Europe: A Less Fragmented Global and Regional Actor ?

André Sapir

Professor of Economics, ECARES, Solvay Brussels School of Economics and ManagementSenior Fellow, Bruegel

AFD/EUDN Conference onFragmentation in a Globalized World

Paris, 9 December 2009

Outline

• Europe as a global actor

– Global governance: the malaise before the crisis– Europe and global governance– The global financial crisis and the global response– Is Europe becoming a more effective global actor?

• Europe as a regional actor– Europe’s regional agenda before the crisis– The financial crisis hits badly some neighbors – Is Europe becoming a more effective regional actor?

Europe as a global actor

GG: malaise before the crisis

• GG was struggling in several areas

– Trade: WTO and Doha Development Agenda – Development: WB and the Millennium goals– Money and finance: IMF and FSF– Climate: UNFCCC and the Kyoto Protocol

Reasons for the malaise

• The malaise was fuelled by

– Increased diversity of preferences among global partners– Return to N/S divide as distributional dimension was becoming key– Globalization was becoming divisive within societies in N&S: Is GG viewed as part of

the solution or part of the problem?– End of the Cold War and the collective action problem: free riding

• Obsolete GG system still dominated by Europe and America through the G7. – “The rules and institutions that today govern the global economy have been shaped

by the North Atlantic cabal of the US and the major European powers ever since the Great Depression of the 1930s taught them the virtues of oligarchic cooperation.” (Nitin Desai, former UN USG for Economic and Social Affairs, Business Standard, 19 Nov. 2009).

Example: money & finance

• G7: 11% of world population, 44% of world GDP– BRICs absent: 43% of population, 21% of GDP

• FSF: G7 + AU, NL, SE, HK, SG– BRICs absent

• Basel Committee: G7 + BE, LX, NL, SP, SE, SW– BRICs absent

• IMF: – Board seats (24 total)

• 5+2 for the G7– BRICS: 2+2

– Voting rights• 44% for the G7

– BRICS: 10%

Were there alternatives to GG?

• Hegemony by the US and the EU, the “regulators of the world” (producing probably ca. 80% of norms), but

– Cooperative or non-cooperative game between the two?– Cooperative or non-cooperative game with emerging powers?

• Market-base rules

• Regionalism: substitute/complement to multilateral GG?

No alternative to GG

• More secure than ad hoc arrangements

• Less expensive in terms of transaction costs

• Gives a voice to smaller countries

• BUT free-rider problem requires leadership

Need for a new global architecture

• Problems are intertwined => need for overarching institution

• The world has changed => need for a global institution

• Possible candidates before the crisis:

– UN body: Economic Security Council (Jacques Delors)• G24 leaders (from the countries with IMF/WB chairs), plus UN SG, IMF MD WB P (Michel Camdessus)

– G20 leaders

Europe and GG

• GG clearly matters to Europe– It sees itself as a champion of multilateralism– And also as a an example par excellence of international governance

• But it faces two problems in promoting a new global architecture– The EU’s internal governance makes it a fragmented player– EU member states are over-represented in global institutions

EU declaration on globalisation, December 2007

• “Globalisation…is offering new opportunities…but also confronts us with new...challenges.”

• “We aim at shaping globalisation in the interests of all our citizens...We must engage our international partners in enhanced strategic cooperation and work together within stronger multilateral organisations. The Lisbon Treaty... improves our capacity to fulfil our responsibilities...It will bring increased consistency to our external action.”

• “The European Union is the largest market in the world and a major global player in promoting peace and prosperity. We are determined to remain so for the benefit of our citizens and people worldwide. Together, we will ensure that globalisation is a source of opportunity rather than a threat. For this, we will continue building a stronger Union for a better world.”

The global financial crisis

• The 1990 Tequila and Asian crises – Originated in Emerging Markets – Risked spreading to industrial countries

• These led to changes in the global financial architecture– IMF: integrates financial stability in country assessment– FSF: to enhance int’l cooperation and financial stability

• And to foreign reserve accumulation by Asian countries

• The 2008/9 crisis– Started in industrial countries– Rapidly spread to some emerging countries – Required a truly global response to avoid turning into a re-run of the 1930s

The global response

13

• Domestic public policies throughout the world:

– Bank rescue– Expansionary fiscal policy– Monetary policy

• International coordination:

– G20: from an obscure club to a world body– IMF: back in business– April 2009 London G20 summit was decisive, with countries pledging more than $1

trillion to IFIs. This includes $500 billion in additional support to the IMF’s lending capacity, of which $75billion has already been provided by EU MS(1 Dec 2009).

The EU as a global actor at the G20 and the IMF

• G20 (finance):– 4 EU MS: members (but 2 other MS attend also since the crisis)– EU: member, represented by FM of EU presidency and ECB president

• G20 (summit):– 4 EU MS: members (but 2 other MS attend also)– EU: member, represented by head of EU presidency and Commission president

• IMF:– 6/8 EU MS: board members– EU: not a member, but some voice at the board through EURIMF chair– The 27 EU MS have 32% of total voting rights (US = 17%), but little influence

(blocking minority = 15%)

Global governance and the EU: proposals

• IMF:– Role: G20 Secretariat, including surveillance (“ruthless truth-teller”, JM Keynes)– Unified EU/€A representation and less voting rights for Europe– Win-win strategy

• More influence for EU/€A• Better representation for emerging & developing countries

• G20– Role: Economic Security Council– Also unified EU/€A representation – Win-win strategy

• More influence for EU/€A• Fewer countries around the table or better representation of developing countries

• Reforming external governance also requires reforming internal governance– Proposal: take a leaf from the Lisbon Treaty and combine the positions of

• EU Commissioner for Economic and Monetary (=> Financial) Affairs • Euro Group Chairman

How will the Lisbon treaty help?

• President of the European Council– Role in meetings of G20 leaders?

• High Representative for Foreign and Security Policy– Role will include coordinating development policy

And if not now, when?

The world in 2000 and in 2040 according to Robert Fogel (2009)(Shares of world GDP at PPP)

2000 2040 2040*

United States 22 14 14

EU-15/27 21 6 10

China 11 40 26

Others 46 41 50

* Goldman Sachs

And if not now, when?

The world in 2000 and in 2040 according to Robert Fogel (2009)(Shares of world GDP at PPP)

2000 2040 2040*

United States 22 14 14

EU-15/27 21 6 12

China 11 40 26

Others 46 41 50

* Goldman Sachs

Europe as a regional actor

Europe’s regional agenda before the crisis

• Key issues

– The EU is the undisputed regional economic power– The EU lives in a (potentially) volatile region– Paradox: the EU is less well equipped to respond to regional than global challenges

• Response

– Rethink the European Neighborhood Policy– Need for common policies in two areas: migration and energy

The EU, its neighbors and the world in 2007

Population (2007)

GDP at PPP (2007)

GDP per head (2007)

GDP growth (1998-2007)

(% of world) (% of world) (EU27 = 100) (% per annum) EU-27 7.6 22.7 100.0 2.4 (Euro area) (4.9) (16.1) 109.7 (2.1) Neighbours* 10.5 10.4 34.0 4.2 (Russia) (2.2) (3.2) (49.4) (5.4) United States 4.6 21.3 154.0 3.1 Other advanced 4.4 14.7 111.7 1.8 (Japan) (2.0) (6.6) (112.8) (1.3) Emerging economies** 61.0 28.6 15.6 6.1 (China) (20.3) (10.8) (17.8) (9.1) (India) (17.3) (4.6) (8.9) (6.6) (Brazil) (2.9) (2.8) (32.6) (2.4) Other developing*** 11.8 2.3 6.9 4.3 World 100.0 100.0 33.6 4.1 - G7**** 11.2 43.5 130.4 2.4 - BRICs***** 42.7 21.4 16.8 7.8

Europe’s regional agenda before the crisis

• Key issues

– The EU is the undisputed regional economic power– The EU lives in a (potentially) volatile region– Paradox: the EU is less well equipped to respond to regional than global challenges

• Response

– Rethink the European Neighborhood Policy– Need for common policies in two areas: migration and energy

Did neighbors get hit by the crisis?

2007 ’08 ‘09 ’10 ‘11

Eastern neighbors were hit, Southern ones not

How the EU responded?

• Mainly via and together with the IMF

– Additional support to IMF’s lending facility (€50 billion in 2009)– Macro Financial Assistance: BOP support to third countries in conjunction with IMF

programme. Amounts proposed by the Commission to the Council in 2009:• Bosnia: €100 million; Ukraine: €500 million; Armenia: €100 million; Georgia: €46 million; Serbia: €200

million– BOP support to EU Member States in conjunction with IMF programme. Amounts

provided:• Hungary (2008): €6.5 billion; Latvia (2009): €3.1 billion; Romania (2009): €5 billion

• EIB and EBRD

• The Eurosystem provided swap facilities to EU Member States but not to third countries (except for CH).

The Eurosystem did not intervene outside the EU

Source: McGuire and von Peter (2009), BIS Working Paper No 291

Central banks

network of swap lines during the

crisis

How will the Lisbon treaty help?

• High Representative for Foreign and Security Policy– Role will include overseeing neighbourhood policy which will be merged with

enlargement policy in the next Commission