OF OPINION |
They saw it coming: How the G7 countries and the BRICs perceived the crisis
Citizens of the world’s richest countries were
pessimistic about local economic conditions well before the international financial crisis turned into last autumn’s meltdown. In a Gallup survey in early 2008, only 34% of those questioned in the G-7 thought things were getting better, while 48% said they were getting worse.
By contrast, people in the BRIC countries (Brazil, Russia, India and China) took a more optimistic view, with 53% replying positively. Almost two-thirds (63%) of those questioned in the G-7 countries said it was a bad time to find a job, with the French, Germans and Italians being the most worried. In the BRIC countries, the equivalent figure was 50%.
The BRIC countries had understandable reasons for optimism with an average economic growth rate for 2007 of 8% and growth in 2008 being projected at 13%. The G-7 countries, however, were expected to finish 2008 with growth of only 1%.
http://www.gallupworldpoll.com/ |
Europe’s increased irrelevance is not all self-inflicted, of course. Emerging economies in the continents east have increased their share of the world economy. Their expanding economic weight is giving them a more important voice in international relations. But Europe has contributed to its relative decline by its’ own actions – and inactions. It’s not because of others that growth in the eurozone almost never climbs above 3%. It’s not only because of others that the EU-15 share of the world economy is dwindling. According to the IMF our share of the global economy has diminished from 19,5% of world GDP in 1994 to 16% last year.
Despite its Lisbon agenda, EU enlargement and the achievement of the Eurozone, Europe’s overall economic performance has not picked up. We have neglected dealing with many basic and everyday issues that could make the European economy work better. That is why the Lisbon Agenda has not delivered results.
Three examples spring to mind. First, the EU still spends far more of its resources subsidising old declining sectors than preparing for the future. Although research funding is rising, it accounts for 4.7 percent of the EU spending, compared to 31.7 for agriculture. Second, we have failed to introduce an independent European Research Council to ensure that funding is allocated on scientific merit. Too much of the money earmarked for research goes to prestige projects with limited or no connection to science, like Galileo or the European Institute of Technology. And the third, more general point is that our resources are fragmented, and this hampers European competitiveness. The weak and diluted EU Takeover Directive, finally adopted after more than a decade of debate, fails to facilitate the cross-border mergers within Europe that are needed to build world champions. At the same time, company-based social benefits in some leading European countries act as break on corporate flexibility by locking in labour.
In these times of rapid international development and sharper competition, we cannot afford to be careless about improving our economic foundations; our own unimpressive economies give us a weaker international voice. The unglamorous work of improving the performance of our economy deserves much greater attention and effort. |
Experience teaches us that European leadership can produce positive, concrete action. Look at the EU’s “big bang” enlargement and at Europe’s leadership on curbing carbon emissions. When views converge, EU policy can produce impressive results and place Europe at global centre stage.
Having said all this, a number of consensus areas could be nevertheless forged in the near future. As the EU has expanded, countries that used to be far away have become neighbours. They need access to our markets and we should not turn them away. We should expand the European single market so as to boost growth and avoid creating new divisions. This means leveraging unglamorous tools like tariffs, industrial standards, market regulation, and cooperation in research and education in our relations with countries like Russia and Egypt, just as we have already done with Norway and Switzerland.
Many citizens feel that European cooperation only benefits the privileged; workers and pensioners believe they are forced to pay more in taxes because cross-border integration has helped the rich find ways to avoid paying tax on interest and capital gains. Common rules to correct this perception by eliminating cross-border tax evasion should become a priority. Participation in a common financial market should not be allowed for free-riders who refuse to share information. Cooperation with havens like Liechtenstein or Monaco should be ruled out unless they accept that inside the area all citizens must pay taxes where they live, according to the rules of that country.
Policy coherence within the EU must be improved. The motivation to implement further reforms on the internal market has weakened, leading to a situation in which even decisions by EU leaders at their European Council meetings can go ignored. And developments that are fundamental to European competitiveness, like an EU-wide patent, have proved impossible to achieve. The EU’s goal of spending 1% of GDP on research by the year 2010 will not be met by even a single member state. Too often, special interests are allowed to over-rule common European interests. We need an end to the subsidising of old and dying industries, and investing the money that would be saved in future-oriented sectors.
The last thing Europe needs is to reinforce unnecessary centralisation. A dynamic and successful Europe is not a one-size-fits-all kind of Europe and European integration must not become a goal in itself, but a powerful, practical instrument to create sustainable prosperity for Europeans. Strengthening Europe means encouraging growth-enhancing policies rather than focusing on who gets most benefits from funds or institutions in Brussels.
This is particularly important in the area of worker protection. Over the past year, the European Court has fuelled frustrations by undercutting Swedish labour practices in the Laval case about contracts for Latvian construction workers employed in Sweden. I doubt very much that the citizens of Europe will support measures to strengthen a Union which rest on the assumption that local working conditions can no longer be decided locally. A similar outcome in Germany, in the Ruffert case, confirms this unproductive trend.
To put it in economists’ terms: we need to deal more with the micro challenges of Europe in the years ahead than in grand ideas. If we stick to that principle, the EU will have a much better chance of regaining respect and influence in the world.