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).

[Crazy_Ivan80]

Yes, the overproduction is intentional.
Invite foreign companies, steal their tech, build it yourself, destroy your competitors by producing a massive glut, victory as your enemies have now been deindustrialised and are dependent on you.

The eu needs to develop a real industrial policy too, and today rather than tomorrow, and means actually behaving as if industry is welcome and necessary. That's not how it currently seems, especially if you take the outside influence of the green nutters into account.
So cheap energy is a must, acquisition of raw materials is too, having the factories to process everything the same. Notions of degrowth must be removed as are the intentions to be greener than the pope.
Once you have the economical base then you can use that to protect your interests-with and without the necessarily strong military- around the globe because no one else will. So the threat of wielding the stick instead of just a carrot is also in.
Once Europe's interests are more secure we can increase the pace of greening again, but now we're just shooting ourselves in our feet, as is clear by the ever decreasing importance of the European countries and economies, and the eu as a whole on the world stage.

The said: it's not really going to matter if Russia wins in Ukraine.

[Sheilbh]

I think Draghi's specific points are really worthwhile ideas too - it is obviously part of his pitch to replace Michel as EUCo President (and he would absolutely be a heavyweight in that role). I have a lot of admiration for Draghi generally - and I think he could go in even harder on the last 15 years. It's not just the catastrophe of the European response to the crash, but the failure to see the world changing and adapt (I think it's not accidental that the bits of the EU still most wedded to the 90s "international rules based order" are the bits that are not elected/not exposed to popular politics):

Each sector requires specific reforms and tools. Yet in our analysis there are three emerging common threads for policy interventions.

The first common thread is enabling scale. Our major competitors are taking advantage of the fact that they are continental-sized economies to generate scale, increase investment and capture market share for the industries where it matters most. We have the same natural size advantage in Europe, but fragmentation is holding us back.

In the defence industry, for example, lack of scale is hampering the development of European industrial capacity, which is a problem acknowledged in the recent European Defence Industrial Strategy. The top five players in the US represent 80% of its larger market, while in Europe they constitute 45%.

This difference arises in large part because EU defence spending is fragmented.

Governments do not procure much together – collaborative procurement accounts for less than 20% of spending – and they do not focus enough on our own market: almost 80% of procurement over the last two years has been from outside the EU.

To meet new defence and security needs, we need to step up our joint procurement, increase the coordination of our spending and the interoperability of our equipment, and substantially reduce our international dependencies.

[...]

And scale is also crucial, in a different way, for young companies that generate the most innovative ideas. Their business model depends on being able to grow fast and commercialise their ideas, which in turn requires a large domestic market.

And scale is also essential for developing new, innovative medicines, through the standardisation of the EU patients' data, and the use of artificial intelligence, which needs all this wealth of data we have – if only they could be standardised.

In Europe we are traditionally very strong in research, but we are failing to bring innovation to market and upscale it. We could address this barrier by, among other things, reviewing current prudential regulation in bank lending and setting up a new common regulatory regime for start-ups in tech.

The second thread is providing public goods. Where there are investments from which we all benefit, but no country can carry out alone, there is a powerful case for us to act together – otherwise we will underdeliver relative to our needs: we will underdeliver in climate, in defence for example, and in other sectors as well.

There are several chokepoints in the European economy where lack of coordination means that investment is inefficiently low. Energy grids, and in particular interconnections, are one such example.

They are a clear public good, as an integrated energy market would lower energy costs for our firms and make us more resilient in the face of future crises – a goal that the Commission is pursuing in the context of REPowerEU.

But interconnections require decisions on planning, financing, procurement of materials and governance that are difficult to coordinate – and so we will not be able to build a true Energy Union unless we agree on a common approach.

Another example is our super computing infrastructure. The EU has a public network of high-performance computers (HPCs) which is world-class, but the spillovers to the private sector are currently very, very limited.

This network could be used by the private sector – for instance AI startups and SMEs – and in return, the financial benefits received could be reinvested to upgrade HPCs and support an EU cloud expansion.

Once we identify these public goods, we also need to give ourselves the means to finance them. The public sector has an important role to play, and I have spoken before about how we can better use the joint borrowing capacity of the EU, especially in areas – like defence – where fragmented spending reduces our overall effectiveness.

[...]

The third thread is securing the supply of essential resources and inputs.

If we are to carry out our climate ambitions without increasing our dependence on countries on whom we can no longer rely, we need a comprehensive strategy covering all stages of the critical mineral supply chain.

We are currently largely leaving this space to private actors, while other governments are directly leading or strongly coordinating the whole chain. We need a foreign economic policy that delivers the same for our economy.

[...]

These three threads require us to think deeply about how we organise ourselves, what we want to do together and what we want to keep at the national level. But given the urgency of the challenge we face, we do not have the luxury of delaying the answers to all these important questions until a next Treaty change.

To ensure coherence between different policy tools, we should be able to develop now a new strategic tool for the coordination of economic policies.

And if we are to find that this is not feasible, in specific cases, we should be ready to consider going forward with a subset of Member States. For example, enhanced cooperation in the form of a 28th regime could be a way forward for the CMU to mobilise investments. But as a rule, I believe that the political cohesion of our Union demands that we act together – possibly always. And we have to be aware that the same political cohesion is now being threatened by the changes in the rest of the world.

I think the point that defence manufacturing in Europe is primarily an export industry helps explains the point those companies have made about needing contracts to ramp up manufacturing for Ukraine.

Two slightly random thoughts on that. One is whether going for that role undermines his ambition? In the last 30 years the nexus of decision making and power and influence in Brussels has pretty decisively moved from the Commission to the Council. That may reflect the EU expanding its competencies into more areas which are more politically sensitive and require more involvement from democratically accountable leaders in member states, but is the intergovernmental/member state bit of the EU really able to drive a more unified EU level response?

The other very random thought is that Draghi is 76 so five years younger than Biden. I know lots of people just hate on boomers but there is something striking about the fact that with Biden and with Draghi (and perhaps others) that the political figures who speak with a sort of ambition are from that generation - they came of age in the trentes glorieuses and from an EU perspective in the heroic age of European integration. I feel like there's something in that that ties to Macron's point about post-modernism and our inability, incapacity to believe in grand narratives. Can we have progress or agency if we've lost the ability to believe in progress or agency - or do we need to keep reaching back for that generation who actually experienced it?