Europe’s Last Chance

BRUSSELS – The only clear thing to come out of the recent European Union-China summit was the scale of the EU’s fallen reputation. From being the world’s most widely admired political experiment and enjoying widespread respect and a degree of leadership on policy issues with global impact like climate change and fighting Third World poverty, the Union’s standing among the world’s emerging powers has been brutally downgraded. Its new image is that of a low-growth zone whose member governments have turned away from cooperation in favor of short-sighted beggar-thy-neighbor tactics that are imperiling the euro.

It would be wrong, of course, to suggest that Europe has suddenly become a political backwater. But it is true that Europeans need to take a long, hard look at themselves and at where they’ll be in 40 years if current trends continue.

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What is needed today is a clear definition of Europe’s interests – and its responsibilities. Europe needs a sense of purpose for a century in which many of the odds will be stacked against it, as well as a statement of the moral standards that will guide its actions and, one hopes, its leadership.

The first step towards a narrative capable of replacing earlier rallying cries like “no more war” and “a single market and a single currency” is to set out Europe’s interests. And because we are living in a world of accelerating change, it is useless to think that our goal must be to fight a rearguard defense of what we have and what we stand for.

For the most part, the EU’s strategic interests – and certainly those of its member states – cannot be secured within the Union’s borders. Security is an obvious priority, and that means being able to defuse tensions by economic rather than military means. The Arab world and Africa will be Europe’s particular problems, with militant Islam matched by runaway urbanization, with Africa’s population possibly growing from 800 million today to two billion by mid-century.

Just as important will be Europe's interests in shaping the global rulebook. Climate change and improved banking and financial regulation head the current agenda, but soon global agreement will be needed on access to resources ranging from hydrocarbons to minerals to agriculture. Today, when economies compete for markets, not territories, intellectual property rights, as well as trade and investment, must be governed by global agreements.

Europe’s dominant position in many world markets means that for a while it will retain the clout to try to order the global agenda in ways that suit it. But the track record of EU governments so far has been merely to react to developments outside Europe, first by seeking consensus among themselves and only then acting collectively.

That is not good enough. European policymakers will have to decide in advance what they want, and then push for it at a global level. The confusion that still surrounds Europe’s fragmented and therefore weak representation in international fora like the United Nations Security Council, the International Monetary Fund, the World Bank, and the G-20 and G-8 is a major hurdle in this respect.

The short-term challenge is, of course, Europe’s very disparate national economies. The eurozone crisis is not a passing phase but the symptom of a serious ailment. The €500 billion safety net agreed to in response to the Greek debt crisis and the threat of similar crises in Spain, Portugal, and Ireland only bought time – perhaps 3-5 years. It has not resolved the fundamental economic imbalances between eurozone countries.

Only fiscal union can do that, and taxation is the sacred cow that the EU’s sovereign governments refuse to discuss. The eurozone countries are therefore stuck in a place where they cannot go back by scrapping the single currency, yet cannot go forward unless they do what a big but unevenly distributed economy like the US does: pool tax revenues to even things out.

The longer-term challenge for Europe is demographic. It may be that the coming years will somehow see solutions to the EU’s lost competitiveness, poor innovation, shrinking manufacturing, inadequate education, and growing labor shortages. But what there is no solution for is Europe’s aging. The average age of EU citizens will inexorably rise from about 38 now to over 50 by mid-century. That means a far smaller proportion of wage earners will be supporting more and more “inactive” people. Coupled with the competition Europe will face from low-wage but increasingly well-educated countries, the outlook seems bleak.

The advantages that the EU can deploy are nonetheless considerable, provided that its member governments pull in the same direction. Europe’s position as the world’s largest trading bloc, with nearly 40% of all international commerce, and the growing importance of the euro – crisis notwithstanding – as a reserve currency, mean that the EU, just as much as the US, can set the agenda for negotiating the new global rulebook.

The difference is that America acts decisively, and the EU does not. Of course, Europe occupies the moral high ground that America has mostly vacated, owing to its mis-adventures in Iraq and Afghanistan. Europe’s leadership on climate change and on development aid could, if well handled, be the basis for a new moral authority.

But there is little sign of governments taking advantage of this opportunity. The moment is ripe for Europe’s political leaders to define what the EU’s role must be, and why.