Europe in the Back Seat

MADRID – Reform of global economic governance is still firmly on the radar screens of policymakers, but there is little evidence that the European Union has developed a forward-looking or coherent approach to the new forms that the G-20 is committed to establishing.

The G-20, which will hold its next summit in South Korea in November, pledged that multilateral cooperation and interdependence would guide the world out of crisis. Most European policies, however, do not sit well with the spirit of such commitments. The EU may not have imposed sweeping quotas and tariffs, but powerful “behind the border” protectionism has emerged in the form of subsidies, bailouts, “buy national” injunctions, and new restrictions on foreign direct investment. Global Trade Alert, an independent monitor, has identified more than 300 new protectionist measures introduced by G-20 members.

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Since the G-20’s promise last year to move towards concluding the Doha Round of global trade negotiations, the EU has done nothing practical to achieve this goal. It declined to introduce measures aimed at improving OECD rules to free up investment flows, and the new European Commission led by José Manuel Barroso includes fewer pro-market members than during his first term. Most commissioners now seem to advocate relaxing state-aid rules to fund investment in R&D; so, even if we have not witnessed an open dismantling of the Single Market, it is certainly not moving forward.

European governments, moreover, have used the G-20 in a highly instrumental fashion, with the largest share of the bailout funds agreed under the G-20 rubric having gone to middle-income states in or around Europe. Not only is the EU over-represented in the G-20, but it also seems to have used the forum as a means of tapping into emergency funds to further its own interests, rather than as a genuine step towards broader and more balanced multilateral cooperation.

The large number of EU countries in the G-20 serves little purpose in the absence of systematic coordination of member states and Commission positions. The EU has had little to say, for example, about what kind of governance rules and standards should guide debates over the much-needed rebalancing between surplus and deficit states. Instead, each member state has grabbed whatever measure of flexibility assists its own immediate economic recovery.

Growth will no longer be generated from the West on the back of emerging-economy surpluses, but will need to come from within the emerging world itself, which should be nudged away from purely export-oriented economic policies. But EU influence over Chinese revaluation has been zero. This must change.

Taken together, all these shortcomings cast serious doubt on the EU’s claim to be leading the debate over a fundamental reshaping of global economic governance. European governments repeat the mantra of “effective multilateralism,” but they seem to have no comprehensive strategy for translating this into coherent policy.

Indeed, when Europeans think about reforming global governance, they limit themselves to numbers of seats and voting weights in international bodies. European governments are only now reluctantly accepting the need to scale back their over-representation in multilateral bodies, recognizing that it undermines rather than enhances the EU’s overall influence by pushing other powers into separate arrangements.

But, while deliberation is taking place on how much Europe should retreat from its historical domination of multilateral bodies, there is little vision beyond this. For example, the financial crisis has not forced member states to converge their national systems of financial regulation, an omission that militates against a common European vision for remodeled global financial cooperation.

In the wake of the crisis, the EU has instead decided to prioritize key bilateral relationships. It has launched strategic partnerships with Brazil, Canada, China, India, Japan, Mexico, Russia, South Africa, the US, the African Union, and NATO. Most of these partnerships have little geopolitical content, and their sheer number debases their importance in the eyes of partners. A raft of new bilateral trade agreements is also being negotiated.

The rush to bilateral agreements is perhaps understandable in the quest for rapid results and a greater sense of control over international trends. But the costs are high, insofar as such agreements undercut the very multilateralism that in general serves the EU well. How can the EU expect other powers to apply multilateral principles that it ignores?

The rest of the world increasingly sees the EU’s multilateralism as a means of legitimizing European intervention in the affairs of weaker states and excluding rising powers’ involvement in European affairs. European powers have been just as mercurial in their alliance-building as any supposedly less principled powers.

As the dust settles from the shock waves of the financial crisis, and with trends pointing towards the US-China axis as the key motor of the global economy, Europe is clearly in a more defensive frame of mind. Far from shaping the contours of a new balanced structure of global governance, the EU has been reduced to taking a series of rearguard positions aimed at tempering its own loss of stature.

The EU appears to have decided that the world will be one of Great Power rivalry, and that this requires a power-politics approach to global governance. In fact, many different dynamics co-exist and are still in flux; the EU still has the chance to shape the emerging post-Western world order, rather than accepting its parameters with passive resignation.

But Europe risks being too servile in courting new alliances, fixated as it is on short-term gain – and bereft of any clear idea of how such alliances fit with the kinds of values that it believes should guide revised global governance. France, when it assumes leadership of the G-20 after the Seoul summit, must move quickly to redress these shortcomings.