Sunday, June 16, 2024

The EU’s post-elections future

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Welcome back. This week’s European parliament elections have been taking place in an international environment that is more threatening than at any time since the end of the cold war. What should Europe’s priorities be in the five years up to the next EU elections in 2029? I’m at tony.barber@ft.com.

First, the results of last week’s poll. Asked if the EU’s centre-right parties should form a pact with Italian premier Giorgia Meloni, 47 per cent of you said yes, 43 per cent said no and 11 per cent were on the fence. Thanks for voting!

A descent into near-chaos

The results of the elections, held across the EU’s 27 member states, will start coming in on Sunday evening. In the meantime, experienced commentators share the view that the outlook gives rise to serious concern.

The FT’s Martin Wolf, inverting Martin Luther King’s rhetoric at the 1963 March on Washington, began a column this week:

“I have a nightmare.”

Erik Nielsen, global chief economic adviser at UniCredit, the Italian bank, says:

“The past five to eight years have been a slippery slope, and the past couple of years have seen such a rapid descent into geopolitical near-chaos that nobody can harbour any hope of a return to the golden years of globalisation.”

Mujtaba Rahman, managing director for Europe at the Eurasia Group consultancy, adds:

“To argue that Europe finds itself in a moment of the utmost insecurity is an understatement . . . Geopolitics is back with a vengeance and will inform the EU’s political and economic priorities over the next five years.”

Some risks are clear. Russia might defeat Ukraine. Donald Trump could return as US president. Relations with China might deteriorate further. In Europe, political disunity and threats to democracy might grow.

Finally, it’s easy to imagine an inadequate response to climate change, and a failure to halt or reverse Europe’s eroding business competitiveness and global economic influence.

A recent drought in Spain is a window into the future of the bloc, as climate change makes extreme weather events more likely © AFP via Getty Images

Expect the unexpected

To these well-known issues, I would add one more — the likelihood that, over the next five years, the EU will confront at least one large-scale emergency impossible to predict at the moment.

What might that be? Something arising from the misuse of artificial intelligence? An attack involving a nuclear weapon? The breakdown of an established democracy — or of a dictatorship hostile to the west?

We don’t know. But think back to what happened after the European parliament elections of 2009, 2014 and 2019.

Who in 2009 foresaw that the Eurozone would plunge into the mother of all sovereign debt and banking sector crises?

Who in 2014 predicted Brexit, Donald Trump’s election victory and a vast refugee and migrant crisis on Europe’s borders?

Who in 2019 warned us to expect the Covid-19 pandemic or Russia’s full-scale invasion of Ukraine?

In each case, there were a few prescient voices — for instance, politicians and analysts in central and eastern Europe spoke about the rising threat from Vladimir Putin’s Russia. But on the whole, the lesson is that the unexpected always happens.

One test of the EU will be how its leaders — some already in office, others to be appointed in the months after this week’s elections — will respond to the unexpected.

Relative decline of Europe

The backdrop to our unsettling times is the declining political and economic weight of Europe, and to some extent western democracies as a whole, relative to the rest of the world.

This is the theme of a new book, Westlessness: The Great Global Rebalancing, by Samir Puri, a scholar and former British diplomat who wrote a well-regarded study of the worldwide legacies of western imperialism.

Hugo Dixon, writing for Reuters Breakingviews, captures the economic aspects of this decline:

“Back in 1992, the EU was a geoeconomic giant. With 29 per cent of global output and a strong position in leading technologies, it could set many world standards.

“By 2022, the bloc’s share of world output had shrunk to only 17 per cent, while the US share was stable at 25 per cent over the same period. What’s more, the EU now has only four of the world’s top 50 technology companies.”

Economic revival

One priority for the EU, then, is economic revival. Jean-Dominique Giuliani of the Robert Schuman Foundation, a think-tank based in Paris and Brussels, sets out the problem:

“ . . . the economic gap with the two great continent-states, the US and China, means that we have to break with traditional budgetary and monetary policies. These transitions call for risk-taking, huge capital-intensive investments and, possibly, borrowing for the sake of growth.”

However, he adds:

“An almost philosophical problem plagues Europeans: they prefer regulation and constraint to freedom and incentive.”

A similar message comes from the European Round Table for Industry, which groups chief executives and chairs of 60 leading European companies:

“[Europe] has fallen behind on constructing key infrastructure and created a regulatory environment that lacks coherence and incentives for investment.”

These business leaders advocate encouraging investment in high technology, deepening the EU’s single market and simplifying the bloc’s regulatory framework.

Where’s the money?

Such prescriptions are hardly new. But two obstacles that stand in their way will loom large over the next five years.

One is that France and Germany, under their present leaderships, do not see eye to eye on the way forward — an issue highlighted in two recent FT articles by Adam Tooze and Sylvie Kauffmann.

French President Emmanuel Macron has called for a doubling of the EU budget and the investment of hundreds of billions of euros every year in new technologies, defence and the decarbonisation of the European economy.

In Germany’s ruling three-party coalition, however, finance minister Christian Lindner and his allies oppose more common EU debt issuance similar to the bloc’s post-pandemic recovery fund.

This difference of views is connected to the second problem: where will the money for a European economic renaissance come from?

In this in-depth analysis for the Center for Strategic and International Studies, Max Bergmann and Federico Steinberg explain that the EU could boost spending in three ways: larger national contributions to the bloc’s budget, more joint debt and new European taxes.

But they caution: “While there is momentum for more EU spending, there is also strong resistance inside the EU to developing the bloc’s fiscal capacities . . . particularly in wealthier northern European countries.”

Another difficulty is that the EU’s newly agreed fiscal rules limit the ability of national governments to spend more on defence, technology and green policies — at least, if they want to keep expenditure on areas such as education, housing, transport and welfare at or near current levels.

Inadequate defence spending

Defence expenditure is a particular concern. As the chart below shows, European military spending has increased in recent years but is still a small fraction of world defence expenditure.

To maximise the efficiency of EU defence programmes, there’s some talk of creating the post of defence commissioner in the next European Commission. But, as Giles Merritt comments, the job would need to have extensive powers to be of any use:

“Europe’s defence sector is a political minefield in which member states’ rival national champions collaborate on some projects and are cut-throat competitors in others.”

Would it not make sense to include the UK, one of Europe’s leading military powers, in a revitalised defence effort?

A related question is that of EU enlargement into eastern and south-eastern Europe. That, too, will cost money, as well as requiring an extensive reorganisation of the EU’s voting procedures and other institutional arrangements.

But some governments, such as the new coalition in the Netherlands, are under the control of political forces wary of enlargement if it were to involve larger contributions to the EU budget.

Hard choices await the EU if enlargement is to make progress over the next five years.

Security and migration

The EU thinks of security not only in the traditional sense of strong defences against potentially aggressive states, but in terms of tightly controlled borders against irregular migration.

This issue is certain to preoccupy EU policymakers over the next five years, as it has done since 2014 — a decade in which almost 30,000 people have died or gone missing in the Mediterranean, according to the International Organization for Migration.

The coming years will show whether the EU’s new asylum rules, and its efforts to limit migration by arranging multibillion-euro aid packages for countries such as Egypt, Mauritania and Tunisia, will work.

Luigi Scazzieri of the Centre for European Reform think-tank is among those who doubt the measures will suffice.

All told, it promises to be a tough five years ahead. It is perhaps some comfort that the recent historical record shows the EU can ride out difficult times — as long as it summons the political will.

More on this topic

Making European economic security a reality — a paper by François Godement for the Paris-based Institut Montaigne

Tony’s picks of the week

A spate of elephant-related attacks in a Malawi national park is highlighting tensions between international conservationists and local people who live alongside wildlife, the FT’s David Pilling reports

The UK is trying to enhance its relations with central Asian countries in response to China’s influence in the region and Russia’s attack on Ukraine, Mehmet Fatih Oztarsu writes for the Central Asia-Caucasus Analyst

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