 | Kyriakos Revelas Former EU official, Brussels |
ON ECONOMIC GLOBALISATION AND EUROPEAN INTEGRATION
The COVID-19 pandemic has raised awareness about EU’s dependence on global supply chains and potential vulnerabilities. Following the 2008 financial crisis this sounded a second wakeup call for the EU underlining the need for reappraisal of globalisation. I will first address the relation between economic globalisation and European integration and then turn to the implications of the corona crisis.
When analysing economic globalisation, we may distinguish a business and a political perspective. Companies (large multinationals, small and medium-sized enterprises) have constituted international value chains to maximise production efficiency and benefits. Based on comparative advantage and driven by technology and policy (liberalisation, deregulation) companies sought to harness gains from economies of scale ideally operating in a global market, which led to growing interdependence (“the division of labour is limited by the extent of the markets”, A. Smith).
The political perspective refers to the broader assessment of globalisation by societies. Historically, economic integration proceeded from local to regional, national, international and global markets. Parallel to market integration the scope of regulation expanded to pursue policy objectives. The best allocation of resources is not defined by efficiency gains alone, policy choices are also part of the equation. In trade-off situations the optimum degree of integration becomes relevant, i.e. whether sufficient common regulation can be achieved at the respective level (local, regional etc.) for market integration to bring about overall positive results. Market economy is a formidable mechanism for the efficient allocation of resources; but it is polities which determine the needs and goals to be served by the market forces as well as the values and norms to guide economic activity. They do so by establishing appropriate framework conditions, for example by pricing the environmental cost of transport or production processes, by defining the property rights of personal data or the desired level of economic autonomy.
European integration has evolved through the opening of national economies and the establishment of a single European market, accompanied by European regulations in the place of national ones; governance shifted from the national to the EU level. It is difficult to say whether market integration has reached an optimum in the EU, especially since the situation varies between different sectors of the economy. What seems clear, however, is that a comparable degree of correspondence between integration and regulation at the global level is beyond reach for the foreseeable future.
European economic integration can be considered as an intermediate step between the national and the global economy. In this sense European integration has helped the economies of member states to gradually open up and withstand the competitive pressures from the global market, thus paving the way for globalisation. At the same time, through regulation the EU fulfils a second function, namely protect the European productive base so as to serve the collective preferences of European societies. This double function is not always appreciated. There is also an inherent tension between the two objectives of liberalisation and protection. This tension provides dynamism for the integration process and helps European economies to jointly adapt and thrive in the global marketplace.
Facing old and emerging continental states and the inevitable decline of its demographic, economic, political and technological share, the prospects for Europe defending its values and interests will crucially depend on pulling together its strengths and regaining sovereignty at the EU level. The EU as a global actor is in a position to influence global governance much more than the member states would be able to do when acting separately. Beyond critical mass, the EU also stands for and promotes a culture of negotiation and intermediation between conflicting interests which contrasts with the power politics usually displayed in the international arena. This culture is conducive to seeking cooperative solutions, the only realistic option for solving cross-border, transnational or global problems.
In order to maintain a significant influence over world affairs while preserving the European way of life the EU must, first and foremost, strengthen its own coherence by boosting the allegiance of EU citizens and combatting anti-democratic forces within its borders. Moreover, the EU needs to join forces with international actors upholding multilateralism and proactively shape a rules-based world order.
The COVID-19 crisis prompted the EU to re-assess the implications of globalisation for its security and welfare. In the past the EU has attached importance to a high degree of self-reliance and to avoiding one-sided dependence in crucial sectors (food production, minimum oil stocks, energy diversification, satellite programmes). Faced with the pandemic, the EU realised that for pharmaceuticals and medical equipment it has tolerated significant dependence on imports especially from China, leading to shortages of basic materials. The appropriate policy reaction does not entail a large-scale retreat from the globalised market, but rather rethinking global supply chains with the aim of reducing excessive dependence on single suppliers. This could result in repatriating certain activities or sectors to Europe, diversifying the external sources or opting for regional supply chains.[1]
Yet relevant thinking goes beyond the current pandemic and actually preceded it. Given the growing assertiveness of China and unilateral, protectionist tendencies in the USA, as well as attempts to selectively influence member states, the EU had already initiated action on several fronts. These include the connectivity strategy as a reaction to China’s Belt and Road Initiative; the battery alliance which will make the EU less import-dependent as it moves to electromobility within the green transition; the GAIA-X initiative for EU-based cloud services to reduce dependence of European enterprises on a few US and Chinese providers; an Action Plan for 5G deployment; screening regulation on foreign investment plans in critical assets and infrastructure, a novel instrument to protect vital EU interests.[2]
Overall, the pandemic does not seem to cause a radical paradigm shift in world affairs, but acts as a catalyst or accelerator for changes already underway. For the EU it highlighted the need to act jointly and in solidarity internally, and push for cooperative governance solutions globally. In an unstable international context, characterised by rivalry and confrontation between a self-centred USA and an overambitious China, the EU should not follow others, pursuing neither de-coupling nor equidistance. Instead, the EU must ascertain its own values and interests and stay its course of defending them, patiently shaping global governance for global issues, leading by example and engaging for human dignity worldwide and the preservation of life on earth.
[1] The Commission proposal for the recovery instrument “Next Generation EU” includes a health programme aimed at resilience and strategic autonomy drawing lessons from the current pandemic.
https://ec.europa.eu/commission/presscorner/detail/en/ip_20_940
[2] See respectively
https://ec.europa.eu/growth/industry/policy/european-battery-alliance_en
https://ec.europa.eu/digital-single-market/en/policies/cloud-computing
For critical views see
https://ecipe.org/publications/europes-technology-sovereignty/