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.

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.