André Sapir (Ed.) Fragmented Power: Europe and the Global Economy Brussels, Bruegel Books, 2007 The European Union is the largest single economic enti...

André Sapir (Ed.)
Fragmented Power: Europe and the Global Economy
Brussels, Bruegel Books, 2007

The European Union is the largest single economic entity in the world, with half a billion people and a GDP slightly larger than that of the US. Its presence in the world economy is powerful: it is the largest exporter of goods and services, the largest importer of services and energy and the second largest importer of goods.

Nonetheless, its international political role does not match its economic weight and its international behaviour lacks consistency and efficacy. This is not surprising if one considers the fragmented character of the governance of Europe’s external economic policy, with responsibilities split between the European Commission, the European Central Bank, the European Council of Ministers, the Eurogroup or the member states.

It is time for Europe to wake up to its responsibilities as one of the few players able to tackle questions related to the global common.

A book published by Bruegel, a Brussels think-tank, and edited by the Belgian economist André Sapir, tackles these issues and wants to address the lack of a comprehensive study of European foreign economic policy.

The structure of this book starts by examining seven separate areas of European foreign economic policy: trade policy, development policy, external competition policy, external financial markets policy, external monetary policy, migration policy and external energy/environmental policy. This analysis is conducted through monographic studies by primary researchers, whose findings can be briefly summarised.

1. Trade policy
The response of European policy-makers to a changing international trade policy (first of all the move towards a multipolar WTO) is inadequate. Foreign policy and commercial considerations will continue to influence negotiations and trade-policy initiatives, but European strategists need to concentrate on the task of establishing a new modus operandi for the multilateral trading system. In this field the Commission can initiate trade negotiations, but must seek and obtain a mandate from the Council of Ministers, by which it should be actively monitored.

2. Development policy.
Both the European Community and the individual member States have foreign-aid programmes. While in the long run one could think about moving all the foreign-aid to the European Community, which has more power in pushing for democracy and governance (it has already been suggested that there should be a shift from policy conditionality to governance conditionality), in the medium term more coordination between EC aid, bilateral aid and aid from other donors is needed. The role of the European Community is also important in trade-related issues, given that the EC handles WTO negotiations on behalf of all member states: in this respect Europe would gain and the poor countries would also have a better chance of taking off economically if Europe were to open up its markets even further. It would be natural to let aid-for-trade be a key area.

3. External monetary and financial policy.
Europe’s fragmented representation in the arenas where international monetary and financial policy is made causes it to punch below its weight. There is a compelling need to unify Europe’s representation, so that chairs can be freed up for underrepresented emerging markets, enhancing the legitimacy of existing global institutions without diminishing Europe’s influence over their operation.

But the obstacles remain strong and are mainly linked to the lack of a single foreign policy and to the reluctance to give up historical status.

The proposal is to start the reorganisation of Europe’s representation in these arenas with the International Monetary Fund, where preferences are relatively homogeneous and the infrastructure for the harmonisation of member states’ positions is relatively well-developed. If the member states realize that their influence is strengthened without forcing them to compromise their views, then it will be possible to move forward in other international organisations.

4. Competition policy
Changes in the economic, technological and institutional environment pose new challenges to European competition authorities. Three main ways forwards should be encouraged (external reforms): a continuous effort for the harmonisation of rules; closer cooperation in the exchange of confidential information and the setting up of global antitrust institutions.

Some internal reforms may also be needed and, in particular, higher priority should be given to competition issues in other EU policies and national regulations; the independence of the European competition agency from member states’ interference should be pursued and a new research agenda on the effectiveness of competition policy in international markets should be established.

5. External financial markets policy
Apart from international accounting standards, in practice Europe hardly ever agrees on common technical standards in financial services, mainly for two reasons: internal reluctance to abandon national standards in favour of EU standards, and vested interests.

Moreover, the EU still relies largely on member states for supervision and enforcement. To play a major role in supervision and enforcement the EU would have to develop a ‘Community interest’ approach and place the supervision of financial institutions and markets with an EU-wide dimension of an EU institution, as it has for competition policy.

6. Migration policy
By 2014 EU citizens will enjoy similar freedoms to move within the entire EU27, almost as if the EU were one country. Those citizens of the world who are not EU citizens are subjected by the different member states to a restrictive and diverse set of immigration policies.

The creation of a common immigration policy requires a stronger institutional mandate and a solid conceptual basis which still appears to be wanting. Voters in the EU are sceptical about the benefits of free migration: as a result, the prevalent approach is restrictive. This approach favours irregular immigration and consequently low-skill immigration. A harmonised approach to welcome high-skill immigration would make good economic sense and more harmonisation regarding the regularisation of irregular migrants (who enjoy de facto intra-EU mobility in the Schengen area) is also needed.

7. Energy policy
The EU oversees the internal energy market and is responsible for climate change policies, while the member states still deal with security of supply and their domestic energy mix.

The Commission now proposes to include security of supply in the common EU energy framework.

This is not easy to achieve, given the link with foreign policy aspects, the asymmetry in import dependency among member states, the preferences of member states for a certain energy mix, the member states competitive position in world markets, the different weight and role played by the member states in this field.

So far, the external relation proposals are not sufficiently developed to convince member states that they can safely abandon pursuit of their strategic external energy interests to the supranational level. A consistent alignment will occur when new and renewable fuels gain a more prominent place in the EU energy mix. The fact that member states are more willing to speak with one voice in climate change policy matters offers the prospect of future cooperation in all energy matters.

After the seven areas of foreign economic policy, two studies examine its coherence, in particular in terms of European governance.

The first report, signed by the editor, examines three items on the European agenda.
1.Global agenda. This level has to deal with three multilateral institutions - the WTO, the IMF, the World Bank - and with the need to adjust the EU representation in accordance with its declining relative demographic and economic weight. On this level the EU sometimes exercises world leadership (trade, environment), in other cases has a secondary role. The challenge is one of effectiveness and calls for significant reforms of internal governance and external representation.
2.Transatlantic agenda. Here the EU’s effectiveness in external regulatory matters varies (excellent in competition policy, weak in external financial market policy) and, in general, there is a lack of strategic perspective.
3.Regional agenda. Surprisingly this is the level on which the EU is least effective, with the enlargement of the only successful neighbourhood policy. The EU has little or no common approach in two crucial areas on this front: migration policy and energy policy.

Current arrangements for Europe’s foreign economic policy, conclude Coeuré and Pisani Ferry in their report, are ‘both complex and evolving, their efficiency is questionable and the choice of governance models are inherited from history rather than based on efficiency criteria’.

Clearly a key point is the governance and the level of delegation and representation within the EU. The authors argue that there is no scope to extend unconditional delegation to other fields except those (competition and monetary authority) where authority is already delegated, but they propose conditional delegation (coordination appears weak on efficiency and legal grounds) to the Commission, with the length of the term and the kind of remit given depending on the field.

For areas where foreign policy dimension prevails (energy and migration) and consequently member states are more reluctant to cede sovereignty, one solution would be to delegate to the new High Representative for Foreign Affairs and Security Policy, as envisaged by the draft Constitutional Treaty. The same template could be repeated for economic and monetary affairs with a High Representative for Economic and Financial Affairs who, being a member of both the Council and the Commission, would be able to represent the euro.

The changes suggested appear crucial if Europe is to wake up to its responsibilities and respond effectively to the challenges ahead. The best answer to the recent international financial crisis lies in a joint response from Europe. Europe has to overcome its fragmented status and strengthen its unity: speaking with one voice in foreign economic policy, strengthening the supervision powers of the ECB and with a unified anti-crisis plan, linked to a set of national plans.

In this perspective a strong and effective leadership is crucial. The proposals suggested in the book about the powers delegated to a High Representative for Foreign Affairs and Security Policy run the risk of raising difficulties in the coordination with the President of the Council, the strong political figure envisaged by the Lisbon Treaty (while in the book the Commission is suggested as a possible delegate of power, giving de facto great importance to its President). The stability of the term envisaged in the Lisbon Treaty for the President of the Council is extremely important, but the experience of the recent Sarkozy presidency shows the importance of having a (strong) president who is in charge (and not when his mandate has expired).