Fair, competitive and resilient: EU responds to globalisation

The blog post Reflection paper on globalisation: Opportunity or threat?, which  introduced the European Commission’s reflection paper on harnessing globalisation COM(2017) 240, left me with a desire to present the reasons of the Commission and how it wants to handle the internal and external pressures of globalisation, as part of the discussion about the future of Europe - #FutureOfEurope on Twitter.

Profound changes

We may be well or ill prepared, but profound changes await us. As the EU Commission writes about our interconnected future (page 11):

We are still in the early phase of the transformation where digitalisation, robots, artificial intelligence, the internet of things, 3D printing will revolutionise how we produce, work, move and consume.

The UK and the USA have both upset long traditions of integration, European and global. China increasingly acts like an economic and a military great power, but not based on the values of democracy, human rights and the rule of law many of us believed were becoming universal.

In the emerging tri-polar (or multipolar?) world, the relative weight of Europe in world affairs continues to decrease, to say nothing about the dwindling relative size of individual EU member states (page 12):

In 2025, 61% of the world's 8 billion-population will be in Asia, predominantly in China and India. Europe's relative share of the world population will decline, with the EU27 accounting for 5.5 %. This may bring about a multipolar world order with different political, technological, economic and military powers. But it also means large new markets for European companies.

Isolationism and protectionism - closing minds and borders, building physical and mental walls, creating obstacles to trade and investment - may entice individuals, communities, regions and countries feeling left behind, but the relief is shortlived (page 14):

Changes associated with globalisation can lead to calls for countries to isolate and insulate themselves from what is happening around them. This is particularly acute in regions that have been left behind. Some want to put up barriers and close borders.  

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However, a majority of European citizens recognise that protectionism does not protect. It may provide short-term relief, but history shows that it never had lasting success, and has often led to disastrous outcomes.

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Protectionism would disrupt production and increase costs and prices for consumers. European exports would become less competitive putting even more jobs at risk. An increase in trade restrictions by 10% is estimated to lead to a 4% loss of national income. We would lose access to new products, services, technologies and ideas. By hitting the poorest hardest with price increases, protectionism would have the opposite of its desired effect.

Harnessing globalisation

In a nutshell, for the sake of the citizens of Europe and the world, the Commission sketches the road to follow (page 14):

To better harness globalisation, we need more global governance and global rules. And we need to support that with domestic policies that boost our competitiveness and resilience at home.

Chapter 3 about the EU’s external response is dedicated to promoting a fairer international economic order (pages 15-18). Chapter 4 deals with the internal response of the EU: how to enhance innovation and competitiveness, as well as to bolster the resilience of those who otherwise fall behind (pages 19-23).

The thoughts about life-long learning and active labour market and social policies are closely related to the future of Europe reflection paper on the social dimension, the European pillar of social rights to be proclaimed and the Social Summit for Fair Jobs and Growth the coming week, 17 November 2017 in Gothenburg (Sweden). - For more information you can follow #SocialRights and #SocialSummit17 on Twitter.

EU level action

Individuals and firms make their own choices in a changing world, but the reflection paper is about how the political sphere should tackle globalisation. There are challenges for each political level - local, regional, member state and EU - as summarised on page 24.

Here we are interested primarily in a sketch of how the EU institutions should should invest their time and energy regarding globalisation:

• Trade agreements to open markets and enforce level-playing field
• Measures to ensure global tax justice and transparency
• Promotion of higher global regulatory standards
• Trade Defence Mechanism
• European Budget (such as EFSI, ESIF, GAF, Horizon)
• European External Investment Plan
• Development Assistance
• Product and Food Safety  

If this succeeds in inviting blog followers to read about the EU’s external and internal responses to globalisation - fair, competitive and resilient - it may be better to continue with the expert assessments I promised in a separate blog post.

Ralf Grahn

Reflection paper on globalisation: Opportunity or threat?

The Commission’s White paper on the future of Europe: Reflections and scenarios for the EU27 by 2025 COM(2017) 2025 invited the citizens of the European Union to discuss our common future ahead of the elections to the European Parliament in 2019.

In the White paper, published 1 March 2017, the European Commission promised to contribute to the discussion during the coming months with a series of reflection papers on the following topics:

• developing the social dimension of Europe;

• deepening the Economic and Monetary Union, on the basis of the Five Presidents' Report of June 2015;

• harnessing globalisation;

• the future of Europe’s defence;

• the future of EU finances.

As promised, the European Commission published a paper discussing the economic and societal challenges of rapid integration:

Reflection paper on harnessing globalisation; Brussels, 10.5.2017 COM(2017) 240 final (25 pages)   

For those who prefer the less readable pastel coloured “printed” versions, with annexes, the European Commission’s web page White paper on the future of Europe and the way forward serves as a convenient channel to the White paper and the five reflection papers, including the one on harnessing globalisation in the official EU languages.

Opportunity of threat?

One of the difficulties for building coherent policies and action is that people in the EU are divided: 55 per cent see globalisation as an opportunity, while 45 per cent consider globalisation as a threat overall (page 10).  

Even worse, fear of globalisation is the main cause for voters to abandon mainstream political parties and to turn to populist parties, especially on the Right, but also on the Left, according to the 2016 study from the Bertelsmann Stiftung Globalisierungsangst oder Wertekonflikt? The lower the level of education, the less the income and the higher the age of people, the more likely they are to perceive globalisation as a threat.

Majorities in Austria and France experienced globalisation as a threat, while the proportion of people fearing globalisation was particularly low in Italy, Spain and the United Kingdom. Public opinion in the Netherlands, Germany and Hungary formed a middle group between the extremes.  

However, in May 2017, along with stronger economies in the EU and the euro area, the Bruegel blog found that Europeans rediscover enthusiasm for globalisation, even in France, as Uuriintuya Batsaikhan and Zsolt Darvas wrote.

Tri-polar world?

A fresh post on the Bruegel blog, European worries about isolationist trends, reasons that despite populist shocks in the UK and US, withdrawing from the world is no solution, but that Europe needs to reassess the future of globalisation.

Internal EU reform is long overdue, and Europe’s allies are withdrawing, while European integration and globalisation both build on the idea ‘work together, as a way of doing better’. Maria Demertzis discusses both economic inequality in Europe (the UK and US) and the rise of a China promoting different values than the EU.

Can the EU overcome populist and protectionist pressures? Is the European Union going to be able to conclude constructive deals with China?

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Let us return with a blog entry on how the European Commission wants to handle the internal and external pressures of globalisation and at a few expert comments about the reflection paper.

Ralf Grahn

Reflection paper on EMU future

Cristo si è fermato a Eboli: Why do I remember Carlo Levi and the saying “Christ stopped short of here, at Eboli”, when facing the conflict between a European level currency and national economic policies, as well as when following the many efforts to correct the design and to advance on the road to a robust, resilient and democratically legitimate euro area? In the blog post A better future for the EMU? we saw how the Five Presidents’ Report outlined the unfinished work and the road ahead.

EMU reflection paper

Two years after Completing Europe’s Economic and Monetary Union - the Five Presidents’ Report - as part of the ongoing #FutureOfEurope process, the European Commission published an update:  

Reflection paper on the deepening of the economic and monetary union; Brussels, 31.5.2017 COM(2017) 291 final (34 pages)

The “printed” versions of the White Paper and the thematic reflection papers on the future of Europe (with annexes, but in pastel colours not designed for online reading) can also be downloaded through the Commission web page White paper on the future of Europe and the way forward.

In a nutshell the aim of the EMU reflection paper is (page 2):

This reflection paper – the third in the series – sets out possible ways forward for deepening and completing the Economic and Monetary Union up until 2025. It does so by setting out concrete steps that could be taken by the time of the European Parliament elections in 2019, as well as a series of options for the following years. Building on the Five Presidents’ Report, it is intended both to stimulate the debate on the EMU and to help reach a shared vision of its future design.

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Our Economic and Monetary Union still falls short on three fronts. First, it is not yet able to reverse sufficiently the social and economic divergences between and within euro area members that emerged from the crisis. Second, these centrifugal forces come with a heavy political price. If they remain unaddressed, they are likely to weaken citizens’ support for the euro and create different perceptions of the challenges, rather than a consensus on a vision for the future. Finally, while the EMU is stronger, it is not yet fully shock-proof.

EMU reflection

The euro is the currency for 341 million people in 19 Eurozone countries, as well as the second most used (reserve) currency around the world (page 5). It is hardly an exaggeration to say (page 6):

The functioning and future of the Economic and Monetary Union (EMU) is a matter of interest for all European citizens from whichever Member State they come from, including those who will join the euro area in the future. After the departure of the United Kingdom from the EU, the economies of euro area countries will represent 85% of the total GDP of the EU. This highlights the euro’s central role in the future EU at 27. Given its importance for the world, it is just as important to international partners and investors.

Euro for all?

Relatively speaking, this means that the countries outside the euro area are going to become even more marginal after Brexit. No wonder that the president of the European Commission Jean-Claude Juncker used his State of the Union 2017 address for a more united, stronger and more democratic union, SPEECH/17/3165,  to try to entice the stragglers to adopt the euro:

If we want the euro to unite rather than divide our continent, then it should be more than the currency of a select group of countries. The euro is meant to be the single currency of the European Union as a whole. All but two of our Member States are required and entitled to join the euro once they fulfil the conditions.

Member States that want to join the euro must be able to do so. This is why I am proposing to create a Euro-accession Instrument, offering technical and even financial assistance.

It is interesting to note how negative people in some non-euro countries are according to the Standard Eurobarometer 87, when 73% of the people in the Eurozone support the euro currency (pages 33-34). In EU27 outside the euro area, the proportions of people against the common currency were:

Czechia 77%

Sweden 72%

Denmark 66% (the only country with an opt-out when the UK has left)

Poland 61%

Bulgaria 47

Croatia 45

Hungary 40

Romania 33

The euro requires much more credibility in the eyes of negative populations, but paradoxically the same people are generally most hostile to the capable and democratic union a robust and resilient euro needs. As long as they and their governments dither, there are at least 341 million reasons to convince the citizens of the union that our economic future is brighter inside.

Democracy

The monetary union still searching for an economic union is far from a real democracy, where the people vote in (an out) the government, but at least the reflection paper glances in this direction (page 19):

Most notably, the involvement of the European Parliament and the democratic accountability for the decisions taken for or on behalf of the euro area should be enhanced.

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... the common interest of the euro area is still not sufficiently represented in public debate and decision-making. Without a common understanding of the challenges or vision of the future, the euro area will struggle to overcome the legacies of the crisis and will not make progress on the tools it needs to address common challenges.   

But almost immediately the EMU reflection paper starts talking (page 20) about the challenge “to turn ideas into practical solutions and to identify a way forward that is pragmatic and flexible, yet effective for all”, it is again talking about member states, not EU citizens.

EMU reform principles

The reflection paper about deepening the economic and monetary union indicates guiding principles for the reform path (page 20):

Four principles should guide the way forward:  

• Jobs, growth, social fairness, economic convergence and financial stability should be the main objectives of our Economic and Monetary Union. The EMU is not an end in itself.  
• Responsibility and solidarity, risk reduction and risk-sharing go hand-in-hand. Greater incentives for risk reduction and conditional support should go together with designing risk-sharing measures, especially in the financial sector, and the conduct of structural reforms.  
• The EMU and its completion must remain open to all EU Member States. The integrity of the single market must be preserved. This is also key for a well-functioning single currency. According to the Treaty, except for Denmark and the United Kingdom, all EU Member States are expected eventually to join the euro.  
• The decision-making process needs to become more transparent and democratic accountability needs to be ensured. Citizens expect to know how and by whom decisions are made and how they impact on their lives.

Regarding the last bullet point, in a real democracy the voters would actually do more, namely set the course of government.

Steps forward

On page 34 the reflection paper sketches two phases (further elaborated in annex 1), with the first one now reaching to the end of 2019:

The first phase runs to the end of 2019. This time should be used for completing the Banking Union and Capital Markets Union with those elements that are already on the table today. This includes the financial backstop to the Single Resolution Fund, measures to reduce risks in the financial sector further, and the European Deposit Insurance Scheme. A number of new instruments, such as better economic and social convergence standards, could also be tested. The democratic accountability and effectiveness of the EMU architecture would be gradually improved.

The second phase, over 2020-25, would be for completing the EMU architecture. It would include more far-reaching measures to complement the Financial Union, possibly with a European safe asset and a change in the regulatory treatment of sovereign bonds. Additionally, a fiscal stabilisation function could be envisaged. As a result, the institutional architecture could be changed more substantially.

Please, act on the words of the European Commission, especially if you want a capable and democratic union for yourself and the euro: This reflection paper is an invitation for everyone to express their views on the future of our Economic and Monetary Union, as part of the broader debate on the future of Europe. - Remember the Twitter hashtag #deepeningEMU besides the general  #FutureOfEurope linked to above.  

Ralf Grahn

Future of Europe: introducing deepening EMU

In the blog entry Future of Europe to meet European Council about the winds of change from the European Parliament, the European Commission and president Emmanuel Macron, we saw the:

White Paper on the Future of Europe: Reflections and scenarios for the EU27 by 2025; Brussels, 1.3.2017 COM(2017) 2025 final

The White Paper promised to deliver further food for thought and debate through five thematic papers, among which (page 18):

The European Commission will contribute to that discussion in the months ahead with a series of reflection papers on the following topics:

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• deepening the Economic and Monetary Union, on the basis of the Five Presidents' Report of June 2015;

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Five President’s Report

Published in June 2015, the 23-page Five President’s Report, officially Completing Europe’s Economic and Monetary Union, was authored by the president of the European Commission Jean-Claude Juncker “in close cooperation with” the president of the European Council and the euro summit Donald Tusk, the president of the Eurogroup Jeroen Dijsselbloem, the president of the European Central Bank Mario Draghi and the president of the European Parliament Martin Schulz.  

EMU Reflection paper

Two years later came the update in the form of:

Reflection paper on the deepening of the economic and monetary union; Brussels, 31.5.2017 COM(2017) 291 final (34 pages)

Alternatively, access the White Paper and the reflection papers through the Commission web page White paper on the future of Europe and the way forward.

Introductory notes  

In Finnish I looked at the deepening of the economic and monetary union (EMU) and the Five Presidents’ Report in the blog post Euroopan tulevaisuus: talous- ja rahaliiton syventäminen and at the EMU reflection paper in the entry Pohdinta-asiakirja talous- ja rahaliiton syventämiseksi.

The Swedish blog post Norden i EU-utkanten? described how scattered the Nordic countries are with regard to the defence alliance NATO and the European Union. Iceland and Norway remain outside the EU, and even the EU members Denmark and Sweden continue on the periphery, showing no signs of adopting the euro, while  leaving Finland the sole Nordic participant in the euro area, the core group of 19 countries with a total population of 341 million.

In Vitboken om EU:s framtid i Norden I tried to find signs of activity regarding the future of Europe, by the governments or parliaments of the Nordic EU members Denmark, Finland and Sweden, concerning the White Paper from the European Commission. (The article Diskussionsunderlaget om EU:s sociala dimension i Norden moved from the general level to explore the reception of the reflection paper on the social dimension by these three countries. There are also a number of earlier blog posts in Finnish, Swedish or  English about the social market economy, the European social pillar and the EU social dimension. Most of them can be found through the entry Future of Europe: social dimension.)  

(The English entries A symbolic opportunity for the European Council and Future of Europe to meet European Council visited the summit level and general EU reform issues in an attempt to lay the groundwork for more specific questions, such as the individual reflection papers, with the creation of a credible EMU next in turn.)   

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Twitter reflects at least parts of the multilingual pan-European public debate about the future of the European Union under the hashtag #FutureOfEurope, while the Commission web page for the priority A deeper and fairer economic and monetary union offers a more specific tag #deepeningEMU, covering the policy areas: economic union, financial union, fiscal union, political union (and the European Pillar of Social Rights).

Ralf Grahn