The EU and Arab reform
by Charles Grant and Tomas Valasek
The Arab Reform Initiative held its annual conference in Amman, Jordan, on 18th April. Founded in 2005, ARI is a consortium of a dozen research centres that advocate peaceful and gradual political, economic and social reform in the region. A few non-Arab think-tanks are also involved, including the Centre for European Reform, but it is very much led and managed by Arab research centres (the CER’s own website has a page on the ARI see http://www.cer.org.uk/ari_new/index_ari_new.html). The CER is part of ARI because it believes that ARI offers an excellent opportunity to encourage reform in a region that is deeply suspicious of outside influence.
The mood among the Arab think-tankers in Amman was relatively bleak. Prince Turki Al Faisal of Saudi Arabia set the tone. The prince is known for being both strongly pro-reform and somewhat sceptical of the United States, despite having served as ambassador in Washington until recently. However, as he said, US influence is increasingly corrosive of the very cause of reform in the Middle East. The invasion of Iraq – which the prince described as ‘illegitimate’ – had been particularly damaging. The message that Arab reformers took from the conflict and its aftermath was that solutions devised outside the region would not work, and that they must distance themselves from Washington if they are to have credibility with their own people.
The second blow for reformers was the West’s reaction to the 2006 elections in Palestine that brought Hamas to power. Khalil Shikaki, a respected Palestinian researcher, noted that the refusal by Washington to engage a legitimately elected Hamas government sent a terrible message, showing contempt for free and fair elections. In doing so Washington had sided with the entrenched authoritarian elite in Fatah, which had been discredited in the eyes of many Palestinians. And by throwing its support behind President Abbas and strengthening his office at the expense of the Prime Minister, even directly funding the presidential guard, Washington had undermined the Palestinian constitution. Not surprisingly, concluded Khalil Shaliki, support for democracy among the Palestinians had dropped after the events of the last year.
There is no doubt an argument to be made that without a heavy US intervention in the form of the Afganistan and Iraq wars reforms may never have become as prominent an issue as they are today. By jumpstarting the movement even at the expense of damage to its popularity, Washington may already have accomplished its most important goal in the region. This will be a question for historians to resolve. For the time being, US influence on Arab governments and societies seems at an all-time low. Reforms must indeed come principally from within, from the relevant governments and initiatives such as ARI. Nevertheless, one outside body, the European Union, can play a legitimate supporting role. In fact there is probably no greater challenge for Europe than getting its relationship with the Muslim world right. Because of the intertwined nature of European and Middle Eastern societies, Europeans have more direct interest than Americans in wanting to encourage reform in the Arab world.
The EU does have its ‘Barcelona process’, through which it tries to promote closer political and economic ties with the Mediterranean states. But though this process has soaked up billions of euros of EU money, nobody seems to think that it has achieved a great deal. One problem has been the reluctance of the governments in the region to accept the concept of conditionality – the idea that they should only get trade and aid if they behave in certain ways – and the reluctance of EU governments to apply that principle.
The EU also has its ‘neighbourhood policy’, which now applies to several Arab countries. The EU has agreed ‘action plans’ with Jordan, Morocco, the Palestinian Authority, Tunisia and Egypt. The EU promises closer relations with the countries concerned in return for their fulfilling promises to reform. The neighbourhood policy includes the concept of ‘positive conditionality’, rewarding good performers with extra funds, which may be easier to apply politically than old-fashioned negative conditionality. Jordan has been a star pupil and thus won extra EU funds in 2006.
The Barcelona process and the neighbourhood policy have undoubtedly done some good in some ways. But ultimately what affects Arab views of the EU is its performance on the Middle East peace process. And to judge from the mood in Amman, most Arab intellectuals have a poor view of the EU’s role. Last summer, when Israel invaded Lebanon, the EU’s initial inability to condemn the act as ‘disproportionate’ – because of the reluctance of the UK and some others to break from the US line – was noted with contempt. More recently, the EU’s divisions over whether to talk to Syria and Hamas have not impressed Arab think-tanks.
Indeed, Bassma Kodmani, the feisty lady who runs the ARI, remarked that the EU’s efforts to forge a common foreign policy were benefiting no one. The European insistence on unity meant that the EU could not engage with Hamas – though the Swiss and the Norwegians were doing so. She said it would be much better for those EU countries that were willing and able to engage with Hamas to do so on their own.
Such frustration with the slowness of EU decision-making is understandable. But in fact Arab think-tanks should not oppose the EU’s efforts to forge a common line. When it does pursue such a line, as it has done on Iran, it can make a difference and influence the behaviour of others. A united EU has more potential to shift the policy of Israel or the US than half a dozen EU states forming a sub-group of their own.
Many Arab think-tankers now seem to think that the EU is no better than the US. Indeed they cite the example of the EU’s diplomacy over Iran as an example of its ‘doing the US’s bidding’. Although many Arab governments are suspicious of Iran’s nuclear plans, Arab researchers criticise the EU’s diplomatic efforts to prevent Iran developing a nuclear bomb. Iranian President Ahmedi-Nejad has become a popular figure in many Arab countries, on account of his standing up to the West. At the ARI conference, when a CER panellist defended the EU’s Iranian diplomacy, pointing out that it was not only the ‘West’, but also Russia, India, China, Mohammed el-Baradei and the UNSC who were trying to persuade Iran not to build a bomb, Prince Turki nodded in approval. But nobody else did.
The EU faces few more difficult tasks than balancing its interest in continued close transatlantic relations with a stronger European role in the Middle East.
Charles Grant is director and Tomas Valasek is director of foreign policy & defence at the Centre for European Reform.
Friday, April 27, 2007
Friday, April 20, 2007
Globalisation: business versus politics?
by Katinka Barysch
The CER and Accenture brought together a group of business people, journalists and policy analysts today, to discuss what the world may look like in 2020. What struck me is that there is not one debate about globalisation but several. And they hardly touch.
Business people and bankers tend to take globalisation as a given and ask how governments, businesses and workers can make the most of it. Journalists, think-tankers and politicians are more likely to ask whether globalisation is good or bad. The assumption is that it can be managed.
Two recent publications encapsulate these different approaches. Both extrapolate current trends and naturally conclude that China, India, Brazil, Russia and other emerging markets will be big global players in 2020. Mark Leonard (in his CER essay ‘Divided world: The struggle for supremacy’) then argues that the world will divide along two axis: democracy versus autocracy; and multilateral institutions versus power. Instability could result if the world’s leading states struggle to entice others into their camp.
Accenture’s report on ‘The rise of the multi-polar world’ takes a bottom-up approach. Technology, trade liberalisation and the growing reach of multinational enterprises draw emerging countries into our rules-based global market. This is a world characterised by growing flows of money, people and technology. Multinationals lure Indian programmers to Munich and Palo Alto; new R&D clusters are emerging in China; foreign direct investment last year exceeded $1 trillion.
Both visions are plausible. But are they compatible? Political differences – such as those predicted by Mark Leonard’s – have a tendency to disrupt the kind of economic interdependence that Accenture analyses.
In the scenario of a ‘divided world’, trade and investment could be tools for defending political objectives, and perhaps for spreading ideas. But countries will be less likely to employ economic sanctions to enforce their standards and values abroad. In a globalised world, cutting trade and investment ties simply creates opportunities for others. In its quest for raw materials, China has invested huge sums in African dictatorships shunned by the West. Many African countries now get as much FDI from emerging economies as from the developed world.
In Accenture’s visions, business itself could help to spread practices and underlying values. As Western multinationals move abroad, they bring with them not only money and management but also Western ideas on property rights, social protection and so on. But the flow is no longer one way. Today, 62 of the Fortune 500 companies are from the developing world, and the number is growing fast. Cross-border acquisitions help these companies to enter markets, acquire well-known brands and learn modern management. But the reversal of investment flows makes many Westerners uncomfortable. The debates about Dubai Ports, Aeroflot’s bid for Allitalia or Tata’s acquisition of Corus spring to mind. Russia now insists that European companies can only invest in its oil and gas sector if Gazprom is allowed to buy European downstream assets. Will such demands for ‘reciprocity’ spread? And if so, would the ‘new’ multinationals conform with our local rules or import their own ideas about how to do business or treat workers?
Market forces shape the globalised world, but so do governments. Autocratic countries find it easier to act strategically than democratic ones. If China was a democracy, its voters may well be upset about the costs (as well as the legitimacy) of the government’s Africa policy. Moreover, in democracies the losers from globalisation are making their voices heard. Low-skilled workers who watch imports and immigration erode their wages will vote for politicians promising relief. Protectionism and global leadership do not go together.
These are fascinating questions. There certainly is a need for business and politics to discuss their respective views of globalisation more often.
Katinka Barysch is chief economist at the Centre for European Reform
by Katinka Barysch
The CER and Accenture brought together a group of business people, journalists and policy analysts today, to discuss what the world may look like in 2020. What struck me is that there is not one debate about globalisation but several. And they hardly touch.
Business people and bankers tend to take globalisation as a given and ask how governments, businesses and workers can make the most of it. Journalists, think-tankers and politicians are more likely to ask whether globalisation is good or bad. The assumption is that it can be managed.
Two recent publications encapsulate these different approaches. Both extrapolate current trends and naturally conclude that China, India, Brazil, Russia and other emerging markets will be big global players in 2020. Mark Leonard (in his CER essay ‘Divided world: The struggle for supremacy’) then argues that the world will divide along two axis: democracy versus autocracy; and multilateral institutions versus power. Instability could result if the world’s leading states struggle to entice others into their camp.
Accenture’s report on ‘The rise of the multi-polar world’ takes a bottom-up approach. Technology, trade liberalisation and the growing reach of multinational enterprises draw emerging countries into our rules-based global market. This is a world characterised by growing flows of money, people and technology. Multinationals lure Indian programmers to Munich and Palo Alto; new R&D clusters are emerging in China; foreign direct investment last year exceeded $1 trillion.
Both visions are plausible. But are they compatible? Political differences – such as those predicted by Mark Leonard’s – have a tendency to disrupt the kind of economic interdependence that Accenture analyses.
In the scenario of a ‘divided world’, trade and investment could be tools for defending political objectives, and perhaps for spreading ideas. But countries will be less likely to employ economic sanctions to enforce their standards and values abroad. In a globalised world, cutting trade and investment ties simply creates opportunities for others. In its quest for raw materials, China has invested huge sums in African dictatorships shunned by the West. Many African countries now get as much FDI from emerging economies as from the developed world.
In Accenture’s visions, business itself could help to spread practices and underlying values. As Western multinationals move abroad, they bring with them not only money and management but also Western ideas on property rights, social protection and so on. But the flow is no longer one way. Today, 62 of the Fortune 500 companies are from the developing world, and the number is growing fast. Cross-border acquisitions help these companies to enter markets, acquire well-known brands and learn modern management. But the reversal of investment flows makes many Westerners uncomfortable. The debates about Dubai Ports, Aeroflot’s bid for Allitalia or Tata’s acquisition of Corus spring to mind. Russia now insists that European companies can only invest in its oil and gas sector if Gazprom is allowed to buy European downstream assets. Will such demands for ‘reciprocity’ spread? And if so, would the ‘new’ multinationals conform with our local rules or import their own ideas about how to do business or treat workers?
Market forces shape the globalised world, but so do governments. Autocratic countries find it easier to act strategically than democratic ones. If China was a democracy, its voters may well be upset about the costs (as well as the legitimacy) of the government’s Africa policy. Moreover, in democracies the losers from globalisation are making their voices heard. Low-skilled workers who watch imports and immigration erode their wages will vote for politicians promising relief. Protectionism and global leadership do not go together.
These are fascinating questions. There certainly is a need for business and politics to discuss their respective views of globalisation more often.
Katinka Barysch is chief economist at the Centre for European Reform
Monday, April 16, 2007
The EU, the US and Taiwan
by Charles Grant
Taiwanese domestic politics is nasty and messy. The two main political forces – the KMT, which believes in ‘one China’, and the DPP, which leans towards an independent Taiwan – hate each other with venom that is unmatched in most other functioning democracies. But the country is pluralistic, with a free press and fair elections. Since Taiwan’s politics are so much more ‘western’ than those of the People’s Republic of China (PRC), it ought to have many friends in the western democratic world.
But it has few close friends. Both the Americans and the Europeans know that they must be on good terms with China. It is simply too important, economically and strategically, to have as an enemy. Therefore ministers in most western governments are careful not to meet their Taiwanese counterparts on an official basis, lest China get annoyed. And they tolerate the fact that China excludes Taiwan from many international bodies, such as the World Health Organisation. Of course, there are some policy-makers in the West who think that democracies should stand by other democracies. The much-maligned neo-cons, for example, give moral support to Taiwan, as do some idealists of a more liberal persuasion.
American policy on Taiwan is both realist and idealist. The US supports the status quo, meaning that it opposes Taiwanese independence. But the US also promises to defend Taiwan in the event of a Chinese attack. That promise is deliberately couched in ambiguous terms, to discourage the Taiwanese from provoking China, and to dissuade China from taking military action.
Having made no commitment to defend Taiwan, EU policy is much simpler. The EU does not see China as a strategic competitor, since – unlike the US – it is not an Asian power. So it has a clear policy of engagement with China, of supporting the status quo across the Taiwan Straits, and of being friendly towards Taiwan – but not so friendly that China would become annoyed.
The EU and the US agree on the goals of stability and the non-use of force across the Taiwan Straits. But Americans care much more about Taiwan, for the understandable reason that American blood and treasure could be shed in its defence Such emotions explain why the US over-reacted over the EU’s tentative moves towards lifting its arms embargo on China two years ago (there were good reasons why the EU should not have lifted the embargo at that time, but it was hard to have a rational discussion with some Americans over the matter, such was the strength of their feelings; they talked of the Chinese firing French missiles at American troops fighting on the beaches of Taiwan).
European views have shifted somewhat over the past two years, to be slightly more sympathetic to Taiwan. The fact that China passed the Taiwan secession law, which promises the use of force if Taiwan moves towards independence, was good PR for the Taiwanese. And the replacement of Gerhard Schröder by Angela Merkel has made a difference. She is a little more critical than her predecessor of large countries that abuse human rights, and opposes lifting the arms embargo. The departure of Jacques Chirac is also likely to affect EU’s China policy: he has been the leading proponent of lifting the embargo.
In some ways, the status quo is not so bad for Taiwan. The country is rich, successful and free, and many of its people enjoy a good quality of life. The problems for Taiwan are, firstly, its status – it is not allowed to do many of the things that normal countries do; and, secondly, its insecurity – almost a thousand Chinese missiles are pointing at it.
So the US and the EU are right to tell the Taiwanese not to rock the boat. This, along with a sensible US China policy balancing engagement with a promise of a military response to an attack on Taiwan helps safeguard the status quo, probably the best option available to Taiwan at the moment. In time, burgeoning economic ties between Taiwan and the mainland should make each side very wary of taking provocative actions that could threaten the prosperity of both – whatever the nature of the political relationship between the two. Ties between businessmen and politicians in Taiwan and the PRC are growing all the time. China is also democratising, slowly but surely, which increases the odds of peaceful reunification. Perhaps in the long run Taiwan can offer China an example of how prosperity, order and stability can co-exist with liberal democracy.
Charles Grant is director of the Centre for European Reform.
by Charles Grant
Taiwanese domestic politics is nasty and messy. The two main political forces – the KMT, which believes in ‘one China’, and the DPP, which leans towards an independent Taiwan – hate each other with venom that is unmatched in most other functioning democracies. But the country is pluralistic, with a free press and fair elections. Since Taiwan’s politics are so much more ‘western’ than those of the People’s Republic of China (PRC), it ought to have many friends in the western democratic world.
But it has few close friends. Both the Americans and the Europeans know that they must be on good terms with China. It is simply too important, economically and strategically, to have as an enemy. Therefore ministers in most western governments are careful not to meet their Taiwanese counterparts on an official basis, lest China get annoyed. And they tolerate the fact that China excludes Taiwan from many international bodies, such as the World Health Organisation. Of course, there are some policy-makers in the West who think that democracies should stand by other democracies. The much-maligned neo-cons, for example, give moral support to Taiwan, as do some idealists of a more liberal persuasion.
American policy on Taiwan is both realist and idealist. The US supports the status quo, meaning that it opposes Taiwanese independence. But the US also promises to defend Taiwan in the event of a Chinese attack. That promise is deliberately couched in ambiguous terms, to discourage the Taiwanese from provoking China, and to dissuade China from taking military action.
Having made no commitment to defend Taiwan, EU policy is much simpler. The EU does not see China as a strategic competitor, since – unlike the US – it is not an Asian power. So it has a clear policy of engagement with China, of supporting the status quo across the Taiwan Straits, and of being friendly towards Taiwan – but not so friendly that China would become annoyed.
The EU and the US agree on the goals of stability and the non-use of force across the Taiwan Straits. But Americans care much more about Taiwan, for the understandable reason that American blood and treasure could be shed in its defence Such emotions explain why the US over-reacted over the EU’s tentative moves towards lifting its arms embargo on China two years ago (there were good reasons why the EU should not have lifted the embargo at that time, but it was hard to have a rational discussion with some Americans over the matter, such was the strength of their feelings; they talked of the Chinese firing French missiles at American troops fighting on the beaches of Taiwan).
European views have shifted somewhat over the past two years, to be slightly more sympathetic to Taiwan. The fact that China passed the Taiwan secession law, which promises the use of force if Taiwan moves towards independence, was good PR for the Taiwanese. And the replacement of Gerhard Schröder by Angela Merkel has made a difference. She is a little more critical than her predecessor of large countries that abuse human rights, and opposes lifting the arms embargo. The departure of Jacques Chirac is also likely to affect EU’s China policy: he has been the leading proponent of lifting the embargo.
In some ways, the status quo is not so bad for Taiwan. The country is rich, successful and free, and many of its people enjoy a good quality of life. The problems for Taiwan are, firstly, its status – it is not allowed to do many of the things that normal countries do; and, secondly, its insecurity – almost a thousand Chinese missiles are pointing at it.
So the US and the EU are right to tell the Taiwanese not to rock the boat. This, along with a sensible US China policy balancing engagement with a promise of a military response to an attack on Taiwan helps safeguard the status quo, probably the best option available to Taiwan at the moment. In time, burgeoning economic ties between Taiwan and the mainland should make each side very wary of taking provocative actions that could threaten the prosperity of both – whatever the nature of the political relationship between the two. Ties between businessmen and politicians in Taiwan and the PRC are growing all the time. China is also democratising, slowly but surely, which increases the odds of peaceful reunification. Perhaps in the long run Taiwan can offer China an example of how prosperity, order and stability can co-exist with liberal democracy.
Charles Grant is director of the Centre for European Reform.
Wednesday, March 14, 2007
In defence of missile defences?
by Tomas Valasek
For those spoiling for another good transatlantic fight, the headlines from last week’s EU summit must have come as manna from heaven. “Chirac hits at US missile plans,” read the headline in the Financial Times after the soon-to-be-departing French leader addressed reporters in Brussels. “Cold War over missile defences,” wrote Le Monde, referring to US plans to place missile defence sites in Europe. Add to that the apparently critical words by Angela Merkel, the German chancellor, from earlier in the week and a new storm would appear to be brewing over the Atlantic.
Unfortunately for the hawks on either coast, closer reading of the actual statement shows a different, much calmer picture. Jacques Chirac did warn against needlessly ruffling Russia’s feathers, as did Angela Merkel. But little in the way of outright opposition to American plans is in evidence among European leaders.
There are two good reasons for that. As with the Iraq war, missile defences are likely to divide Europe itself. Warsaw, Prague and London have all expressed interest in hosting parts of the US system and would naturally oppose any attempt to build a common European position on the basis of opposition to missile defences. Most of the cost of a bruising argument would thus be borne internally, within Europe.
But just as importantly, many EU member-states are hedging their bets, not wanting to rule out the possibility of building a missile shield for Europe as well. The majority of EU member states – the 19 that are NATO members – already approved a 2006 study showing that such a programme is technologically feasible. That does not by itself mean that an allied missile shield will or even should be built: there are differences within NATO as to the gravity and urgency of the missile threat. But the fact that NATO countries commissioned the study at all shows their shared concern over Iranian and North Korean missile plans.
So while a tactical, politically-driven stance against US plans may seem tempting it would be difficult for any European capital to be simultaneously for and against missile defences, which is exactly the position in which those EU member-states that are also in NATO would find themselves. For that reason, chiefly, robust opposition to US missile defence plans is likely to be limited to a handful of European countries.
That is not to say that a debate on the system should not take place amongst European countries, quite the contrary. The discussions so far have already raised interesting questions about two key choices for the Europeans: How should they relate to Washington? And just how much solidarity can and will they show towards Moscow?
On the first point, German chancellor Merkel was absolutely right to say that Washington needs to use NATO more assertively in selling its plans for a missile shield. In saying so, Merkel is in effect echoing Gerhard Schröder, her predecessor, who - in one of his last speeches as chancellor in 2004 - urged allied leaders to involve NATO more in broader policy debates and to start using it to fashion common strategies and threat assumptions, not just military plans. This, Schröder and others argued, would be the most effective way to revitalize an alliance reeling from the aftershocks of Iraq. It could also give Europe a better foreknowledge of, and a bigger say in, US defence plans and strategy, thus reducing the chance of fratricidal arguments like those that shook NATO in 2003. The alliance is already moving toward broader policy debates. It plans to draft a new version of its key guiding document, the ‘Strategic Concept’, by 2009 and in fact, it has already debated US missile defence once, in February. Washington should continue to offer its future military plans up for a robust discussion at NATO, and it should do so early, to allow for a fruitful talks rather than a simple briefing. It may be rewarded with a greater sense of usefulness and solidarity among allies.
It is the European Union that comes out the worse for wear from this debate so far. When Moscow threatened Warsaw and Prague with military reprisals if they allow US missile defences on their territory, Paris and Berlin responded by, in effect, siding with Moscow against their fellow EU member states. While the French and German positions were nuanced – arguing for more consultations with Russia and not directly addressing Russian threats – the Czechs and Poles will no doubt feel that their EU brethren showed far too little solidarity given the gravity of Russian statements. This will do little to convince them to show more faith in the EU's security and defence policy, or to back Merkel's plans to revive talks on the EU's constitutional treaty and the creation of a European foreign minister.
Tomas Valasek in director of foreign policy and defence at the Centre for European reform.
by Tomas Valasek
For those spoiling for another good transatlantic fight, the headlines from last week’s EU summit must have come as manna from heaven. “Chirac hits at US missile plans,” read the headline in the Financial Times after the soon-to-be-departing French leader addressed reporters in Brussels. “Cold War over missile defences,” wrote Le Monde, referring to US plans to place missile defence sites in Europe. Add to that the apparently critical words by Angela Merkel, the German chancellor, from earlier in the week and a new storm would appear to be brewing over the Atlantic.
Unfortunately for the hawks on either coast, closer reading of the actual statement shows a different, much calmer picture. Jacques Chirac did warn against needlessly ruffling Russia’s feathers, as did Angela Merkel. But little in the way of outright opposition to American plans is in evidence among European leaders.
There are two good reasons for that. As with the Iraq war, missile defences are likely to divide Europe itself. Warsaw, Prague and London have all expressed interest in hosting parts of the US system and would naturally oppose any attempt to build a common European position on the basis of opposition to missile defences. Most of the cost of a bruising argument would thus be borne internally, within Europe.
But just as importantly, many EU member-states are hedging their bets, not wanting to rule out the possibility of building a missile shield for Europe as well. The majority of EU member states – the 19 that are NATO members – already approved a 2006 study showing that such a programme is technologically feasible. That does not by itself mean that an allied missile shield will or even should be built: there are differences within NATO as to the gravity and urgency of the missile threat. But the fact that NATO countries commissioned the study at all shows their shared concern over Iranian and North Korean missile plans.
So while a tactical, politically-driven stance against US plans may seem tempting it would be difficult for any European capital to be simultaneously for and against missile defences, which is exactly the position in which those EU member-states that are also in NATO would find themselves. For that reason, chiefly, robust opposition to US missile defence plans is likely to be limited to a handful of European countries.
That is not to say that a debate on the system should not take place amongst European countries, quite the contrary. The discussions so far have already raised interesting questions about two key choices for the Europeans: How should they relate to Washington? And just how much solidarity can and will they show towards Moscow?
On the first point, German chancellor Merkel was absolutely right to say that Washington needs to use NATO more assertively in selling its plans for a missile shield. In saying so, Merkel is in effect echoing Gerhard Schröder, her predecessor, who - in one of his last speeches as chancellor in 2004 - urged allied leaders to involve NATO more in broader policy debates and to start using it to fashion common strategies and threat assumptions, not just military plans. This, Schröder and others argued, would be the most effective way to revitalize an alliance reeling from the aftershocks of Iraq. It could also give Europe a better foreknowledge of, and a bigger say in, US defence plans and strategy, thus reducing the chance of fratricidal arguments like those that shook NATO in 2003. The alliance is already moving toward broader policy debates. It plans to draft a new version of its key guiding document, the ‘Strategic Concept’, by 2009 and in fact, it has already debated US missile defence once, in February. Washington should continue to offer its future military plans up for a robust discussion at NATO, and it should do so early, to allow for a fruitful talks rather than a simple briefing. It may be rewarded with a greater sense of usefulness and solidarity among allies.
It is the European Union that comes out the worse for wear from this debate so far. When Moscow threatened Warsaw and Prague with military reprisals if they allow US missile defences on their territory, Paris and Berlin responded by, in effect, siding with Moscow against their fellow EU member states. While the French and German positions were nuanced – arguing for more consultations with Russia and not directly addressing Russian threats – the Czechs and Poles will no doubt feel that their EU brethren showed far too little solidarity given the gravity of Russian statements. This will do little to convince them to show more faith in the EU's security and defence policy, or to back Merkel's plans to revive talks on the EU's constitutional treaty and the creation of a European foreign minister.
Tomas Valasek in director of foreign policy and defence at the Centre for European reform.
Friday, March 09, 2007
What is wrong with Lisbon?
by Aurore Wanlin
The Lisbon agenda embodies a paradox. Progress made by the member-states has been slow and patchy. The German presidency in the first half of 2007 is playing down Lisbon, fearing that the process has been discredited by the EU’s failure to meet its targets. Commentators often cite Lisbon as an example of the mismatch between the EU’s grand ambitions and lack of delivery.
However, all national governments in the EU agree on the need to turn the EU into a competitive knowledge-based economy. They agree that to boost innovation will require not only more spending on research and higher education, but also more competition, flexible labour laws, and efficient financial markets.
Meanwhile, the rejection of the EU constitutional treaty in the Dutch and French referenda has made it clear that citizens will hold the Union responsible for member-states’ failure to deliver growth and jobs. Therefore delivery on Lisbon is also crucial to the future of the European Union.
So why is the pace of reform so slow? In 2005, the EU revamped the Lisbon agenda to address some of its weaknesses: it streamlined procedures and targets, clarified the respective roles of the Commission and national governments, and asked all EU governments to draw up national reform plans to increase ‘ownership’. However, according to many commentators, this institutional fix is unlikely to make it easier to do economic reform in Europe, for at least three main reasons: the difficulties of co-ordinating national reforms at the EU level, political obstacles to economic reform and new forms of poverty that feed popular resistance to change.
There are two main rationales behind the Lisbon agenda. The first is that co-ordinating reform at the EU level allows member-states to learn from each other and spreads best practice. The second is that economic reform in one country has a beneficial impact on other member-states’ economies. However, EU governments have over-estimated these two effects. It is not that easy to transpose economic reforms from one member-state to the other. A policy’s success depends on economic, political, and institutional factors that vary from country to country. The spill-over effect of structural changes, even within the monetary union, is often not visible or strong enough to create a real incentive for governments to co-ordinate national reform plans.
Economic reform is always politically difficult. The impact of policy changes can be unexpected and delayed, which makes it hard to explain and sell reforms to voters. Structural changes also create winners and losers, but while the losers are often small, well-defined and vocal groups, the potential winners are too numerous and amorphous to organise. This is a particular problem in countries like France or Germany where already strained public budgets make it difficult to compensate losers. Most importantly, national governments often lack clear strategies for economic reform. Their plans look more like a shopping list than a consistent programme. National governments should better prepare their reform programmes, prioritising the reforms on which they want to spend most of their political capital, starting with those that facilitate future changes and defining a clear timetable.
A third factor that makes economic reform difficult is the emergence of new forms of poverty and the absence of appropriate policies to address them. A lack of political leadership is often blamed for the failure to reform in Europe. But a Big Bang approach is not necessarily the best way to sort out a country’s economic problems. People resist change as they increasingly believe that their situation and that of their children is getting worse and political action has become inefficient. This resistance is fuelled by the emergence of new forms of poverty resulting both from globalisation and technological change and their impact on low-skilled workers and middle classes. The problem is that the welfare state was designed for the industrial society of the 70s that no longer exists. Social policies often fail to help today’s new poor. Unless national governments manage to find a way to address this issue popular resistance is unlikely to wane in the short-term.
Aurore Wanlin is a research fellow at the Centre for European Reform.
by Aurore Wanlin
The Lisbon agenda embodies a paradox. Progress made by the member-states has been slow and patchy. The German presidency in the first half of 2007 is playing down Lisbon, fearing that the process has been discredited by the EU’s failure to meet its targets. Commentators often cite Lisbon as an example of the mismatch between the EU’s grand ambitions and lack of delivery.
However, all national governments in the EU agree on the need to turn the EU into a competitive knowledge-based economy. They agree that to boost innovation will require not only more spending on research and higher education, but also more competition, flexible labour laws, and efficient financial markets.
Meanwhile, the rejection of the EU constitutional treaty in the Dutch and French referenda has made it clear that citizens will hold the Union responsible for member-states’ failure to deliver growth and jobs. Therefore delivery on Lisbon is also crucial to the future of the European Union.
So why is the pace of reform so slow? In 2005, the EU revamped the Lisbon agenda to address some of its weaknesses: it streamlined procedures and targets, clarified the respective roles of the Commission and national governments, and asked all EU governments to draw up national reform plans to increase ‘ownership’. However, according to many commentators, this institutional fix is unlikely to make it easier to do economic reform in Europe, for at least three main reasons: the difficulties of co-ordinating national reforms at the EU level, political obstacles to economic reform and new forms of poverty that feed popular resistance to change.
There are two main rationales behind the Lisbon agenda. The first is that co-ordinating reform at the EU level allows member-states to learn from each other and spreads best practice. The second is that economic reform in one country has a beneficial impact on other member-states’ economies. However, EU governments have over-estimated these two effects. It is not that easy to transpose economic reforms from one member-state to the other. A policy’s success depends on economic, political, and institutional factors that vary from country to country. The spill-over effect of structural changes, even within the monetary union, is often not visible or strong enough to create a real incentive for governments to co-ordinate national reform plans.
Economic reform is always politically difficult. The impact of policy changes can be unexpected and delayed, which makes it hard to explain and sell reforms to voters. Structural changes also create winners and losers, but while the losers are often small, well-defined and vocal groups, the potential winners are too numerous and amorphous to organise. This is a particular problem in countries like France or Germany where already strained public budgets make it difficult to compensate losers. Most importantly, national governments often lack clear strategies for economic reform. Their plans look more like a shopping list than a consistent programme. National governments should better prepare their reform programmes, prioritising the reforms on which they want to spend most of their political capital, starting with those that facilitate future changes and defining a clear timetable.
A third factor that makes economic reform difficult is the emergence of new forms of poverty and the absence of appropriate policies to address them. A lack of political leadership is often blamed for the failure to reform in Europe. But a Big Bang approach is not necessarily the best way to sort out a country’s economic problems. People resist change as they increasingly believe that their situation and that of their children is getting worse and political action has become inefficient. This resistance is fuelled by the emergence of new forms of poverty resulting both from globalisation and technological change and their impact on low-skilled workers and middle classes. The problem is that the welfare state was designed for the industrial society of the 70s that no longer exists. Social policies often fail to help today’s new poor. Unless national governments manage to find a way to address this issue popular resistance is unlikely to wane in the short-term.
Aurore Wanlin is a research fellow at the Centre for European Reform.
Friday, March 02, 2007
The future of the single market
By Katinka Barysch
The EU puts out a lot of reports, studies, evaluations and announcements. So far this month, the Commission has released around 80 major documents. Many of them are too specialised, too long or simply too dull to attract wider interest.
One recent publication stands out. On February 21st, the economics team of the Commission’s ‘bureau of European policy advisors’ – now headed by Roger Liddle, previously an advisor to Tony Blair and Peter Mandelson – released a report on the future of the single market. Granted, advisors can speak more freely than bureaucrats. But the way this report is written shows how the EU should communicate.
* Accessible. The subject is complex, yet the document is easily understandable for non-economists. The authors steer clear of euro-speak and jargon. Moreover, while many EU documents are abstract, this one is full of examples. No waffle about “reaping the full benefits of the single market”. Instead, a list of examples: the single market allows you to go to hospital in other EU countries; it gives you the right to sue any company that sells faulty products; it has brought you low-cost air travel; it has reduced your mobile phone bill.
* Focus. This paper is about the single market. Period. It is not about social policy, the environment or the future of Europe. Absent is the EU’s unfortunate tendency to placate interest groups by lumping together too many issues. What the report does do is to look at how the context of European economic integration has changed, through globalisation, eastward enlargement and technological change.
* Realism. People tend to be cynical about official information and analysis. Achievements are overplayed, failures omitted. Liddle and his colleagues are honest. “The single market brought real benefits”, they say “but it has not led to a transformation of European economic performance.” Price convergence has stagnated, so has the share of intra-EU trade in total exports and imports. Only if problems are clearly identified can the search for solutions begin in earnest.
* Critical analysis. The intentions of the EU are usually good, but this does not guarantee optimal results. Yet the EU is notoriously bad at abolishing defunct laws and institutions. This report shows that single market legislation often embodies the interests of big companies. It risks becoming an impediment to innovation and competition from smaller rivals.
* Fresh thinking. Politicians and EU officials regularly call for the “completion of the single market”. Wrong, say Liddle and his colleagues. “The single market is an on-going process rather than an event.” It can never be “complete”. The initial rationale was to tear down trade and regulatory barriers to allow European manufacturing companies to reap economies of scale in a larger market. But future EU growth will not come from mass manufacturing. It will be driven by services, high-tech companies and start-ups. For them, removing remaining barriers or harmonising regulations won’t do. Instead, the single market needs to encourage innovation and research, facilitate venture capital and ensure competition.
* To-do list. Here, the bureau of European policy advisors does exactly what its name implies: it advises on policy. If the single market is to deliver benefits in the future, the EU and its governments need to: 1) prioritise and give up the notion that all barriers for doing business are equally important; 2) rely less on detailed directives and more on framework regulations that work in a fast-changing environment and take account of the administrative weaknesses of many new member-states; 3) adopt a sectoral approach that differentiates between the needs of say, the energy sector and healthcare; and 4) properly co-ordinate single market initiatives with policies on competition, trade, environment and so on.
The nature of this report should remind the entire Commission of one of its key roles: to provide independent, fresh and forward-looking analysis and policy ideas. But the European Commission’s own take on the future of the single market – published the same day as the bureau’s report – succumbs to some of the old failings of EU communication. Maybe it should be the advisors’ report rather than the Commission document that goes to EU leaders at their forthcoming spring summit and that forms the basis of the EU’s comprehensive single market review that comes out in the autumn of 2007.
The two reports in the future of the single market can be found on
http://ec.europa.eu/dgs/policy_advisers/publications/
docs/single_market_yesterday_and_tmorrow_en.pdf
http://ec.europa.eu/internal_market/strategy/
docs/com_2007_0060_en.pdf
Katinka Barysch is chief economist at the Centre for European Reform.
Friday, February 23, 2007
What's happening to Airbus?
by Simon Tilford
Top of the agenda when Jacques Chirac meets Angela Merkel today in Berlin will be the crisis at Airbus. The European aircraft manufacturer has been forced to suspend a restructuring programme following inferference from both the French and German governments. However frustrating it is for the Germans to accept, the futurer success of the company would be best served by it becoming more French.
The increasingly bitter political spat threatens to render decision-making impossible at EADS, the Franco-German-Spanish parent company of Airbus. What does the debacle say about Europe? How can the future competitiveness of one of the region's most striking corporate success stories be put at risk by disagreements over where the company's aeroplanes should be assembled?
The catalyst for the latest bust-up was German fears that Germany would bear the brunt of Airbus's planned corporate rationalisation. The company needs to reduce the number of production facilities and to outsource more production in order to speed up product development, and prevent a repeat of the problems that have forced it to postpone the launch of its new super-jumbo.
The events of the last week have been very dispiriting for those who see Airbus as an example of successful European industrial collaboration. The French prime minister, Dominique de Villepin, announced that Airbus would make 10,000 job cuts before Tom Enders, the German joint-chief of Airbus, knew anything about it. This, in turn, prompted unprecedented criticism of the French prime minister and Francois Gallois - Airbus's French co-chief - by the German Chancellor. Even the German press, usually so reticent about criticising France, has become stridently critical of alleged French mercantalism.
Airbus is a huge European success story. The company, established thirty years ago as a joint-venture between the British, French and Germans stood neck and neck with Boeing by 2000. This was no mean achievement. And contrary to Boeing's claims, Airbus's success has not been down to susidies alone. If anything, Boeing is more heavily subsidised than its European rival, even enjoying huge US government support when it was the unchallenged market leader.
However, Airbus's history as a joint-venture in a heavily politicised industrial sector means it has a less than optimal production network. Production is spread across Europe, with work shared out roughly according to how much subsidy each country comes up with. Final assembly takes place in Toulouse and Hamburg. The development of new models is always accompanied by wrangling over which country should be responsible for which bits of the plane and where it should be put together. This was one reason for last year's decision by British Aerospace to sell its 20 per cent share in Airbus to EADS.
The unfamiliar confrontational tone being adopted by the Germans has caught the French off guard. Angela Merkel has shown herself to be much less willing to compromise Germany's interests in the name of Franco-German harmony. In many ways, a more self-interested Germany would be good for Europe. For example, it could open the door to meaningful reform of the EU budget. It could strengthen the Commission against the protectionist impulses of the French. A more critical German approach to the country's relations with France would also enable Germany to foster stronger relations with other EU member-states.
But Airbus is the wrong issue to take a stand on. The problem for Germany is that the French are right - it would now make commercial sense to concentrate assembly in France, in order to maximise economies of scale and minimise the duplication of unnecessary costs. Indeed, one reason Airbus opted to construct a second assembly line in Hamburg was because it was difficult to source aerospace components in Germany. The German aerospace sector is relatively undeveloped compared to France and the UK and the German government wanted something to show for its subsidy. There was never a strong commercial logic for a second assembly line.
A more French Airbus would not mean the sourcing of all components in France - if decisions are taken commercially the wings of Airbus aircraft, for example, will continue to be manufactured in the UK, which has the most experience in this area. Similarly, most of engines will continue to be supplied mainly by GE of the US or Rolls-Royce of the UK. German companies would be free to tender for contracts. But it is hard to see how it makes sense to assemble planes in Hamburg.
Of course, a declining German role in Airbus would inevitably mean France having to finance a higher proportion of state financial support for Airbus, such as launch aid to develop new models. It may make sense for Airbus to become more French, but this will not be a free lunch for France.
Simon Tilford is head of the business unit at the Centre for European Reform.
by Simon Tilford
Top of the agenda when Jacques Chirac meets Angela Merkel today in Berlin will be the crisis at Airbus. The European aircraft manufacturer has been forced to suspend a restructuring programme following inferference from both the French and German governments. However frustrating it is for the Germans to accept, the futurer success of the company would be best served by it becoming more French.
The increasingly bitter political spat threatens to render decision-making impossible at EADS, the Franco-German-Spanish parent company of Airbus. What does the debacle say about Europe? How can the future competitiveness of one of the region's most striking corporate success stories be put at risk by disagreements over where the company's aeroplanes should be assembled?
The catalyst for the latest bust-up was German fears that Germany would bear the brunt of Airbus's planned corporate rationalisation. The company needs to reduce the number of production facilities and to outsource more production in order to speed up product development, and prevent a repeat of the problems that have forced it to postpone the launch of its new super-jumbo.
The events of the last week have been very dispiriting for those who see Airbus as an example of successful European industrial collaboration. The French prime minister, Dominique de Villepin, announced that Airbus would make 10,000 job cuts before Tom Enders, the German joint-chief of Airbus, knew anything about it. This, in turn, prompted unprecedented criticism of the French prime minister and Francois Gallois - Airbus's French co-chief - by the German Chancellor. Even the German press, usually so reticent about criticising France, has become stridently critical of alleged French mercantalism.
Airbus is a huge European success story. The company, established thirty years ago as a joint-venture between the British, French and Germans stood neck and neck with Boeing by 2000. This was no mean achievement. And contrary to Boeing's claims, Airbus's success has not been down to susidies alone. If anything, Boeing is more heavily subsidised than its European rival, even enjoying huge US government support when it was the unchallenged market leader.
However, Airbus's history as a joint-venture in a heavily politicised industrial sector means it has a less than optimal production network. Production is spread across Europe, with work shared out roughly according to how much subsidy each country comes up with. Final assembly takes place in Toulouse and Hamburg. The development of new models is always accompanied by wrangling over which country should be responsible for which bits of the plane and where it should be put together. This was one reason for last year's decision by British Aerospace to sell its 20 per cent share in Airbus to EADS.
The unfamiliar confrontational tone being adopted by the Germans has caught the French off guard. Angela Merkel has shown herself to be much less willing to compromise Germany's interests in the name of Franco-German harmony. In many ways, a more self-interested Germany would be good for Europe. For example, it could open the door to meaningful reform of the EU budget. It could strengthen the Commission against the protectionist impulses of the French. A more critical German approach to the country's relations with France would also enable Germany to foster stronger relations with other EU member-states.
But Airbus is the wrong issue to take a stand on. The problem for Germany is that the French are right - it would now make commercial sense to concentrate assembly in France, in order to maximise economies of scale and minimise the duplication of unnecessary costs. Indeed, one reason Airbus opted to construct a second assembly line in Hamburg was because it was difficult to source aerospace components in Germany. The German aerospace sector is relatively undeveloped compared to France and the UK and the German government wanted something to show for its subsidy. There was never a strong commercial logic for a second assembly line.
A more French Airbus would not mean the sourcing of all components in France - if decisions are taken commercially the wings of Airbus aircraft, for example, will continue to be manufactured in the UK, which has the most experience in this area. Similarly, most of engines will continue to be supplied mainly by GE of the US or Rolls-Royce of the UK. German companies would be free to tender for contracts. But it is hard to see how it makes sense to assemble planes in Hamburg.
Of course, a declining German role in Airbus would inevitably mean France having to finance a higher proportion of state financial support for Airbus, such as launch aid to develop new models. It may make sense for Airbus to become more French, but this will not be a free lunch for France.
Simon Tilford is head of the business unit at the Centre for European Reform.
Friday, February 09, 2007
We need a new pro-Europeanism
by Hugo Brady
“We are not the first who meaning the best have incurred the worst”, is a line from tragic heroine Cordelia in Shakespeare’s King Lear. But it could apply equally well to the architects of the EU’s failed constitutional treaty, also a tragic but unfinished saga.
EU politicians and diplomats wanted to refresh public confidence in European integration by agreeing a treaty to set out clearly the Union’s lofty goals and the powers governments were handing over to achieve them. But instead the constitution had the opposite effect.
The popular rejections of the treaty in 2005 forebode that citizens might withdraw their hitherto quiet consent for deeper European co-operation altogether. And the referendums created the expectation that major changes to the existing patchwork quilt of treaties will have to be decided in future by further polls. The development of the EU – either through institutional reforms or further enlargements – could be in serious peril.
Many blame the treaty’s failure on the name given to it by its drafters: the EU ‘constitution’. The term was bound to scare people, they say. It suggests that a citizen’s own national constitution or legal system is about to be junked in favour of a single European charter. Article I-6 of the treaty text, for example, stated that EU law is superior to those of the member-states.
In fact, the governments thought up the ‘constitution’ tag to inspire European citizens rather than to intimidate them. They wanted to create a statement of shared European values and goals to accompany the not-so-interesting details of how the work was to get done. Something we could all be proud of, in other words. And the superiority of EU law to national law turns out not to be very scary at all. The treaty simply made transparent a legal reality: EU laws, in areas like the protection of the environment, have trumped national laws since the 1960s.
The constitution backfired because adorning the EU with national-style symbols will never make people love it, according to Timothy Garton Ash of Oxford University. There will never be a country called Europe. Being a European will always be a milder expression of identity than someone’s national identity. ‘Euronationalism’ - constitutions, anthems, national days and the like – is not the answer to bringing Europeans together. We need something else, something that can sustain a tightly knit European family capable of expressing itself and its wishes to the world.
One starting point is a frank and truthful discussion about what Europeans today – east and west – really have in common with one another. Garton Ash, a professor of European studies, suggests that from such a debate could spring a new European “story” based around six words: freedom, peace, law, diversity, prosperity, and solidarity.
Talk of shared values makes people yawn. But how Europeans might differ – or agree – about what these words mean to them begs some interesting questions. Is it possible to feel patriotic about being European? Why has Europe only recently come to enjoy (almost) uniform peace and democracy? Do we need a common enemy to unite us? If so, is it American imperialism, Islamic militancy or rather our own bloody history? Is it really so certain that Europeans will never fight each other again? And why, after more than 50 years of pressing hard for more and more political integration, are Germans no less German or Italians any less Italian?
Garton Ash admits that six abstract nouns alone will not create a popular attachment to the EU anymore than the idea of a constitution has done. But Europeans of every stripe should have an “awantura” (Polish, he says, for a loud but delectable argument) about where we have come from and where we are going, nonetheless.
To take part in Timothy Garton Ash’s search for a new European story, go to www.europeanstory.net
by Hugo Brady
“We are not the first who meaning the best have incurred the worst”, is a line from tragic heroine Cordelia in Shakespeare’s King Lear. But it could apply equally well to the architects of the EU’s failed constitutional treaty, also a tragic but unfinished saga.
EU politicians and diplomats wanted to refresh public confidence in European integration by agreeing a treaty to set out clearly the Union’s lofty goals and the powers governments were handing over to achieve them. But instead the constitution had the opposite effect.
The popular rejections of the treaty in 2005 forebode that citizens might withdraw their hitherto quiet consent for deeper European co-operation altogether. And the referendums created the expectation that major changes to the existing patchwork quilt of treaties will have to be decided in future by further polls. The development of the EU – either through institutional reforms or further enlargements – could be in serious peril.
Many blame the treaty’s failure on the name given to it by its drafters: the EU ‘constitution’. The term was bound to scare people, they say. It suggests that a citizen’s own national constitution or legal system is about to be junked in favour of a single European charter. Article I-6 of the treaty text, for example, stated that EU law is superior to those of the member-states.
In fact, the governments thought up the ‘constitution’ tag to inspire European citizens rather than to intimidate them. They wanted to create a statement of shared European values and goals to accompany the not-so-interesting details of how the work was to get done. Something we could all be proud of, in other words. And the superiority of EU law to national law turns out not to be very scary at all. The treaty simply made transparent a legal reality: EU laws, in areas like the protection of the environment, have trumped national laws since the 1960s.
The constitution backfired because adorning the EU with national-style symbols will never make people love it, according to Timothy Garton Ash of Oxford University. There will never be a country called Europe. Being a European will always be a milder expression of identity than someone’s national identity. ‘Euronationalism’ - constitutions, anthems, national days and the like – is not the answer to bringing Europeans together. We need something else, something that can sustain a tightly knit European family capable of expressing itself and its wishes to the world.
One starting point is a frank and truthful discussion about what Europeans today – east and west – really have in common with one another. Garton Ash, a professor of European studies, suggests that from such a debate could spring a new European “story” based around six words: freedom, peace, law, diversity, prosperity, and solidarity.
Talk of shared values makes people yawn. But how Europeans might differ – or agree – about what these words mean to them begs some interesting questions. Is it possible to feel patriotic about being European? Why has Europe only recently come to enjoy (almost) uniform peace and democracy? Do we need a common enemy to unite us? If so, is it American imperialism, Islamic militancy or rather our own bloody history? Is it really so certain that Europeans will never fight each other again? And why, after more than 50 years of pressing hard for more and more political integration, are Germans no less German or Italians any less Italian?
Garton Ash admits that six abstract nouns alone will not create a popular attachment to the EU anymore than the idea of a constitution has done. But Europeans of every stripe should have an “awantura” (Polish, he says, for a loud but delectable argument) about where we have come from and where we are going, nonetheless.
To take part in Timothy Garton Ash’s search for a new European story, go to www.europeanstory.net
Hugo Brady is a research fellow at the Centre for European Reform.
Thursday, January 25, 2007
The wrong benchmark for Eastern Europe
by Katinka Barysch
In November last year, Anders Aslund, a long-time observer of transition economies, rang the alarm bells over Eastern Europe. In an FT article he talked about “Central Europe’s political malaise” and warned that budget profligacy and reform fatigue would keep the new members from catching up with the West.
The tone was very different at last week’s Euromoney’s East European investment conference in Vienna. Bankers and politicians extolled the virtues of a fast-growing, open and stable region. The tenure of most speeches was: “We may have problems in the East, but on many fronts were are already better than the ‘old’ EU (or at least bits of it)”.
That’s certainly true for growth. In the last five years, the 12 new members recorded an average growth rate of 4.5 per cent, well above the EU-15’s 1.6 per cent. But the comparisons go further. “We are much faster reformers than the West Europeans” beamed one Serbian representative in Vienna. Romanians and Croatians were proud that the World Bank – in its annual ‘Doing business in 2007’ survey – put them into the group of fastest-reforming countries. Only one of the ‘old’ EU countries (France) made it into the list.
Romanians and Bulgarians also stressed that they came far ahead of long-standing EU members Italy and Greece in the World Bank’s overall ranking (which assesses the ease of starting a business, getting a loan, paying taxes and so on). Czechs and Slovenes have less unemployment than France, taxes in Slovakia are lower than in Germany …
Stop! These comparisons may be uplifting for countries that have struggled for more than a decade to join the EU club. But they miss the point. Eastern Europe gains nothing by benchmarking itself against the worst-performing EU-15 countries. This breeds complacency, which is not something that Romania, Poland or even the booming Baltics can afford.
The new members are doing well now. But they are in a rather uncomfortable spot between a high-tech Western Europe and low-cost emerging Asia. When it comes to skills, innovation and flexibility, the new members are miles away from the top EU performers. When it comes to wages, they cannot (and should not) endeavour to compete with China. The average Chinese worker earns $1.60 an hour, according to estimates from the Economist Intelligence Unit, while Chinese productivity has grown by 5 per cent a year over the last half-decade. In Hungary, wages are 5-6 times higher while productivity growth is half that of China. Further east, wages are still lower, but they are rising fast: Romania’s real wage growth exceeds 10 per cent.
China’s current export success rests largely on labour-intensive, mass-manufactured goods and consumer electronics. Most of the ‘old’ EU (perhaps with the exception of Portugal and Greece) has long moved out of the production of T-shirts or television sets, and into sophisticated manufacturing and services that do not directly compete with China. But the new member-states rely on the kind of low value-added goods and consumer electronics that China is specialising in.
There is no need to panic. The East European countries retain many advantages over China: geographical proximity, million of highly skilled, relatively low-cost workers, a business environment that is very similar to that in the ‘old’ EU, and full integration into the EU’s single market.
But competition from China and other emerging economies will force the new member-states to run ever faster just to stand still. They will have to move quickly into higher-value added goods and services. For this, they need vastly better education and training systems, more flexible labour markets and a truly entrepreneur-friendly business environment. In other words, it is Europe’s best performers – Denmark, Sweden, Ireland – that they need to compare themselves too, not the laggards.
Katinka Barysch is chief economist at the Centre for European Reform.
by Katinka Barysch
In November last year, Anders Aslund, a long-time observer of transition economies, rang the alarm bells over Eastern Europe. In an FT article he talked about “Central Europe’s political malaise” and warned that budget profligacy and reform fatigue would keep the new members from catching up with the West.
The tone was very different at last week’s Euromoney’s East European investment conference in Vienna. Bankers and politicians extolled the virtues of a fast-growing, open and stable region. The tenure of most speeches was: “We may have problems in the East, but on many fronts were are already better than the ‘old’ EU (or at least bits of it)”.
That’s certainly true for growth. In the last five years, the 12 new members recorded an average growth rate of 4.5 per cent, well above the EU-15’s 1.6 per cent. But the comparisons go further. “We are much faster reformers than the West Europeans” beamed one Serbian representative in Vienna. Romanians and Croatians were proud that the World Bank – in its annual ‘Doing business in 2007’ survey – put them into the group of fastest-reforming countries. Only one of the ‘old’ EU countries (France) made it into the list.
Romanians and Bulgarians also stressed that they came far ahead of long-standing EU members Italy and Greece in the World Bank’s overall ranking (which assesses the ease of starting a business, getting a loan, paying taxes and so on). Czechs and Slovenes have less unemployment than France, taxes in Slovakia are lower than in Germany …
Stop! These comparisons may be uplifting for countries that have struggled for more than a decade to join the EU club. But they miss the point. Eastern Europe gains nothing by benchmarking itself against the worst-performing EU-15 countries. This breeds complacency, which is not something that Romania, Poland or even the booming Baltics can afford.
The new members are doing well now. But they are in a rather uncomfortable spot between a high-tech Western Europe and low-cost emerging Asia. When it comes to skills, innovation and flexibility, the new members are miles away from the top EU performers. When it comes to wages, they cannot (and should not) endeavour to compete with China. The average Chinese worker earns $1.60 an hour, according to estimates from the Economist Intelligence Unit, while Chinese productivity has grown by 5 per cent a year over the last half-decade. In Hungary, wages are 5-6 times higher while productivity growth is half that of China. Further east, wages are still lower, but they are rising fast: Romania’s real wage growth exceeds 10 per cent.
China’s current export success rests largely on labour-intensive, mass-manufactured goods and consumer electronics. Most of the ‘old’ EU (perhaps with the exception of Portugal and Greece) has long moved out of the production of T-shirts or television sets, and into sophisticated manufacturing and services that do not directly compete with China. But the new member-states rely on the kind of low value-added goods and consumer electronics that China is specialising in.
There is no need to panic. The East European countries retain many advantages over China: geographical proximity, million of highly skilled, relatively low-cost workers, a business environment that is very similar to that in the ‘old’ EU, and full integration into the EU’s single market.
But competition from China and other emerging economies will force the new member-states to run ever faster just to stand still. They will have to move quickly into higher-value added goods and services. For this, they need vastly better education and training systems, more flexible labour markets and a truly entrepreneur-friendly business environment. In other words, it is Europe’s best performers – Denmark, Sweden, Ireland – that they need to compare themselves too, not the laggards.
Katinka Barysch is chief economist at the Centre for European Reform.
Tuesday, January 23, 2007
The world in 2020
by Mark Leonard
By 2020, according to the Economist Intelligence Unit, the Chinese economy could overtake the US to become the largest in the world, at least when measured using purchasing power parity (PPP) exchange rates. India is expected to grow rapidly to become the third biggest economy. Alongside these Asian giants, a series of smaller powers – such as Iran and Russia – will increasingly be able to exploit their nuclear weapons and energy to increase their say in world affairs.
This shift in economic power could be all the more significant, as it is overlaid with an ideological struggle over the shape of world order. Many of the new poles of 2020 will not simply be great powers pursuing their national interest, but networks of countries united by ideas about how the world should be run. In the 1990s it seemed prophetic to talk of the ‘end of history’. Francis Fukuyama’s famous thesis was not that power struggles or even wars would end (in fact, he thought they would continue), but that the great ideological battles of the 20th century would end with “the universalisation of western liberal-democracy”. However, although the differences between major powers are less stark today than during the Cold War, the big story in international relations seems to be history’s dramatic return.
By 2020 we will most likely not see a new world order, but at least four. Already the contours of a new ideological map are emerging that splits the world across two axes. One is domestic: between democracy and autocracy. The other is about philosophies of global order: between those who want to see the world governed by law and international institutions and those who want to see it governed by power. These divisions could give rise to a quadripolar world.
To Europe’s west, the most powerful bloc will continue to be the American World, underpinned by the dollar, popular culture, and the prevalence of the Washington consensus. The goal of US foreign policy is to build a ‘balance of power that favours democracy’. Instead of seeing international institutions as the ultimate foundation of a liberal order, US foreign policy will increasingly seek to maintain US primacy, and the power of key democratic allies such as Japan and India in East Asia.
To Europe’s East, Russia and China. Although they will continue to be suspicious of each other, they are united by their autocratic systems of government, and they will increasingly use international law and institutions to protect the sovereignty of states from western interference. Together, China and Russia could turn the Shanghai Co-operation Organisation into an anti-NATO of countries that are repressive. They will also use their seats in multilateral institutions such as the United Nations to contain the United States.
To Europe’s south will be a stateless world of faith – defined neither by democracy nor the rule of law. While some countries in the Middle East – Lebanon, Palestine, and Turkey – may develop a new strain of ‘Muslim Democracy’, many won’t manage to change their politics quickly enough to keep up with social demands.
And that leaves the fourth zone. An expanded EU will share a belief in democracy with the Americans – but be alienated from them because of its belief in multilateralism and international law. Around its core, the ‘Eurosphere’ will include another 70 countries that are deeply dependent on the Eurosphere for trade, aid, investment. These will gradually be drawn into the European way of doing things, through the European neighbourhood policy that links market access to compliance with European standards on human rights, the rule of law, migration and proliferation.
Not all countries will fit neatly into one sphere or another. This will lead to a global battle to co-opt ‘swing countries’ in South-East Asia, Central Asia, the Caucasus and the Middle East. The biggest swing-state will be India.
The shift from a unipolar to a multipolar world could be almost as significant for global politics as the end of the Cold War. Like the events of 1989, it will force European strategists to change their mental maps of the world, and develop relations with countries that were outside the EU’s sphere of influence.
So what should European leaders do?
Their most urgent challenge should be to prove my predictions wrong. By pursuing a ‘disaggregation strategy’ of engaging the relevant forces in each of the other blocs, they could prevent the ‘quadripolar world’ from coming into being. For example, there are strong forces in favour of the international rule of law and international co-operation at a federal and state level in the United States, that the EU could engage with on climate change and international trade. Russia and China have major differences on energy and proliferation that could be exploited, in order to prevent these great powers from becoming a cohesive force. And in the Middle East, the EU should do all it can to play off the differences between Iran and Syria, and Hamas and Hizbollah, through policies of conditional engagement. The alternative to breaking down these emerging blocs could be a permanent sense of frustration, and a gradual shrinking of European influence in the world.
Mark Leonard was director of foreign policy at the Centre for European Reform until November 2006. In early 2007 he will set up and direct a new pan-European initiative of the Soros foundations network, to promote the EU as a model for an open society.
by Mark Leonard
By 2020, according to the Economist Intelligence Unit, the Chinese economy could overtake the US to become the largest in the world, at least when measured using purchasing power parity (PPP) exchange rates. India is expected to grow rapidly to become the third biggest economy. Alongside these Asian giants, a series of smaller powers – such as Iran and Russia – will increasingly be able to exploit their nuclear weapons and energy to increase their say in world affairs.
This shift in economic power could be all the more significant, as it is overlaid with an ideological struggle over the shape of world order. Many of the new poles of 2020 will not simply be great powers pursuing their national interest, but networks of countries united by ideas about how the world should be run. In the 1990s it seemed prophetic to talk of the ‘end of history’. Francis Fukuyama’s famous thesis was not that power struggles or even wars would end (in fact, he thought they would continue), but that the great ideological battles of the 20th century would end with “the universalisation of western liberal-democracy”. However, although the differences between major powers are less stark today than during the Cold War, the big story in international relations seems to be history’s dramatic return.
By 2020 we will most likely not see a new world order, but at least four. Already the contours of a new ideological map are emerging that splits the world across two axes. One is domestic: between democracy and autocracy. The other is about philosophies of global order: between those who want to see the world governed by law and international institutions and those who want to see it governed by power. These divisions could give rise to a quadripolar world.
To Europe’s west, the most powerful bloc will continue to be the American World, underpinned by the dollar, popular culture, and the prevalence of the Washington consensus. The goal of US foreign policy is to build a ‘balance of power that favours democracy’. Instead of seeing international institutions as the ultimate foundation of a liberal order, US foreign policy will increasingly seek to maintain US primacy, and the power of key democratic allies such as Japan and India in East Asia.
To Europe’s East, Russia and China. Although they will continue to be suspicious of each other, they are united by their autocratic systems of government, and they will increasingly use international law and institutions to protect the sovereignty of states from western interference. Together, China and Russia could turn the Shanghai Co-operation Organisation into an anti-NATO of countries that are repressive. They will also use their seats in multilateral institutions such as the United Nations to contain the United States.
To Europe’s south will be a stateless world of faith – defined neither by democracy nor the rule of law. While some countries in the Middle East – Lebanon, Palestine, and Turkey – may develop a new strain of ‘Muslim Democracy’, many won’t manage to change their politics quickly enough to keep up with social demands.
And that leaves the fourth zone. An expanded EU will share a belief in democracy with the Americans – but be alienated from them because of its belief in multilateralism and international law. Around its core, the ‘Eurosphere’ will include another 70 countries that are deeply dependent on the Eurosphere for trade, aid, investment. These will gradually be drawn into the European way of doing things, through the European neighbourhood policy that links market access to compliance with European standards on human rights, the rule of law, migration and proliferation.
Not all countries will fit neatly into one sphere or another. This will lead to a global battle to co-opt ‘swing countries’ in South-East Asia, Central Asia, the Caucasus and the Middle East. The biggest swing-state will be India.
The shift from a unipolar to a multipolar world could be almost as significant for global politics as the end of the Cold War. Like the events of 1989, it will force European strategists to change their mental maps of the world, and develop relations with countries that were outside the EU’s sphere of influence.
So what should European leaders do?
Their most urgent challenge should be to prove my predictions wrong. By pursuing a ‘disaggregation strategy’ of engaging the relevant forces in each of the other blocs, they could prevent the ‘quadripolar world’ from coming into being. For example, there are strong forces in favour of the international rule of law and international co-operation at a federal and state level in the United States, that the EU could engage with on climate change and international trade. Russia and China have major differences on energy and proliferation that could be exploited, in order to prevent these great powers from becoming a cohesive force. And in the Middle East, the EU should do all it can to play off the differences between Iran and Syria, and Hamas and Hizbollah, through policies of conditional engagement. The alternative to breaking down these emerging blocs could be a permanent sense of frustration, and a gradual shrinking of European influence in the world.
Mark Leonard was director of foreign policy at the Centre for European Reform until November 2006. In early 2007 he will set up and direct a new pan-European initiative of the Soros foundations network, to promote the EU as a model for an open society.
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