© REUTERS/Yves Herman

During the last few years, there has been much discussion about “European sovereignty.” In particular, the concept is associated with French President Emmanuel Macron, who, as early as in his 2017 Sorbonne speech, has made it central to his own vision for Europe and its role in the world. Other leading “pro-European” figures have also embraced the concept—in particular after the Trump administration abandoned the nuclear agreement with Iran and imposed new sanctions that would affect European companies that continue to do business in Iran. In 2018 European Commission President Jean-Claude Juncker even entitled his State of the Union speech “The hour of European sovereignty,” and German Chancellor Angela Merkel demanded “greater strategic sovereignty” for the EU as recently as May 13.

However, although the concept is now widely used, it is far from clear what it means. It is often just another term for a strong, united Europe or the vague idea that Europe must “take its destiny into its own hands.” It tends to be used almost interchangeably with “strategic autonomy,” though sometimes with a greater focus on economic power rather than just military power. Given the lack of clarity about what “European sovereignty” means, it is tempting to simply ignore the concept. But the way it has been used in the last few years actually tells us a lot about “pro-European” thinking and illustrates some of the problems with it—in particular in debates about European foreign policy.

Historically, “pro-Europeans” tended to be anti- or post-sovereigntist—that is, they saw “sovereignty” as an anachronistic and dangerous concept—and were always slightly dismissive of other “sovereigntist” powers. In particular, of course, it was national sovereignty that those considered “pro-Europeans” opposed. They have had a tendency to think concepts that are problematic at the national level are somehow unproblematic at the European level. But until recently most “pro-Europeans” would have also seen the idea of “European sovereignty” as problematic—the whole point of the European project was to move not just beyond national sovereignty but also beyond the concept of sovereignty altogether.

Remaking the World in Europe’s Image

What “pro-Europeans” wanted was to transform international politics by moving beyond a world of power politics to one based on the rule of law—and central to this was a rethink of what sovereignty meant. “Until the European Union was created, the idea of statehood, of being ‘sovereign,’ meant independence from external intervention, maintaining your secrecy, keeping other countries at bay,” wrote Mark Leonard in his 2005 book Why Europe will run the 21st Century. But, he went on, after World War II Europeans had embraced interdependence instead of independence. “Instead of jealously guarding their sovereignty from external interference, Europeans have turned mutual interference and surveillance into the basis of their security.”

For “pro-Europeans” like Leonard, the EU was a kind of blueprint for global governance. They believed that the whole world should become like Europe. Reflecting a somewhat deterministic current in “pro-European” thinking, many saw a kind of inevitability in this remaking of the world in the image of Europe. The inexorable logic of interdependence undermined sovereignty and necessitated transnational governance structures like the EU. Thus the rest of world would eventually catch up with the radical post-sovereigntist vision on which the EU was based. The whole world would eventually pool and share sovereignty among themselves just as Europeans had done, and something like the EU would become a kind of world government.

The idea of “European sovereignty” is a manifestation of the way that “pro-Europeans” have essentially given up on this idea—at least for now. After the series of crises the EU has faced over the last decade, beginning with the eurocrisis in 2010, the idea the EU is a model looks much less compelling than it did in the mid-2000s. Meanwhile, in the context of the rise of China, Russian revisionism, and uncertainty about the commitment of the United States to Europe, the continent feels much more alone and threatened than it did back then. Instead of a transformation of international politics, there has been a transformation of “pro-European” thinking. “Pro-Europeans” no longer see the EU as a model, but as a competitor—that is, as a power that has to compete with others. In order to do so, they say, it needs “sovereignty.”

Only Big Is Truly Sovereign

The idea of “European sovereignty” is based on a distinction between two definitions of sovereignty in international politics: a narrow, legal definition and a wider, strategic definition. In the narrow sense—the conventional definition—all states are sovereign. It is in this legal sense that it is a violation of sovereignty when one country invades another without a mandate from the United Nations Security Council—for example, when the United States invaded Iraq, or Russia invaded Ukraine and annexed Crimea. But when the concept of sovereignty is used in this conventional sense, the secondary impact of US sanctions is hardly a “massive assault” on the sovereignty of Europe, as former Swedish foreign minister Carl Bildt claimed. It is simply one power using the size of its market to pursue its interests.

However, there has long been a sense in “pro-European” thinking that this kind of sovereignty is a kind of illusion. A state may legally be able to make its own laws, but is in practice unable to resist the pressures of international politics. In particular, “pro-Europeans” have long argued that small states are not really sovereign, even though they may possess sovereignty in the legal sense. The only way to be truly sovereign, they argued, is to be big. Thus European integration did not really undermine the national sovereignty of EU member states. “The choice is not between national and European sovereignty,” wrote Jean Pisani-Ferry, a former advisor to Macron, in December 2019. “It is between European sovereignty and none at all.”

This wider definition clearly reflects an aspiration or even an expectation among many Europeans that they should be as powerful as China and the United States—a kind of third pole in a multipolar world. This is why the concept of “European sovereignty” gained momentum following the US withdrawal from the Iran nuclear deal and the imposition of sanctions that could impact European companies. The concept expresses the sense that the EU ought to be able to stand up to great powers like China and the US—indeed, that the EU ought to itself be a great power, as opposed to the “normative power” it once aspired to be.

A Question of Power?

However, this wider concept of sovereignty tends to collapse into the concept of power—to be sovereign is simply to be powerful. It also sets a very high threshold for sovereignty. If that threshold lies above the level of power that big European states like Germany, France and the United Kingdom have on their own, as many “pro-Europeans” argue, it means that only a handful of the world’s 195 states are sovereign. Clearly, the US and China are sovereign, and perhaps India and Russia. But it is not even clear whether Japan—a country of 125 million people with one of the biggest economies and most advanced militaries in the world—is sovereign. Is this really a meaningful definition of sovereignty?

Moreover, if sovereignty is a function of size, and Europe is going to become sovereign in this wider sense and will therefore be able to protect itself from “violations” of sovereignty like the secondary impact of US sanctions, then European sovereignty will  “violate” the sovereignty of other smaller states. The EU has long been able to impose its will on states in its neighborhood—for example, it has reshaped accession countries through conditionality. If one understands sovereignty in the narrower sense, this is again just one power using the size of its market to pursue its interests. But if one understands sovereignty in the wider, strategic sense, it must surely be a “violation” of sovereignty analogous to US sanctions.

Of course, few “pro-Europeans” would accept this. Advocates of the idea “European sovereignty” tend to alternate between the two definitions of sovereignty based on what suits them best. When it comes to the EU’s interactions with its neighborhood, in particular accession countries or countries that are part of the European Neighborhood Policy—in other words: weaker powers—they use the narrower, legal definition of sovereignty. But when it comes to the EU’s relations with great powers like China and the United States—in other words: stronger powers—they use the wider, strategic definition of sovereignty. In short, “pro-Europeans” want to have it both ways.

Who’s the Sovereign?

There is also an even deeper problem with the idea of “European sovereignty.” So far we have been discussing the international political dimension of the concept of sovereignty, that is, questions of power in international politics. But there is also a domestic political dimension of the concept of sovereignty, which concerns the question of who has power within states. This dimension is entirely missing from discussions around “European sovereignty.” “Pro-Europeans” want Europe as a whole to be powerful relative to other powers. But the concept of “European sovereignty” says very little about power within Europe. In other words, who exactly is sovereign in a sovereign Europe?

The concept of “European sovereignty” focuses on state sovereignty—or perhaps quasi-state sovereignty, since the EU is not actually a state—rather than popular sovereignty. The concept is being driven by foreign-policy elites who want Europe to be handlungsfähig, or capable of acting, and therefore want to increase the power of a European executive. However, there is little discussion of the legitimacy of this executive power, little discussion of whether it expresses the will of the people of Europe. In fact, the European people are almost completely missing from the debate about “European sovereignty.” Do they actually want “European sovereignty”?

The Lisbon Treaty is a good example of this. It was a major step forward in empowering a European executive to pursue a more coherent, effective foreign policy—to act strategically. In particular, it created a European foreign minister (the “high representative”) and a diplomatic service that “pro-Europeans” hoped would enable the EU to pursue a more coherent and effective foreign policy. The Lisbon Treaty was welcomed by the “pro-European” foreign policy establishment. But it was essentially a repackaged form of the European Constitution that was rejected by Dutch and French voters in 2005 and was thus deeply problematic in democratic terms. It remains far from clear that even these steps toward a more strategic—or “sovereign” —Europe had the support of the people of Europe.

Countervailing Pressures

When one compares the debate in continental Europe about “European sovereignty” with the parallel debate in the United Kingdom in the last four years since the June 2016 referendum, this absence of the domestic dimension of sovereignty is particularly striking. The British debate has been almost entirely about popular sovereignty and what it means. Indeed, part of the reason why many “pro-Europeans” and Remainers, particularly among foreign policy elites, are so frustrated about Brexit and the debate around it is that questions around British power in the world have been so marginal to it. In focusing on questions of popular sovereignty, Britain seems to them to have abandoned its traditional strategic thinking.

What the existence of these two debates—one about (quasi-)state sovereignty and the other about popular sovereignty—illustrates is that there are two countervailing pressures on European countries today. There is a top-down pressure, which is pushing Europeans toward forming a bigger unit—and it is this pressure that motivates those who call for “European sovereignty.” But there is also a bottom-up pressure, which is pushing Europeans toward smaller units. Ultimately, Europeans need to reconcile the two. In other words, the questions around European power that foreign policy analysts debate must be linked much more closely to debates about democracy in the EU.

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© REUTERS/Yves Herman

As often happens in disasters and wartime, leaders across Europe are riding high in the polls at the moment. Sociological studies have shown that in the initial moments of crisis, people tend to avoid negative thoughts about their governments because it makes them anxious.

As prime ministers and presidents bask in the glow of their high polling, they have been keen to run the show on their own. They have not let Brussels so much as lift a finger without their permission, nor have they coordinated with other leaders.

Uncoordinated Exits

This power dynamic is on display this week, as the European Commission adopts a pan-EU lockdown exit strategy on Wednesday. The strategy was supposed to be adopted last week, but at the last moment several EU member states including France, Spain, and Italy objected. They were concerned that any discussion of lockdown exits would be dangerous ahead of the Easter weekend when people would be tempted to go out, as they prepared to announce extensions. France, for one, will be in lockdown until May 11 at least.

These objections came despite the fact that the strategy, a draft of which governments had already seen, only contained guidelines rather than instructions for when national governments should end their lockdowns. The strategy will only communicate the European Centers for Disease Control’s advice for how restrictions should be gradually lifted and coordinated with neighbors. But that was too much for national capitals, even though they themselves had asked the Commission to draw up these guidelines on March 26.

In the ensuing week, national governments have pressured the Commission to water down the strategy so much as to make it essentially meaningless. The new draft shared with national governments on Tuesday changes the title from a roadmap toward “exiting” the lockdowns to one toward “lifting” the containment measures.

Scrubbed from the text are any mentions of an “exit.” Language saying governments “should” do things has been changed to “could.” The main recommendation is that any loosening of restrictions should be “gradual” and the general lockdowns should be replaced by targeted ones, for instance only for vulnerable groups.

Getting Restless

In the week’s delay, some national governments have become tired of waiting and have adopted their own national measures. Austria is starting its lockdown phase-out today, and Denmark and the Czech Republic have also announced their own exit plans. The Belgian government is expected to present its lockdown exit strategy tomorrow before the Commission unveils the EU strategy. National guidelines on mask-wearing have been contradictory, with Austria requiring it while other countries like Belgium are discouraging it.

What’s clear is that the Commission has lost the momentum on the exit strategy and has been preempted by national actions. Lockdown exits will probably be as uncoordinated, and perhaps also as chaotic, as their imposition. And this is far from the only area in which European countries look set to diverge.

Eurobond Divisions

Last week finance ministers from the eurozone countries—known as the Eurogroup—met for a grueling 16 hours of video conferencing over three days in a desperate attempt to overcome North-South divisions on what Europe’s economic response to the coronavirus crisis should look like. In the end, they were able to agree on making available a half trillion euros of funds available to firefight the economic fallout. But on the most contentious issue, joint guarantees on debt, they kicked the can to a summit of prime ministers and presidents on April 23.

The chief protagonists have emerged as the Netherlands on one side, representing the less-affected frugal countries of Northern Europe, and Italy on the other, representing the more-affected indebted countries of Southern Europe. They were able to reach a compromise on use of the European Stability Mechanism, an instrument set up after the 2008-12 financial crisis, which enabled both sides to declare victory. Though ESM funds normally come with conditions and oversight, that was seen as inappropriate in this crisis because the early heavily affected countries did nothing wrong. In the end they agreed on just one condition: the funds, up to 2 percent of national GDP, can only be spent on healthcare.

But on the debt issue, the Dutch as still giving a firm “nee.” Italy, France, Spain, and six other countries are asking for the eurozone to issue Coronabonds, rebranded Eurobonds. Germany’s response has been softer than its notorious resistance to Eurobonds a decade ago. The Netherlands has emerged as the most uncompromisingly staunch opponent, leading to vilification of the Dutch in Southern Europe over the past week.

Dutch Finance Minister Wopke Hoekstra says it would not be “reasonable” to “guarantee the debt of other countries.” For the Brussels press pack, it’s déjà vu. It would seem little has changed in terms of European solidarity, even in a new crisis where concerns about “moral hazard” and wasteful spending are not relevant. With little prospect of the Dutch relenting, some in the French government have floated the idea of doing regional joint bonds instead—perhaps a “Club Med Bond” for France, Italy, Spain, and Portugal.

Fraying Federations

It was only to be expected that the EU’s response to the initial panic phase of the crisis would be underwhelming. As a supranational confederation that has very few powers over health or borders, the EU isn’t built for circumstances like that. Where the EU has proven its worth in the past is in the response to crises, particularly in the economic response. But as the weeks go by, the shift to “more Europe” promised by European Council President Charles Michel is not materializing.

It is an issue being faced by federations across the world, from Russia to Brazil to the United States. On Monday two blocs of US states—a West Coast “Pact” and an East Coast “Council” —banded together to ignore the flailing federal government and form their own regional entities to coordinate lockdown exit measures. With California Governor Gavin Newsom still referring his response to that of a “nation state,” the implications of these regional decisions to ignore Washington could be profound.

It is clear that the coronavirus crisis is presenting an existential challenge to the European Union. But it is also presenting a challenge to the union of American states, one that could have long-lasting consequences. The outbreak may be global, but its effects are being felt in extremely varying ways locally, and it is not respecting national borders or federations. All governing structures are at risk.

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© Slawomir Kamisnki/Agencja Gazeta via REUTERS

Poland’s de facto leader Jarosław Kaczyński and Viktor Orbán share the same goal. They both aim to use the coronavirus crisis to strengthen their power. But in Poland, unlike in Hungary, the right-wing Law and Justice (PiS) government is doing everything it can to prevent the declaration of a state of emergency.

According to the Polish constitution, declaring a state of emergency would require the postponement of the presidential elections scheduled for May 10. This delay would be a political setback for the sitting PiS government, which believes that incumbent President Andrzej Duda is the clear favorite, especially now that campaigning has been suspended due to the coronavirus crisis. The government thus has an incentive to hold the election amid a pandemic and a lockdown.

As a result, Poland is slipping more and more into a state of a blunt power struggle. On the one hand, the government is introducing more and more stringent restrictions to fight the pandemic, including a ban on entering forests, beaches, and parks. The fact that soldiers, in addition to the regular domestic security forces, are monitoring compliance with these regulations adds to the sense of seriousness.

At the same time, PiS representatives have long argued that nothing stands in the way of holding elections in early May—with over 30 million registered voters—in the usual way. They even threatened that local authorities who refuse to organize the elections due to health risks will be removed from office and replaced by commissioners.

After the government’s own health minister raised questions about the public health consequences of holding the election as planned, the government came up with the idea of bypassing current laws, by changing the Electoral Code and allowing postal voting only for all citizens, without even opening any ballot stations. Although the Constitutional Court has ruled that it is forbidden to amend the electoral law less than six months before the election, the government appears determined to go ahead. To make sure, the head of the post office has been replaced by a trusted deputy defense minister.

Political Turmoil

Forcing a shift to a postal vote would not only deepen the permanent political turmoil in which Poland has found itself since PiS returned to power in 2015, but there is also the sense of an acute crisis of legitimacy. Surveys indicate that almost 80 percent of Poles support postponing the elections, and only about a quarter of them believe that postal voting is a good idea. While this reluctance does not seem to worry Poland’s government, who typically seem to follow Kaczyński’s orders, it would certainly make it harder to build national solidarity in the face of a crisis.

Meanwhile, Kaczyński and his acolytes have been trying to remove further obstacles to the postal elections. A war raging within the governing coalition, between Kaczynski and the leader of one of two PiS’s small coalition partners Porozumienie (“Agreement”), Jarosław Gowin, who didn’t want to bow to Kaczynski’s will, ended up humiliated.

Gowin proposed a compromise solution, an amendment to the constitution that would extend Duda’s term by two years, with no possibility of re-election. But Gowin did not find support for his proposal in the ranks of the opposition, whose votes are necessary for constitutional changes. Failing then to convince Kaczyński to postpone the election, he resigned as deputy prime minister, but announced that his party will not leave the government replacing him with his party colleague, Development Minister Jadwiga Emilewicz.

When it seemed that sidelining Gowin brought the ruling camp closer to its desired goal, a notion to bring the bill to the parliament’s floor was surprisingly rejected at first by the Sejm on Monday; by the evening, however, there was a majority for switching to a postal vote. It’s not plain sailing, though. The Senate, where the opposition holds a marginal majority, also needs to approve the measure. Although the Sejm can reject its veto, the Senate has now 30 days to discuss with the bill. This means that after the final adoption of the law there would only be a few days left to organize the elections. They may then be moved, possibly to May 17, as the new law grants the Speaker of the Sejm, who takes her orders directly from Kaczyński, the right to change the election day.

Time to React

Should the presidential elections go ahead in May, there are serious doubts they would be considered fair and fully free. But for the time being, the EU, which has reacted to various breaches of the rule of law in Poland in the past, has taken a backseat, as it has in Hungary. Last week, a European Commission spokesman noted that “it is for member states to decide whether to postpone planned elections in the current context,” as long as such decision is consistent with the member states’ constitutional obligations.

However, steps taken so far by the EU to halt the Polish government’s anti-democratic tendencies, including triggering the Article 7 procedure, have had little impact on Poland. And anti-EU sentiments continue to be strongly expressed by the government and its acolytes. Public television—which serves the government as a propaganda mouthpiece—, journalists with links to the ruling party, and PiS MPs have all accused the European Union of showing a lack of solidarity and of interfering in Poland’s domestic affairs. This time, this anti-European choir was also joined by Prime Minister Mateusz Morawiecki, considered a moderate and relatively pro-European, who claimed that “the European Union did not give a single cent for the fight against the coronavirus.”

Can the Law and Justice party make its tactic work? And if yes, will it drag Poland further away from the European Union? It may soon turn out that the anti-European rhetoric and putting politics ahead of the fight against the epidemic and its economic consequences backfires. All the more so, because the government’s economic “’anti-crisis shield’ is quite modest when compared with other European countries. It accounts for about 10 percent of Poland’s GDP, while other leaders have put packages of up to 20 percent of their respective countries’ GDP on the table.

What is more important, however, is the fact that as many as three quarters of Poles expect that the experience of the pandemic will result in closer cooperation between EU member states. If the EU succeeds in rebuilding trust by preparing ambitious and effective aid programs, this feeling could be further reinforced. And Poles, whose euro-enthusiasm is widespread, although often superficial, might quickly come to the conclusion that isolation the PiS way is not splendid, but miserable.

NB. This article was updated on April 7 to include the vote taken by the Sejm.

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Source: Eurostat

As European governments debate whether to allow Huawei to build critical 5G infrastructure, fears of economic retaliation by China play a major role in their thinking. While this is a legitimate concern, it would be a mistake if such concerns were allowed to dominate decision-making on strategic issues.

China certainly has serious economic weight, and its market is increasingly important to some European countries, but its real retaliatory power is often overstated. Governments across Europe tend to overlook an obvious fact: the EU single market—not China—is by far their most important source of economic growth.

Following the Chinese Call

As part of accelerated Chinese Outbound Foreign Direct Investment starting around 2012, Europe began to emerge as a preferred investment destination. A surge in Chinese companies’ activities to diversify their portfolio abroad resulted in mergers and acquisition of technology assets in the wealthiest European countries, and infrastructure investment in Europe’s periphery.

Against this backdrop, China sought to institutionalize political and economic cooperation with EU members, both bilaterally and through sub-regional formats. In the aftermath of the eurozone crisis and in the context of rising euroskeptic movements, Beijing benefited from the perception that China could offer attractive economic opportunities in the face of weak GDP growth and be an alternative to Brussels. The launch in 2013 of China’s global trade and infrastructure project, the Belt and Road Initiative (BRI), further reinforced this perception. This has prompted European governments to sign Memoranda of Understanding (MoUs) with Beijing in hopes of securing economic benefits.  At the same time, they made sure to avoid criticism of China for fear of losing out on such opportunities.

Now, the threat of Chinese retaliation if governments decide to exclude or limit the role of telecom equipment provider Huawei in their countries’ 5G is making countries that are more dependent on the Chinese market think twice. However, a look at the numbers shows that European nations have less reason to be afraid than one might expect.

A Narrative of Dependency

In 2018, the EU single market accounted for on average 66.1 percent total exports of the individual EU 27 members plus the United Kingdom, against an average of 2.4 percent going to China.  For member states (and the UK) exports outside the single market, the share of exports to the US was on average 9.3 percentage points larger than those going to China.

These figures should help put the importance of the Chinese market for European economies in perspective and debunk the narrative that China is a source of unlimited economic opportunities. By the same token, these figures show the limits of China’s retaliatory power vis-à-vis European countries and indicate an untapped potential for the EU to leverage its economic power in relations with Beijing. In some states, the narrative about economic dependency on China is likely driven by an over-exposure of some large corporates, such as the German automotive industry, which is heavily invested in the country.

Despite this reality, the economic opportunity/retaliation argument is still disproportionately affecting how governments think about China, including on issues that have strategic and national security implications. It is possible that Chinese ambassadors’ activism across Europe is contributing to this perception.

Ambassadorial Pressure

In December 2019, Beijing’s envoy in Berlin, Ambassador Wu Ken, said that “If Germany were to make a decision that led to Huawei’s exclusion from the German market, there would be consequences. The Chinese government will not stand idly by.” Members of the Bundestag are convinced that in case of an unfavorable decision on Huawei, Beijing would go after the German car industry in China.

It turns out that Germany–which along with France has promoted itself as a leading force behind a coordinated European China policy—may be the EU member state most vulnerable to Beijing’s pressure in bilateral economic relations. In Europe, Germany has the highest share of exports to China (7.1 percent of its total exports, and 17.3 percent of its exports outside of the EU in 2018 according to Eurostat), far above the EU member state average of 2.4 percent and 7.3 percent respectively. German investment in China is also the highest in the EU. The Chinese market is particularly vital to German carmakers. Volkswagen, for example, generates almost half of its revenue in China. All together BMW, Daimler, and Volkswagen made over one-third of their car sales in the People’s Republic in 2018. In January 2019, the influential Federation of German Industries (BDI) urged companies to reduce their dependence on the Chinese market in response to China’s selective market opening and its ambitious industrial policy, which aims at reducing its reliance on foreign companies.

However, while China and the US are Germany’s single most important export markets outside the EU (7.1 percent and 8.7 percent respectively), its export markets are highly diversified, with the EU single market accounting for 59 percent of exports in 2018. So even though Germany is far more exposed than other member states to both the United States’ and China’s retaliatory power, its overall economic dependency on China is smaller than it is often made out to be, and not enough to justify an accommodating position on strategic issues.

Growing Disappointment With China

For years, European governments’ China policies were based on the premise that maintaining friendly political relations, even at the expense of standing up for their own values and interests, was key to unlocking special economic treatment in bilateral relations. Euroskeptic governments have been especially keen on showing Brussels that they had an economic alternative in China. This has made them  cautious not to upset Beijing—an approach that has occasionally extended to economic policy, for example when the previous Italian government worked to water down and eventually abstained from voting on the EU investment screening framework that its predecessors in Rome had asked the European Commission to draw up.

Different European countries are now starting to be more clear-eyed about the gap between China’s promises and the trade and investment reality. For example, the Chinese market still only plays a minor role in the economy of the twelve eastern EU states that are part of the 17+1 framework for cooperation with China. They all joined the China-led format and signed BRI MoUs to cash in on Beijing’s promises for trade and investment. But on average, exports to China still only account for 1.4 percent of their total exports, and Chinese investment has continued to flow to western Europe, neglecting their region. Some of the format’s members, like Poland and the Czech Republic, have voiced their disappointment. Importantly, an average of 72.4 percent of these 12 countries’ total exports go to the EU internal market.

Italy finds itself in a similar situation. The previous euroskeptic government signed a BRI MoU with the stated goal of exporting more to China. However, Italian exports to China declined in 2019, and the Chinese market still accounts for just 2.8 percent of its total exports, compared with 56.6 percent of exports that go to the EU single market. Rome is now also taking a more realistic approach to China and has joined Berlin, Paris, and Warsaw in the push to revise EU competition policy to stand up to China and the US.

Learning from China’s Neighbors

While countries like Germany, the UK, and Finland are slightly more reliant on the Chinese market, lessons from Japan, South Korea, and Taiwan show that economic dependency does not have to translate into an accommodating position toward China.

Beijing’s East Asian neighbors depend much more strongly than European countries on China (individually, their export share to China was between 20 and 30 percent in 2018). However, they are forced to adopt a comprehensive approach that goes far beyond economic interests and factors in national security considerations, not least because of their proximity to China, which they see as a strategic rival. When Beijing weaponized its economic power against them in the past—for example over the Senkaku/Diaoyu islands dispute with Japan or over South Korea’s deployment of the THAAD missile shield—they took measures to foster economic sovereignty in response, effectively limiting China’s economic leverage instead of giving in to Chinese pressure.

European governments should learn from East Asian nations. They should put strategic considerations first and not be overly worried about China’s economic retaliation. This requires growing more comfortable with compartmentalizing the relationship into areas of cooperation and competition. In addition, while the Chinese backlash temporarily hit individual companies (e.g. South Korea’s Lotte), economic ties between China and the three East Asian nations have remained stable overall.

Indeed, another lesson from China’s immediate neighbors is that while Beijing would quickly take advantage of a Europe that was being too accommodating, it is unlikely to substantially follow through on its threats. If Europe took more measures to promote economic sovereignty, China would most likely adapt its own approach in order to continue profiting from good relations with the EU and its members instead of jeopardizing this crucial relationship.

After all, European countries shouldn’t forget that close economic ties run both ways: the EU is China’s most important trading partner. China needs the EU bloc economically and geopolitically in its competition for global leadership with the United States. As Brussels works to rebalance its economic and political relationship with Beijing, leveraging the EU’s economic power should be part of the solution.

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© REUTERS/Francois Lenoir

After a week of watching in dismay as the Iran nuclear deal seemed to come to a final collapse, the leaders of France, Germany, and the United Kingdom made a gesture that was as expected as it was futile.

“We have expressed our deep concern at the actions taken by Iran in violation of its commitments since July 2019. These actions must be reversed,” Angela Merkel, Emmanuel Macron, and Boris Johnson said in a statement on January 12, urging Iran to return to full compliance with its commitments under the 2015 deal in which Tehran agreed to halt development of a nuclear weapon.

The statement was in response to Tehran’s announcement that it will cease to abide by the terms of the agreement following the US assassination of Iranian general Qassem Soleimani earlier this month.

The deal had already been on thin ice since US President Donald Trump pulled out in 2018. Since then, the EU has been left desperately trying to salvage it by trying to continue rewarding Iran, by providing investment and facilitating trade, for the country’s sticking to the terms despite the US pulling out.

Brussels’ Main Focus: The Nuclear Deal

As the week’s dramatic events unfolded—with Tehran launching missiles against US airbases in Iraq in retaliation and accidentally shooting down a Ukrainian passenger plane as a result—the unravelling of the nuclear deal has been something of an afterthought for the rest of the world. But for Brussels, it has been the main focus. It has left observers scratching their heads as to whether this represents a genuine belief in Europe that the nuclear deal’s preservation is the most pressing issue, or whether this focus is simply the result of preserving the nuclear deal being the only thing everyone can agree on.

After initial criticism for her slow response to the unfolding crisis, Ursula von der Leyen, the new European Commission president, gave a statement last week with the new EU High Representative for foreign affairs, Josep Borrell, calling for restraint amid the escalation. But the statement from the Commission and the European Council seemed to go mostly unnoticed. The situation has once again shown how much the EU is left as a bystander during such military incidents.

That Brussels has stayed so focused on the nuclear deal even as the cycle of violence has spun out of control has struck some as odd. Borrell’s first reaction to the assassination of Soleimani was steadfastly neutral, which likely reflects member state divisions on the US decision to carry out the attack. While the UK and some Eastern European countries have expressed some support for the decision, the reaction in core Europe has been very different. Many were concerned by the lack of justification from Washington for why it carried out the strike, and even more were horrified by President Trump’s subsequent threat to bomb Iranian cultural sites.

NATO “Shares the US Concern”

Meanwhile, on the other side of Brussels, the reaction from NATO has been more clearly supportive of the US. NATO Secretary General Jens Stoltenberg held a special meeting to deal with the developments, after which he told reporters “the US provided the rationale behind the action against General Soleimani.” While stressing that “this is a US decision” and not a NATO one, he said NATO shares the US concern about Iran’s activities in the region.

Perhaps this is why Trump said after this meeting that he would like to see more NATO involvement in the Middle East, with the alliance even perhaps expanding into the area and being rebranded “NATOME”. The idea has been met with skepticism by Europe’s core powers, who see it as a shield for US withdrawal from its responsibilities in the region.

Meanwhile, an increased role for the EU in the region, in the short or longer term, has not been mentioned.

As protests escalate in Iran in response to the accidental downing of the passenger plane, the EU will continue to try to find its footing. It is a military conflict between two long-time enemies which does not directly involve European countries. But in a world in which the new commission president just two months ago pledged to make the EU a more relevant geopolitical actor, people will be expecting more from Brussels than it has delivered so far.

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Artwork © Dominik Herrmann

The New Year has just started, and Croatia’s Prime Minister Andrej Plenković finds himself confronted with a pile of difficult tasks. As president of the Council of the European Union, three hot topics have landed on his lap: the EU’s long-term budget, forging a Brexit deal, and EU enlargement. “Our presidency is coming at a crucial time for Europe, but also for a world,” Plenković said in late October 2019 when presenting his priorities for the country’s EU six-month presidency. The fact that it’s the first time ever that Croatia, the youngest EU member, having joined in 2013, is holding that office doesn’t make things easier.

Krešimir Macan, a former Plenković advisor and now a political marketing expert, believes it will be an “extraordinary presidency.” According to Macan, Plenković will make a special effort to solve the issue of EU enlargement, which is on hold after French President Emmanuel Macron’s decision to block Albania and North Macedonia’s EU membership bids.
“If there is anything I believe he will do very well, it will be the [EU] presidency, because it is his great ambition—the desire to show off in front of his European counterparts. I think he has invested a lot in the preparations,” Macan told the Berlin Policy Journal.

Plenković himself rarely misses an opportunity to emphasize that the EU presidency holds the promise of a great diplomatic success and is also “a great opportunity for Croatia to affirm itself.” Critics, however, say that the EU presidency is overrated, and that it is just a matter of rotation between the member states.

“This is not a success by itself, but it is a chance to do something. Plenković hoped to enter the presidency in a quiet period, but he is entering in it in a very unpleasant period, with two huge problems, namely Brexit and the seven-year budget plan,” Žarko Puhovski, a veteran political analyst from Croatia, told the Berlin Policy Journal.

European Ambitions

Plenković was born in Croatia’s capital Zagreb to a university professor father and a cardiologist mother, and studied law at his hometown’s university. Foreign and European affairs have been close to his heart since the start of his political career. Shortly after completing his studies, in 1994, he got a job at the Ministry of Foreign Affairs as an associate in the Department for European Integration. In 2011, he joined the Croatian Democratic Union (HDZ), a conservative party that has ruled Croatia for most of the period since the country gained independence at the beginning of the 1990s. He became a lawmaker in the Croatian Parliament, and, in 2013, he was elected as one of the first twelve Croatian MEPs to the European Parliament.

In 2016, after his predecessor Tomislav Karamarko resigned over a conflict of interest, Plenković, not burdened by corruption scandals, became HDZ leader. This moderate pro-European was a perfect fit for party leader, especially after Karamarko had moved the party to the right—occasionally the far right—following the lead of Hungarian Prime Minister Viktor Orbán, whom Karamarko admired and whose authoritarian and nationalist politics he copied. Under Plenković’s leadership, HDZ, which is a member of Europe’s largest center-right political bloc (the European People’s Party, or EEP), has stepped back into the political center and renounced the party’s authoritarian tendencies under Karamarko.

During the last year’s wrangling about the set-up of the new European Commission, some Croatian media speculated Plenković could end up with the top job: commission president (the job went to Ursula von der Leyen). But Plenković never confirmed the speculations; rather, he stressed his support for EPP parliamentarian leader Manfred Weber, the former EPP’s Spitzenkandidat, who was subsequently blocked.

Two Goals: Schengen and the Euro

From the moment he took office as Prime Minister in October 2016, Plenković has called for deeper integration into the EU, emphasizing two important goals: joining the EU passport-free Schengen travel area, and becoming a member of the eurozone.

After sending a letter of intent to the European Central Bank last year to join the European Exchange Mechanism, or ERM-2, Croatia is now in a “waiting room” for countries that want to adopt the euro. It is unclear how long it will stay there, but Plenković wants the period to be as short as possible.

As for Schengen, the European Commission announced in October 2019 that Croatia had “taken the measures needed to ensure that the necessary conditions for the full implementation of the Schengen rules and standards are met.” Although Plenković presented this as a big step forward, the commission’s evaluation of Croatian technical preparedness was only the first step.

Additionally, the issue of Schengen and border regulation is very controversial in Croatia because for over two years, non-governmental and international organizations have been warning about human rights abuses at Croatia’s state borders, which are also the EU’s external borders. According to their reports, Croatian police frequently repel migrants and refugees who are trying to cross the border from neighboring Bosnia and Herzegovina, sometimes resorting to violence.

While countries in the Croatian neighborhood, such as Slovenia and Hungary, decided to “defend” themselves against migrants by sealing their borders with ever higher wires or fences, Croatia, according to the prime minister “was in a position to raise the wire at the border, but chose to strengthen the police instead.”

At the same time, Croatian authorities deny the claims about violence, pointing out that they have been praised many times in the EU for safeguarding its external borders. Even German Chancellor Angela Merkel has expressed her support of Croatia’s efforts a couple of times.

Pressure from the Right-Wing

While European leaders have only words of praise for Plenković, the situation looks quite different in his home country.

November 2019 saw the biggest protest yet during his tenure. The issue of the demand for higher wages for teachers, who went on strike nationwide for more than a month, brought tens of thousands of protesters to Zagreb’s main square, not only educators and members of teachers’ unions, but also people who were generally dissatisfied. Plenković eventually agreed to most of the unions’ demands and bought himself some peace. The magnitude of the protests, however, revealed a high level of social discontent in the country.

At the same time, the prime minister’s centrist course is strongly criticized by the right end of the political spectrum. In some right-wing circles, Plenković was even described as “the new leader of the left.” In March 2018, thousands of people gathered in Zagreb to protest the parliament’s ratification of the Council of Europe’s so-called Istanbul Convention. The non-EU body, which includes Russia and Turkey, is intended to combat domestic violence against women; the right-wingers claimed, however, that Plenković’s government was promoting “gender ideology.” The convention was ratified in the end, but many HDZ supporters were disgruntled, believing that Plenković had betrayed them.

The pressure from the right has not stopped since. Plenković’s government is often criticized for being supported by representatives of the Serb national minority. Since Croatia’s 1990s wars against the combined forces of the (former) Yugoslav Army and rebelling Croatian Serbs, intolerance toward the Serb ethnic minority has been very strong, and the right is constantly using it for political purposes.

This puts Plenković in an unenviable position, as he has to find a balance between the hard right and the center. He doesn’t want to lose more conservative and nationalist voters. At the same time, he is struggling to preserve the image of a statesman who cherishes European values such as diversity and tolerance.

His Biggest Threat: His Party

Plenković, whose favorite word is “stability,” actually has a hard time keeping control, especially in his own party. Because the HDZ was unable to form a government on its own, it was forced to enter a coalition. Its junior coalition partners are constantly raising new demands, having threatened to leave the coalition on many occasions. But since the 2020 budget was passed by parliament in November 2019, experts consider the relationship between coalition partners is stable—for now.

Observers agree that Plenković’s biggest challenge is to hold on to the leadership of the HDZ, since a considerable part of the membership, the hard-liners in particular, is not happy with his politics. Macan, Plenković’s former advisor, says that the way the prime minister is leading his party is causing the greatest disagreement.

“He directs it as a ‘normal,’ Christian democratic, center-right party, like the German CDU. But until recently the HDZ was a de facto movement, a broad tent that included people from the center to the far-right,” Macan said.
Intra-party elections are due to take place this year, and the big question is whether a strong personality, someone able to unite all the malcontents, emerges and challenges Plenković for the party leadership. Some party functionaries from the so-called right-wing faction have already publicly stated their intention to run against the prime minister.

Timing is important: will the intra-party elections take place in the spring, as announced earlier, or in the fall, after Croatia’s next regular parliamentary elections? If his party wins the parliamentary elections, it will be easier for Plenković to retain his position in the HDZ.

Puhovski, the analyst, says that the period before the intra-party elections could affect Plenković’s conduct of politics and his managing of the EU presidency. “He will not be able to devote himself to the relations among European countries as much as he wants to. With one eye at least, he will look at the internal affairs of the HDZ,” Puhovski predicts.

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© REUTERS/Yves Herman

European Council summits in Brussels can often be filled with rancor, never more so than when they involve money. This week’s EU summit in Brussels was a case in point.

EU national leaders held only a brief discussion about the multiannual financial framework (MFF), the EU’s seven-year budget due to start in 2021. Predictably, a new proposal to drastically cut the Commission’s proposed budget from Finland, which currently holds the rotating EU presidency, was welcomed by Northern countries and condemned by the South and East. But it was the proxy battles fought over climate and defense funding that were most interesting to watch.

Heading for Net-Zero

Western European members have spent six months trying to convince the Eastern members to support a target of completely decarbonizing the European Union by 2050. It finally looked like everyone would get on board at the summit after new EU Commission President Ursula von der Leyen offered a €100 billion “just transition” fund to ease the way for countries reliant on coal.

Indeed, at the last moment, after intense negotiations, Hungary dropped its opposition last night. Czechia fell in line too after other member-states agreed that the summit text could make reference to nuclear power. That left only Poland. It was thought that Prime Minister Mateusz Morawiecki would take negotiations late into the night, in order to get as much money as possible, and relent in the end. That’s because this was the last possible moment he could effectively wield his veto.

Von der Leyen has said she will propose binding legislation in March to set the 2050 target, whether or not there was unanimous political approval from all 28 (soon 27) EU member states. While the Commission prefers to get unanimous consent from the Council before proposing big items of legislation, it is not legally necessary. Once the legislative proposal is made, it only needs a qualified majority of member states to vote for it in order to become law. Poland can no longer veto.

“In Our Own Pace”

As he left the summit, Morawiecki said he had secured an “exemption” to the target. “The conclusions give us enormous flexibility,” he said, saying that Poland will not have to abide by the target but will still get “a very significant part” of the just transition fund. “We’ll reach it in our own pace,” he said. “We will be able to conduct the transformation in a way that’s safe and economically beneficial for Poland.”

However Poland will not be exempt from the 2050 legislation once it’s adopted. It will apply to all member states equally. This veto was largely symbolic, and all it has accomplished is angering the other EU member states and the commission, who are now not at all minded to be generous with Poland when it comes to the just transition fund.

Morawiecki’s grandstanding was certainly meant for domestic political consumption in Poland, where his Law and Justice party (PiS) likes to be seen as standing up against the EU and its supposedly burdensome climate legislation that would hold back Polish economic growth. But in fact he has probably just vetoed his way out of just transition funding.

French President Emmanuel Macron made the funding threat explicit in his closing press conference. He described Poland’s lack of participation as “temporary.” “If Poland was not to confirm its participation, it would step outside the European mechanisms also in terms of solidarity financial mechanisms,” he said, implicitly threatening to withhold not just the just transition funds, but also standard solidarity funds.

Defense Fight

Leaders were also meeting in the shadow of a contentious NATO summit last week in London, where US President Donald Trump lashed out at French President Emmanuel Macron for calling NATO “brain-dead.” Macron was also privately reprimanded by German Chancellor Angela Merkel for his comments.

Of course, Macron was merely using different words to make the same observation that Trump has made many times in the past—that NATO is “obsolete.” The dispute led to much discussion about the purpose and future role of NATO, and attention inevitably turned to the EU’s plans for a “defense union”—something that many fear is an attempt to replace NATO.

What that “defense union” is depends on who you ask. The French, who have always been NATO-skeptic, say it is needed because Europe needs the capacity to defend itself without American support. The Germans say it is merely a cost-saving exercise meant to stop duplication of efforts between EU countries and improve the efficiency of military procurement. And the British, Polish, and Americans believe it is a French plot to destroy NATO and build an “EU army.”

It has fallen to von Der Leyen to explain what exactly it is. Under her leadership, the commission is creating its very first Directorate-General (DG) for Defense, Industry, and Space, to be presided over by Margaritas Schinas, the vice president for promoting (originally “protecting”) the European way of life.

The Language of Power

“Europe must also learn the language of power,” von der Leyen said during a speech on European policy in Berlin last month. “On the one hand, this means building our own muscles where we’ve long been relying on others—for example in security policies.”

The Defense Union plan calls for a new EU military doctrine, a new EU fund for defense, a EU permanent military cooperation, a single EU headquarters for military operations, and a commission defense department.

The European Commission already deals with some defense and security matters, but they have never before been organized into one department. The new DG is expected to be complete next year. Its stated main purpose is to efficiently manage the €13 billion European Defense Fund. But many believe its powers will be steadily expanded over time.

Not everyone is so enthusiastic about this surge of military spending. In their budget proposal, the Finns have drastically cut the commission’s envisioned defense spending. Von der Leyen says this is unacceptable. “If one is serious about this then one has to invest,” she said last week.

It appears that the battles in both the climate and defense fights are going to move to the ongoing negotiations over the EU’s long-term budget. As is often the case in politics, money makes the world go round.

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REUTERS/Valentyn Ogirenko

When the pro-European ACUM bloc and the pro-Russian Socialists’ Party (PSRM) formed a coalition government back in June, it turned many heads. That is because in Moldova, one of the six countries of the EU’s Eastern Partnership, coalitions of juxtaposed geopolitical interests simply do not form as they bear high electoral costs. This one was created to break free from a captured state.

Once in office, Prime Minister Maia Sandu of the center-right PAS, which together with the center-right PPDA led by Andrei Nastase, forms the ACUM bloc, wasted no time in making the reform of the justice system the key priority. This was meant to help dismantle the oligarchic rule of Vladimir Plahotniuc, the informal leader of the center-left Democratic Party at the time, who had become an increasing security threat in the EU’s eastern neighborhood for the past five years. However, ACUM’s coalition partner, the Socialists’ Party (PSRM), together with its own informal leader, President Igor Dodon, covertly undermined the reform process since it threatened their own vested interests and political power, too.

When Sandu proposed a last-minute law change to ensure that an independent prosecutor general is eventually nominated—a move which was not coordinated with PSRM—a red line for the coalition’s unity has been crossed. Together with the Democratic Party, which the Socialists helped topple in June, PSRM passed, on November 12, a no-confidence vote against the Sandu government.Less than two days later, a new PSRM-led minority government was created, also with the help of the votes of the Democrats. The new Prime Minister Ion Chicu is a former adviser to President Dodon and Minister of Finance during the Plahotniuc days. The new cabinet of ministers reflects similarly, old elites.

EU’s Support for Renewed Reform

Amidst competing domestic and foreign policy priorities, the EU and individual member states such as Germany took a risk in actively supporting the frail ACUM-PSRM coalition which joined forces to oust Plahotniuc. Without knowing for how long it would last, the EU and its member states fully backed the Sandu government by opening up financial assistance flows as well as providing expert and legal advice, and technical support. So, was the EU’s support for Moldova’s short-lived government without consequence? Not quite. This engagement had a positive impact both on the EU and Moldova in several ways.

First, the EU proved it is willing and able to engage with complex processes of democratization in the EU’s eastern neighborhood despite a prolonged period of fatigue with stalled reforms and multiple corruption scandals. Ahead of the Eastern Partnership summit in June 2020 this signals the EU’s commitment to further support the democratizing efforts that these countries are currently undergoing.

Second, though it is often criticized for its slow pace, the EU proved it can react promptly to developments on the ground. In a very short time, it managed to mobilize critical support for the Sandu government. Between July and October the EU offered €73.54 million for the support of the reform agenda, hence effectively demonstrating its capacity and tools in its immediate neighborhood.

Third, in Moldova itself the EU’s support for the Sandu government helped revive political pluralism, which was on life support under Plahotniuc’s rule. The powerful oligarch had secretly wiretapped, intimidated, and blackmailed political opponents, journalists, civic activists, and judges alike. These practices have been stopped and numerous individuals who had been harassed came out publicly with details and incriminating evidence.

The EU’s immediate support also indirectly helped restore the citizens’ trust in free and fair elections. Local elections that took place at the end of October and early November showed that there is a wide spectrum of political forces willing to run for election. Although there were some minor incidents, these did not influence either the legitimacy of the election process or the election outcome.

Lastly, the current minority government appears unstable and possibly short-lived as well. While the current situation most favors the Socialists, the Democrats made it clear that this is not a coalition government; indeed, they are ready to vote down the Chicu government when it seems opportune to do so. This signals that serious political instability lies ahead, but it may also provide a sooner than expected chance for ACUM’s return.

Moldova’s pro-reform Sandu government and the reason why it collapsed shows that the EU is right in pursuing rule of law reforms in its neighborhood. They need to be at the heart of the EU’s efforts to consolidate democracy in the Eastern Partnership region where societies struggle with similar transformational challenges. It also shows, however, that these reforms are no easy ones to conduct and sometimes the political will to do so may not be enough.

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© REUTERS/Fabrizio Bensch

It’s a staggeringly ambitious project: build two ultra-modern highway and railway routes across Europe, suitable for automated vehicles as well as high-speed transport. Call it the “European Silk Road” to give people an idea of the scale intended. And even more challenging: spend a whopping €1 trillion, but don’t charge it to Europe’s taxpayers.

The Vienna Institute for International Economic Studies (WIIW) has drawn up detailed plans for the logistics and finances of this new Silk Road. It proposes building some 11,000 kilometers of new high-speed rail links and efficient motorways, which, in contrast to the existing system, would bypass local traffic and run in an express system.

The goal is quadruple: modernize the infrastructure, increase trade, give the European Union a common project, and do something sufficiently big and spectacular to compete with China’s Belt and Road Initiative (BRI). The proposed European Silk Road would not reach the overall volume of its Chinese counterpart, but it would increase the EU’s pull on those southern and eastern EU countries that are tempted by Chinese investment.

The estimated cost of €1 trillion—equivalent to seven percent of the EU’s GDP—will not need to be financed through national or European budgets, the WIIW promises. In a paper published in late November, the institute suggests setting up a public limited company that could issue bonds to pay for the works. The model for that would be the ASFiNAG, a company set up by Austria to finance highways.

In parallel, a European Sovereign Wealth Fund would be created to guarantee the bonds. WIIW believes that should not be too expensive, given the expected toll income on the highways and the current low interest rates. “Real interest rates are negative and infrastructure investment has the potential to finance itself,” said Mario Holzner, executive director of the WIIW.

Designs on the ECB’s Assets

But there is more to come—and this is the part that will be truly controversial: the WIIW wants to use part of the European Central Bank’s assets, or at least its profits, to finance the Wealth Fund. Even at a time when balanced budgets and orthodox monetary policy have lost much of their luster, this is bound to raise hackles—and nowhere more so than in Berlin.

“Much of Europe’s infrastructure is in a bad state, even in some wealthy parts of Europe, such as Germany,” argues Holzner. “Current European infrastructure initiatives are insufficient and piecemeal. The continent lacks a common, positive narrative – a common project that can be opposed to the forces of disintegration.”

© WIIW

According to the plans, there would be a northern route from Lisbon to Uralsk on the Russian-Kazakh border and a southern route from Milan to Volgograd and Baku, both to be served by a string of logistics centers, seaports, river ports, and airports in order to ensure a contemporary multimodal traffic.

Ambition on a New Scale

The idea of using infrastructure projects to create and advertise European added value is not new, though it has never been seriously discussed on this scale. Since the 1990s, the EU has been working on creating “Trans-European Networks” (TENs) in transportation, telecommunications, and energy.

Yet despite EU funding worth dozens of billions of euros, EU infrastructure continues to be a patchwork of national roads, railways, and grids that is plagued by bottlenecks. The next TEN revision is scheduled for 2023, but politically, the networks do not get talked about much anymore.

Jean-Claude Juncker, president of the last European Commission (2014 to 2019), chose a different approach: he invented the “Juncker Plan”, also known as the European Fund for Strategic Investment (EFSI). With the help of EU guarantees and the European Investment Bank, the fund has been supporting investments in areas such as infrastructure, energy, and research, and innovation. It has also helped small businesses by providing risk finance.

Juncker rated the fund a great success. After the first three years, it was extended to 2020. At the same time, its investment target was raised from €315 billion to at least half €1 trillion. Yet in early 2019, the European Court of Auditorsgave the project a mixed review. While it did finance many investment projects that could not otherwise have taken place, part of the money went to projects that could have used other sources of public or private finance. Estimates of additional investment attracted by EFSI were sometimes overstated, the court said.

By its very nature, the Juncker Plan had an additional disadvantage: because it was designed to benefit smaller projects and businesses, it did not give the EU much visibility. In that regard, Holzner’s European Silk Road plays in a different league.

“A ‘big push’ in infrastructure investment such as the suggested European Silk Road project in the current macroeconomic climate could help to solve both the problem of sluggish growth in the west of the continent and the developmental problems in the east,” the WIIW said. “Moreover, it could constitute a new narrative of cooperation for Europe.”

Up to Seven Million New Jobs?

The institute has calculated that the project would create between two and seven million additional jobs. Over the ten-year investment period, it would boost growth in the countries involved by an average of 3.5 percent. In addition, there would be sizeable trade effects.

“The project would also help to set new pan-European standards in technology and environmental protection along the route and beyond,” the WIIW added. “Solutions for future e-mobility and driverless vehicles, especially for the motorway and related areas would have to be found.”

Will the new Commission President Ursula von der Leyen push for a European Silk Road? Holzner presented his financing plans in Brussels in November, but official reactions have been sparse. Next, he is bringing his roadshow to France and Germany before trying to persuade other eurozone countries. It won’t be easy; the European Silk Road is a staggeringly ambitious project. But it is also a very interesting one.

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© REUTERS/Luke MacGregor

Every day brings new twists and turns in the Brexit saga that make predictions difficult. But whatever the exact date and form of the United Kingdom’s departure from the European Union, Brexit will have major geostrategic implications for the EU.

Any analysis of the longer-term impact has to go beyond the UK-EU relationship itself and address the broader implications for both the EU and the UK in itself, not only in economic terms, but also with regard to geostrategy and security. It is true that there can also be positive aspects to Brexit, especially if the EU reacts by building strategic capability and enhancing policy cohesion. But, in the end, Brexit mainly creates risks, which need to be handled and prepared for.

It is worth recalling that the embittered, tortuous Brexit negotiations so far have only been the beginning of the exit process: the talks have focused only on the exit modalities (Northern Ireland border, financial obligations, citizens rights, and transition). The more substantive negotiations on the long-term relationship, including the economic relationship, are still to come. These will be even more difficult than the exit talks, and chances are high that no deal can be reached. Even though some companies or regions could benefit if competitors for market share or investment are weakened, the economic impact will be negative for the EU overall.

The Dangers of “UK First”

Failing to reach a deal on the framework for UK-EU trade would inflict significant economic costs, making integrated, cross-border value chains impossible unless the UK (or parts of it) remains tied to the Single Market, as Northern Ireland now looks likely to. These economic costs are probably higher for the UK in both relative and absolute terms. But the impact on the EU and its member states is far from negligible, especially for countries with close economic ties to the UK, such as Belgium and the Netherlands. No deal would hit Ireland particularly hard, potentially necessitating special assistance from the EU.

But the long-term effect could be even more significant. The EU-27 could be faced with a competitor posing far more fundamental challenges than a UK still closely integrated and conforming to EU rules. The UK could pursue a far more aggressive industrial strategy in an effort to support domestic industries: a “UK First” approach. There could be mercantilistic competition and conflict, including for contested resources and markets in areas such as fishing and energy.

With no deal, the level-playing-field provisions included in the Withdrawal Agreement would not come into force, opening up the possibility of the UK adopting lower standards. It is premature to presume that the UK would not go down this route, given the economic necessities that will arise after Brexit. For example, driven by a necessity to quickly establish new economic relationships, the UK could pursue trade deals around the globe by undercutting the EU. If the UK drives down standards for environmental protection, labor rights, tax and competition, and consumer and data protection to gain a competitive advantage, some EU member states would push for the bloc to follow suit, potentially undermining the EU’s regulatory ambitions.

Risks for the Financial Sector

With Brexit, the EU is losing a significant part of its economic capability across a wide range of sectors. The strength of some of these sectors is geo-strategically important to the EU. Simply put, the EU must be a significant player in these sectors in order to play a role at the global level. Achieving strategic autonomy in related policy areas will become much more difficult.

The sectors where the UK makes a disproportionately large contribution to the EU economy include defense, aviation/space, research/academia, and business and legal services, as well as parts of the new technologies sector. Thus Brexit will have an impact on the EU’s ability to, for example, maintain industrial competitiveness, expand its services exports, provide security hardware, and boost innovation and technological sovereignty. A particular case in point are financial services and capital markets, where a breaking-away of the UK could well result in the loss of an EU global financial center, with implications for the availability and cost of financial services and capital.

The impact will depend on how close the economic ties between the UK and the EU will be after Brexit. If the UK were to remain part of the Single Market, these capabilities would stay within the economic structure of the European Economic Area. Conversely, a no deal outcome would severely impair the economic ties between the UK and the EU. While it is undoubtedly true that the UK would lose significant parts of these industries, this does not necessarily imply that the economic activity would simply shift to the EU, given the global opportunities that exist for example for the financial services sector.

One particular concern is the instability a chaotic Brexit might trigger in the financial sector, for example, if there is significant capital flight or speculative attacks on sterling in the aftermath of an (unexpected) no deal Brexit. This could affect the stability of UK-based financial institutions and have knock-on effects on the global financial system. At the very least, stabilizing the situation might require a concerted effort of the Bank of England, together with the European Central Bank and other international financial actors.

Neighbors, Allies, and Rivals

The UK leaving will also profoundly change the EU’s relationship with other countries. The political geography of Europe would change, affecting, for example, Gibraltar and the Channel Islands. The EU’s relationship with countries such as Switzerland, Norway, and Turkey would also be altered, in part depending on the model chosen for the EU-UK relationship. The EU will most likely have to define much more concretely what kind of relationship it wants to have with European countries that have no intention of becoming member states. The current models, such as integration within the Single Market or countries being within the accession process, are unlikely to be applicable, so Brussels will have to develop new models, such as, for example, a permanent strategic partnership or associate membership.

Post Brexit, there is also a good chance that the UK could become a pawn in global great power rivalries. The UK would need to seek new and separate strategic relationships with key countries around the world, including the United States, Russia, and China—but it would be vulnerable given post Brexit economic pressures and political instability. Other powers would have an opening to employ divide-and-conquer tactics, to try to push the UK and EU to take divergent positions on crucial global policy issues such as the global multilateral trade system or openness to investment in strategic sectors. The UK could be seen as a Trojan horse to undermine the EU and/or Western liberal democracy, which would in turn have consequences for the possible level of ambition in the UK-EU relationship, including in terms of openness for trade and investment.

There are no guarantees that the UK would remain aligned to EU policy priorities after Brexit; indeed, over time, it is likely that the UK will start diverging. The continuation of cooperation on issues such as climate change, development or combatting tax havens cannot be taken for granted. Non-alignment on global issues, for example on pursuing the sustainable development goals, would reduce the effectiveness of EU action and undermine the possibility of achieving global progress on these issues, not least since it would strengthen divergent standpoints. However, Brexit could also have a positive effect if it increases pressure on the EU27 to act jointly, removing the possibility of hiding behind British opposition to further integration in the foreign policy field.

Less Influence, More Risks

Losing the UK will have certainly a negative impact on the EU’s strategic culture. The UK has—together with France—been the only big power in the EU that has had a more strategic approach to external affairs and a more global strategic culture than that of other member states. In addition, a lack of policy alignment would be a particular challenge in the field of international policy and internal and external security, where UK capacities remain critically important for the EU27, including within the NATO context. If, for example, there was a significant divergence in views on issues such as the Iran nuclear agreement, or if the UK’s departure were to weaken the resolve of the remaining member states, e.g. on Russian sanctions, it would (further) reduce the likelihood that the EU could affect such global policy issues and hinder the ability of the EU to develop further capacity in future.

One area where cooperation will become significantly more difficult, even given good will on both sides, is internal security, the fight against organized crime and counterterrorism in particular. European arrest warrants will no longer be available to the UK, implying that extradition will revert back to being a lengthy and uncertain process. This is likely to benefit internationally mobile criminals and terrorists, including UK nationals who might seek refuge from British jurisdiction elsewhere in Europe, reducing security for the UK and for the rest of the EU.

Limitations on cooperation will also affect the ability to share data, again reducing the ability to combat terrorism and crime. The EU will lose the member state that probably still has the greatest access to covert intelligence information, leaving a gap in its capabilities. In the online world, cooperation on cybersecurity is likely to be reduced, mirroring international cooperation on such issues rather than the more closely integrated cooperation within the EU, again reducing effectiveness.

It is not just that the UK’s departure will take one of Europe’s main hard security providers out of the EU—there are also real questions about whether the UK’s capability can be maintained beyond Brexit. Potential territorial fragmentation, fiscal pressures, and overstretch could force the UK to scale back its commitments, for example in relation to peace-keeping, including in Cyprus. And in the longer term, the stress of Brexit might create challenges to the UK’s nuclear capabilities and its seat on the UN security council, reducing European influence as a whole. This might hasten the need for the EU to become a more significant actor in its own right. But in the meantime, it would reduce its capacity to deal with international challenges.

An Era of Conflict?

Hindering cooperation is one thing, but a no-deal Brexit could also bring about direct EU-UK conflict, for example when it comes to Gibraltar, fishing grounds, resources such as energy, migrants crossing EU territories to get to the UK, or Northern Ireland. Conflict does not necessarily mean physical confrontation, although it might come to that in some instances, similar for example to the “cod wars” between the UK and Iceland. But even in the absence of such an escalation, it will be necessary to find dispute resolution mechanisms for such issues.

Whichever way the Brexit process ends, there is likely to be a significant community in Northern Ireland dissatisfied with the outcome. Re-instituting border controls would be unacceptable to large parts of the population in Northern Ireland, putting into question the constitutional status quo. In fact, a referendum about the reunification of the island could well be back on the agenda. The unionists would resist this. But the republicans would challenge a hard border. The potential for violence is high under both scenarios.

A re-eruption of violence would also draw the EU27 into the conflict, not only because of the role the Republic of Ireland would have to play but also because a significant part of the Northern Ireland population now has EU passports, making them EU citizens who can demand support. If it becomes necessary to patrol the border in Northern Ireland to keep the peace, the Northern Ireland police service is unlikely to be able to do it alone (if at all). But the involvement of UK armed forces would be highly contentious, raising the question of what role the EU would need to play.

Disintegration and Discord

In addition to potential changes to Northern Ireland’s constitutional status, there is a significant chance of territorial disintegration, with Scotland separating from the United Kingdom. No deal would make a second independence referendum in Scotland almost certain. Current opinion polls indicate that a chaotic exit might well be enough to lead to Scottish independence, which would almost certainly be followed by an EU membership application. There are positive aspects of such a possibility, with the EU potentially gaining a committed member, demonstrating the desirability of EU membership, but so far there is little thinking in the EU about how to react to such a scenario.

The dissolution of the UK would, among other impacts, change its capacity as a global actor, for example with regard to its role in NATO and its capacity to maintain a nuclear deterrent, given that the UK’s nuclear submarines are berthed in Scotland with no obvious facilities available elsewhere in the UK.

One of the most remarkable aspects of the Brexit process has been the unity displayed by the EU27. But unity might well fray in a no-deal scenario. In the countries hit hardest by a disorderly Brexit, there will be strong domestic pressure to find quick-fix solutions, even if these go against common EU positions. If the UK reneges on its commitments made in the first phase of the negotiations (on EU citizens’ rights, financial obligations, and the Northern Ireland border), the potential of conflict between member states increases further. Indeed, the hole Brexit is leaving in the EU budget is already creating discord.

Address the Strategic Issues

But as difficult as no deal would be, the EU doesn’t have to sacrifice its principles simply to ensure an orderly Brexit. It is in the EU’s economic and political interest to remain united on its red lines, which also limits what can be offered to the UK at this point; caving in to British cherry-picking would, in the end, pose an existential threat to the EU itself.

However, the EU needs to tackle the hard strategic questions Brexit poses. It has to address the multifaceted and long-term impact, including questions that an acrimonious divorce would raise, including how to best to mitigate the negative impacts of Brexit and how to manage future conflict with the UK; and perhaps most importantly how to increase the EU’s capacity and capability in areas that are weakened by Brexit.

The EU27 will need to redefine not only its relationship with the UK, but also with other neighbors and the rest of the world. Crucially, the EU member states need to maintain unity and agree a common strategic negotiation position in case it comes to no deal. If the worst-case scenario cannot be averted, the EU27 must be fully prepared.

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