What 'EU sovereignty' are we talking about? Daniel Dăianu is Professor of Economics at the National School of Political and Administrative Studies, Bucharest, a Member of the Board of the National Bank of Romania, a former Finance Minister of Romania, former MEP and a CASE fellow French President Emmanuel Macron produced quite a stir by asking for what he called “European sovereignty”. In April 2018 he reiterated this quest in the European Parliament. Arguably, this quest is to be embedded in a wide context by considering trends which have been getting steam during the past decade. ‘European sovereignty’ automatically leads to the idea that the EU needs more room of manoeuvre 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 strives to be less dependent, more self-reliant economically in this regard? One could argue that such an objective is not devoid of common sense at a time when multilateralism is severely tested by, what an irony, the US. Or, that economic and security rationales lie behind an inward-looking syndrome1, that shows up in the way Europeans tackle the challenges of immigration, protection of borders, fighting terrorism, dealing with cyber attacks, etc. All these challenges would suggest that however much one is enamoured of economic openness, of a borderless world, reality forces upon us tough choices and an inexorable motion toward a EU epitomized, eventually, by a sort of fortress. Decades ago Richard Cooper wrote a book titled The Economics of Interdependence (Columbia University Press,1980). That was an interpretation of what underpins the transatlantic economic and political community. The Cold War was a period that reinforced the links between Europe (EU) and the US, in economic and military affairs. In spite of inevitable economic rivalries and Europeans’ envy of Washington’s “exorbitant privilege” (as Valery Giscard d’Estaing called the US leeway to fund its worldwide ventures by just printing US currency), ever deeper economic ties were a strong lynchpin for containing the Soviet Bloc and for expanding western democracies’ interests worldwide. But the world nowadays seems to have turned upside down. Whereas emerging economies have been traditional advocates of fair trade, currently some advanced economies, with the US in the lead, argue that global trade is not a level playing field, that unfair practices favour emerging powers – China in particular. Moreover, multilateral arrangements, that were fostered by the US after the end of the WW2, are being seriously questioned; bilateralism and plurilateralism are proliferating. Again, China is seen across the Atlantic, as a huge geopolitical rival, whose ascendancy has to be slowed down, if not averted, by all means – including trade and investment restrictions. But Europeans, too, are screening Chinese investments and transfers of know-how that regard strategic sectors, more or less linked with security concerns. Europe also resents tactics and methods used by Washington, with the latter flexing its diplomatic and military muscles in unconventional ways, which do not leave friends unscathed. What some view as bullying is used frequently and real politik is much more muscular during the Trump Administration. Does it work? Sometimes it seems that it does, for bilateral deals are taking concrete shape. By the way, the EU also tries to get into bilateral trade arrangements. Sanctions, too, are used in a more forceful and unhidden ways by Washington. This major change in the way American diplomacy is articulated and pursued, and diverging strategic stances between the US and the EU (take the case of Iran), brings about a quest in Europe for more room of manoeuver; one could call it ‘policy sovereignty’, or policy space. But does Europe (the EU) have, or can it have, the policy space the US has? Nota bene: this question is not an implicit defence line of the new policy thrusts and forms across the Atlantic; instead, it does consider how security concerns may influence policy-makers when it comes to judging trade-offs between unimpeded markets and preserving competitive edges in key domains. It may be that Europe (EU) is heavily disadvantaged in this regard, for: It is not a federal state, and its decision-making mechanisms are much more complicated, cumbersome; The euro is not a genuine rival for the USD in critical respects, and this is illustrated by the share of the American currency in world reserves and in world payments. More on this issue: could the EU create a rival payment system in view of the US dollar dominance in financial markets? In addition, as long as the euro area will continue to be crippled by a weak design and inadequate policy arrangements, is it hard to think that the euro can be a genuine rival to the USD Europe is the largest trading bloc in the world, but it is also fraught with currents of fragmentation and a growing divide between the North and South in the euro area, between West and East on issues such as immigration, the ‘rule of law’, how close the ties with the US should be. Acquiring more ‘policy space’ is a commendable aim for EU policy-makers, but this has to be defined in realistic terms. Arguably, more policy space should not cause more confrontation areas with the US. Europe is too fragmented and weak internally to afford itself to fuel tense relations with Washington. When it comes to defence, Europe (and this is felt in the eastern EU members states in particular) needs the US. The White House is playing its own cards, better or worse, but the US means more than the current administration. Take the issue of climate change to realize that this is the case. The bottom line is that for Europe to have more voice, power, and allies in a ‘G-Zero’ world (to use Ian Bremmer's formulation), it needs to deal with: A real reform of the euro area, with an adequate combination of risk-reduction and risk-sharing arrangements (including a euro area budget) But mutualisation of risks in the euro area leads to a huge political conundrum. Here one meets Dani Rodrik’s trilemma, namely that there can be no integration (globalisation via a ‘single market’) in cohabitation with an autonomous economic policy and democratic accountability at national level; something must give up in this triumvirate2. It is fair to argue that this trilemma simplifies things and that compromises can be found. And yet, it raises a formidable challenge to the euro area functioning unless financial integration is accompanied by policy arrangements and mechanisms that combat growing divergence between member states. For increasing divergence eats into the social fabric and fuels extremism, populism, euroscepticism. Reform the functioning the Single Market, which should make the European social model more inclusive (remember the Monti Report of 2010 and the Sapir Report of 2004) Foster a change in the way international financial institutions function, so that these do not lose their lustre due to newly formed (Asian, Chinese-backed) arrangements Accept that regional arrangements are probably inevitable in a polycentric world Europe’s weight in the global economy diminishes inexorably for demographic and other reasons. For the soft power and the EU’s voice in the world to be preserved, reforms are needed to strengthen it; Spend more to support new technologies projects; in artificial intelligence endeavours, Europe lags badly behind the US and China; There is need for a robust EU budget to fund EU public goods (security, defence of borders, fighting climate change, etc); it implies more resources including a rising share of own resources, as the HLGOR (High-Level Group on Own Resources) advocates. An effective immigration policy that should reconcile humanitarian concerns with the reality that Europe cannot become a shelter for all those who are fleeing ravaged countries. If this is not done in a balanced way the rise of extreme right parties will continue. Having Europe (the EU) move forward along lines such as those mentioned above would help it get a larger ‘policy space’, more ‘sovereignty’. Sovereignty is about a common purpose, unity, common projects, social cohesion and economic strength, inter alia. When it comes to military, defence purposes, history shows that, when it comes to heavy lifting, the American friends (and their British cousins) are irreplaceable – at least for the foreseeable future. And I would remind what Robert Gates said years ago, that Europe should not bet on an everlasting American “umbrella” unless it is pays more for its defence needs. Endnotes 1. See also my piece "The new protectionism", World Commerce Review Volume 11, Issue 1, January 2017 2. Rodrik, D, “The inescapable trilemma of the world economy”, personal blog, 27 June 2007.
Acquiring more ‘policy space’ is a commendable aim for EU policy-makers, but this has to be defined in realistic terms