The EU thread

[crazy canuck]

Meeting of Czech and Polish foreign ministers.



 

Nothing ever went wrong politically related to a beer hall meeting. 

[Valmy]

Meeting of Czech and Polish foreign ministers.

It is amazing the kind of innovative foreign policy strategies you can come up with after having a few beers.

[Sheilbh]

Fascinating Draghi speech - and I more or less totally agree, in particular on the absolute catastrophe that was Europe's 2010s:
https://geopolitique.eu/en/2024/04/16/radical-change-is-what-is-needed/

But absolutely damning on the last 15 years of policy making:

For a long time, competitiveness has been a contentious issue for Europe.

In 1994, the nobel-prize-to-be economist Paul Krugman called focusing on competitiveness a "dangerous obsession". His argument was that long-term growth comes from raising productivity, which benefits everyone, rather than through trying to improve your relative position against others and capture their share of growth.

The approach we took to competitiveness in Europe after the sovereign debt crisis seemed to prove his point. We pursued a deliberate strategy of trying to lower wage costs relative to each other – and, combine this with a procyclical fiscal policy, the net effect was only to weaken our own domestic demand and undermine our social model.

But the key issue is not that competitiveness is a flawed concept. It is that Europe has had the wrong focus.

We have turned inwards, seeing our competitors among ourselves, even in sectors like defence and energy where we have profound common interests. At the same time, we have not looked outwards enough: with a positive trade balance, after all, we did not pay enough attention to our external competitiveness as a serious policy question.

In a benign international environment, we trusted the global level playing field and the rules-based international order, expecting that others would do the same. But now the world is changing rapidly and it has caught us by surprise.

On the challenge from US and China's industrial policies:

We are lacking a strategy for how to keep pace in an increasing cutthroat race for leadership in new technologies. Today we invest less in digital and advanced technologies than the US and China, including for defence, and we only have four global European tech players among the top 50 worldwide.

We are lacking a strategy for how to shield our traditional industries from an unlevel global playing field caused by asymmetries in regulations, subsidies and trade policies.

Energy-intensive industries are a case in point.

In other regions, these industries not only face lower energy costs, but they also face a lower regulatory burden and, in some cases, they are receiving massive subsidies which directly threat the ability of European firms to compete.

Without strategically designed and coordinated policy actions, it is logical that some of our industries will shut down capacity or relocate outside the EU.

And we are lacking a strategy to ensure that we have the resources and inputs we need to fulfil our ambitions without increasing our dependencies.

We rightly have an ambitious climate agenda in Europe and hard targets for electric vehicles. But in a world where our rivals control many of the resources we need, such an agenda has to be combined with a plan to secure our supply chain – from critical minerals to batteries to charging infrastructure.

Our response has been constrained because our organisation, decision-making and financing are designed for "the world of yesterday" – pre-Covid, pre-Ukraine, pre-conflagration in the Middle East, pre return of great power rivalry.

And I think there's a lot to his proposals on the areas he's flagged - defence, research and public goods.

Not sure if it'll be acted on - I think there's still quite a lot of sort of "end of history" fundamentalism in the institutions that is struggling to face the world as it is. See the regular attacks on various Biden policies as just protectionism and corporate subsidies rather than that - but also climate policy and also about security of supply chains and economic policy in a geopolitical world. Or the EU's response to Chinese protectionism and industrial policy mainly, so far, being investigations and WTO threats. In both cases I think it's interpreting what China and the US are doing as bad economic policies that are against the rules, when I think for the US and China they're strategic and geopolitical policies.

Also couldn't help but notice Scholz's visit to China with a big business delegation including Siemens chief who says they're "doubling down" on China. I also think there was possibly the Mercedes head who opposed the EU's investigation into China's subsidies for EVs - which suggests he either doesn't think subsidies are anti-competitive or is worried about Chinese retaliation.

So I really hope Draghi's vision wins out - but I think it'll be a fight and I think there's a real risk Europe repeats the mistakes of the last 15 years. Especially when you add failure to ramp up defence manufacturing for Ukraine. May end up not just dependent on the US for security and China for growth - but with both the US and China not caring about Europe because that's secondary to their own agendas. Which would not be great.

Edit: E.g. I really rate Margethe Vestager but this just feels profoundly inadequate in response to Draghi's speech (and also Enrico Letta's). Doubling down on the 1990s: "Unlike what we may hear, Europe does not need to reinvent itself, it needs to get back to basics: remove barriers, enforce existing rules. ... Rather than betting on taxpayers' money to subsidize our economy...Europe can never outspend the U.S. and China. We're not good at being American. Even worse at being Chinese."

Edit: Also read this piece on China's EV industry: https://www.phenomenalworld.org/analysis/byd/ And again - I just can't be struck by the idea that all the stuff about overproduction may be the intended outcome of policy decisions by China, and possibly right for the objectives of the CCP Maybe not - but I feel like we should at least be open to the possibility... I also think there is an echo of them in the US now - obviously with different politics and tools (China's, obviously, more coercive).