Economics Update June 2024 - Europe needs more unity and growth in global competition

The world is undergoing a process of geopolitical reorganization, driven by the strategic great power rivalry between the USA and China. The outcome of this process is still uncertain. However, the European Union is faced with the concrete question of what role the “old” continent wants to and can play in the global economy and politics of the 21st century. The following applies: either the EU acts as a significant global player or it and its member states will at best play a secondary role in the future.

Europe is challenged in all areas

In the coming years, three key issues will determine whether the EU can live up to its claim to help shape the global order. Firstly, Europe must be able to manage its own affairs independently and, in particular, ensure its defense capability, which is currently not the case. Secondly, the EU must act as a unified actor in the global context, define its interests and represent them with one voice. This requires a further renunciation of sovereignty by nation states in foreign policy matters and a change in decision-making mechanisms within the EU, away from the principle of unanimity. Thirdly, Europe must regain economic dynamism, as this is the prerequisite for global influence. Since the 2008 financial crisis, the EU economy has only grown at half the rate of the US economy, which clearly demonstrates the need for action.

EU Commission must set priorities

The new Commission and its President therefore face major economic policy challenges after the European elections. This starts with an honest stocktaking. The suggestive invocation of one's own greatness and strength, without substantial improvements being made, will impress the other global players less and less. Priorities should be a stronger growth dynamic and a greater capacity for innovation. Above all, ways must be found to achieve socially necessary goals without jeopardizing the economic substance. This applies above all to climate protection targets: In the global context, effectively limiting CO2 emissions is only realistic if Europe develops solutions for this that are attractive and worthy of emulation by other global players.

Distribution of tasks in the EU must be better regulated

For the EU Commission, this means redefining the relationship between European coordination and national solutions. Some issues should be regulated at European level, while others are better left to competition between European companies or national strategies. In this context, the EU's own sources of funding and joint debt are also being discussed. The latter may be sensible or necessary in certain areas, but is in tension with high national debts and the resulting risk of new financial crises in the eurozone. Overall, the EU Commission should focus more on market-based incentives and an innovation-friendly climate, as the recent flood of small-scale regulations and directives has proven to be a mistake.

Unfortunately, all these issues played virtually no role in the election campaign for the European Parliament. We can only hope that the necessary discussions will be held after the elections and that suitable solutions will be found.