Europe in the G-20 world

Berlin
29 April 2010

The Conference got underway with a general discussion on a fundamental question: in the new world order, is Europe’s importance destined to wane – no matter what? Leaving aside the impact of major international trends (such as demographic changes), which have reduced the relative influence of the EU in objective terms, the participants pointed to various internal factors as constituting constraints on Europe’s potential. First and foremost of these is the difficulty of reconciling the sovereignty of the various Member States with the authority of Brussels. A further limiting factor was also identified in the pressures that an enlarged EU-27 have brought to bear on the “deepening” of European integration (even if there is a broad consensus that the various rounds of enlargement were necessary).

The purely deterministic reading of the trends in progress (that is, one that sees the rise of Asia as determining the inevitable decline of Europe) was rejected as unconvincing. Rather, an alternative view was that if Europe were to reform and adapt its unique “hybrid” model of sovereignty to the global context, it would gain significant comparative advantages.

In terms of the major areas of geopolitical growth and influence, it was stressed that Europe still has a special role to play vis-à-vis both Russia and the Middle East, despite the fact that the fulcrum has indisputably shifted towards the Asia-Pacific region. It was noted, however, that once again the issue is that only a more united European Union will be recognized by other actors as a credible player.

The Conference participants then moved on to deal with the implications of the crisis in Greece and the future of the euro, in a discussion introduced by the German and Italian Finance Ministers, Wolfgang Schäuble and Giulio Tremonti. Schäuble explained in detail the approach and priorities which underpin Germany’s position, stressing the need to balance the short-term cohesion of the eurozone and its strength in the medium to long term. From this, it was underlined, stems the need to safeguard the euro precisely through compliance with common rules. The view of most of the participants was that a solution to the Greek crisis now seems imminent, and that the management of the crisis based on cooperation between the IMF and the EU will work. However, without fundamental reforms in the management of the eurozone (including the creation of a European Stabilization Fund), the structural problems that this acute crisis has highlighted will persist. In short, the way to address and prevent these problems in the future is to develop ex ante – and hence, not just reactive – mechanisms and procedures that make the obligations of eurozone countries clearer.

Other participants stressed that the political principle of solidarity is key to this debate, and transcends the formal commitments undertaken by eurozone members. Indeed, a certain level of solidarity is necessitated by the high degree of interdependence between economies today and by the extraordinary speed of any potential contagion. It was observed that if this principle had been acted on from the outset, the duration and cost of the crisis in Greece would have been reduced.

In his keynote speech, the Polish Finance Minister, Jacek Rostowski, explained the specific characteristics and policies that have enabled Poland – and, for that matter, certain other new EU members – to respond better than the rest of Europe to the economic and financial crisis.

There was wide consensus among the Conference participants that an effective and sustainable response to the crisis in Greece has become a key prerequisite for enhancing the international credibility of the EU as a whole. Indeed, the future of the EU’s bargaining power and political influence on the world stage depend on its internal strength. Some participants felt that the current difficulties experienced by the euro area may just be a passing phase, which will be followed by a consolidation of the economic and monetary union, and of its underlying macroeconomic, political and decision-making structures. In short, this view saw the crisis as a potential catalyst for greater European integration.

Drawing a further correlation between the intra-European and international situations, it was observed that the imbalances evident within the eurozone are part of a much larger problem – namely, global imbalances – that plagues the global economy.

The predominant view which emerged during the discussions was that the financial crisis has, in effect, reduced the gap between major economic areas, with an increase in US savings and China’s partial shift towards domestic demand (thanks to one of the most effective stimulus packages adopted). However, the participants concluded that, so far, these have been largely spontaneous readjustments that are insufficient. In order for this trend to translate into a structural realignment, it needs to be underpinned by agreed policies, which have already been discussed within the forum of the G-20 but remain difficult to implement at a national level.