Challenges to the EU and China’s outreach to Europe

The Vienna Institute for International Economic Studies (WIIW) organized recently its spring seminar with the title „Europe’s Integration Challenged“.

As new president of WIIW I could open the meeting in making some remarks introducing the different subjects discussed, especially the challenges for Europe and China’s project of the New Silk Road.

Europe and its reaction to the major challenges

There is no doubt that the EU has many challenges to face, many more than envisaged some years ago. It is still uncertain, if the EU will survive the present multiple crises and if, how it will manage to do it. Are there enough courageous politicians to develop and design a long term strategy to overcome the existing obstacles? Are they able and ready to confront the internal and external challenges and resist populism and principle opposition to change? Or are they only prepared to give in to nationalism and isolation?

One way of promoting populism is of course to offer to every country and its parliament or even population the „democratic“ choice of a vote on all possible EU decisions. An example was a recent vote in the Netherlands on the Association Agreement with Ukraine. In the debate before the referendum it was clear, that the vote would be a vote on a possible (!) future membership of Ukraine in the EU. And it was clear that the opposition against a possible future enlargement would win.

There are already many other issues, where according to many activists, the EU member countries should have a vote: on TTIP, on accepting refugees etc. That would be very democratic, if we reduce democracy to taking votes on single issues. But in any way it would mean the end of building a Common Europe which may represent the common interest globally. And at the end you can forget about negotiations and trying to find a compromise, you just vote.

But it is the purpose if European institutions, that different national ideas and approaches are brought into a compromise. Of course compromises may sometimes block bold decisions. And some challenges demand bold actions in order bring the EU into a new and successful stage of development.

What are the main challenges ?

a) Investment gap

The economy is in better shape today, but unemployment is still unacceptably high. The reaction to the financial and economic crisis was very timid and is still lacking a clear forward strategy. Yes, the ECB tried hard to to give a stimulus to the European Economy, but as even the Economist recently wrote: „Far too little effort went into economic policies to work with the grain of monetary easing, and thus to amplify its effects.“ And it continues its argument: „Big and long-running programmes of public spending would give private firms greater confidence about future demand and make a sustained recovery likely……it is now time for governments to be bolder.“

Also the CDU chairman of the Foreign Affairs Committee of the German Bundestag recently asked for accepting “ budget deficits that exceed European Union limits in countries like France and Italy that are suffering from high unemployment among the young“. Even if there are countries which are more suffering from youth unemployment the principle position, taken by a prominent conservative German politician is interesting.

b) Trade opportunities – trend towards protection

The lack of a clear and courageous strategy to overcome the economic and financial crisis is also accompanied by many fears in connection with free trade. The discussions around TTIP with the US is a symbol for that attitude. We have to be careful and pragmatic and we should not accept the lowering of our economic, environmental and social standards. But we should not reject trade liberalization and international competition as such.

Of course free trade is not without problems and set backs. A recent study of the US has shown that especially trade with China „destroyed“ many jobs in the lower qualified manufacturing sector. There is an estimation, that between 1999 and 2011 up to 2,4 million jobs were lost in the US because of Chinese import competition. We do no longer have trade between „our“ highly qualified industrial products and „their“ primary low qualified goods. Part of the production is overlapping and in competition with each other.

But the way we have to go is into more specialization and qualification and not into more protection. Already now the number of micro protection seems to be responsible for the longest postwar period of relative trade stagnation. We can find since 2008 more than 3.500 new protectionist measures – many by G20 countries. Not more protection is the answer but a more refined industrial and innovation policy.

I do not want to plea for an uncritical acceptance of TTIP, not at all, I always pleaded for pragmatism, transparency and ample time to discuss different issues. But we must find a way of promoting openness without self denial.

c) Refugees as threat or opportunities

The refugee crisis is definitely an enormous challenge to the cohesion of the European Union. The different histories and social structures of the different EU member countries made it difficult to come to a common policy. In addition, as in the economic field, we have not too much but not enough common European policies.

We have a common – Schengen – border but no common border surveillance and control. And we have some common principles on asylum policies but still too many differences and no common strategy on integration policies. And there was never a serious discussion about how we can manage multiculturalism inside the EU and the member states. In addition we have to deal better with the migration push factors in and from our neighborhood.

And here again – as with trade – our societies must open themselves, in this case to new citizens and cultures without self denial concerning our achievements and values especially those we transformed into a legal form – either into our constitutions or into normal laws.

d) European labour market

The same attitude we need in relation to trade and immigration we have to develop in relation to workers coming from other EU member countries. We should not blame them for unemployment and lack of jobs. But we must insist on equal pay for equal work. Social dumping must be avoided on a national or on transnational level. In this respect the Posting of Workers and the Enforcement Directives should certainly be improved. But we should not sacrifice the common European labour market.

e) Institutional Challenges

These days we have a specific debate about Brexit, but we don’t have a serious debate about a resilient and viable structure for the Union as such. This would be important if we want to be clear how the enlargement of different Balkan countries should take place but even more when we want to integrate countries like Turkey and later on countries like the Ukraine.

Is a core of countries with the Euro as currency and strict adherence to democratic principles on the one side and an outer ring with more differentiation and flexibility on the other side an opportunity to mix value orientation and a stronger geo-political role? How can we save the EU as a value oriented community on the one hand and create the wider Union as a reliable element in global politics, which is able to have an effective Realpolitik? Realpolitik should not be left over to countries like China.

f) Optimism versus Pessimism

With these and many other questions open, it is no surprise that our belief into a good future is very low, especially in comparison to China. A survey on expectations in G20 countries shows the following: In China there are 70% of the citizens who believe that their economic situation will improve over the next three years, in Germany for example there are only 23 % who believe that and in France only 14 %.

Of course these differences are also due to different stages of economic development. Maybe Larry Summers is right and the EU and the US entered already into a long phase of stagnation after many years of rapid growth. A stagnation which reduces also the personal opportunity to advance economically and socially, is the basis of pessimism. But the lack of optimism is also an expression of different political attitudes and strategies. And here we must compare the European pessimism and lack of self-confidence with the Chinese long term strategy of preserving its unity and now in addition of reaching out to the „rest“ of the world.

China’s long term strategy

a) The New Silk Road

China always had and has -anyway since the dreadful experiments in Mao times which were concluded by Deng Xiaoping  – a long term strategy. Jeffrey E. Garten describes in his book „From Silk to Silicon“ even Ghengis Kahn as „founder“ of the Silk Road. Of course any new Chinese leader gives it a new twist and profile, but in general they are long-term oriented. For example the „One Belt, One Road“ strategy has an implementation time of up to 35 (!) years, to be concluded in 2049 at the 100th anniversary of the People’s Republic of China! Nobody in Europe thinks in this time frames.

Some experts compare this project even with the Great Wall which was built over centuries. Alas, this time it is about open China and not about enclosing it and it needs the so operation of many countries to complete the project.

Maybe the European Union is collapsing very soon and there are forces inside the EU who work towards this. Maybe China as we know it will not exist in 2049. But we have to remember: in its hundred years edition, the Wall Street Journal wrote in 1989, China will collapse because of its bureaucracy and Malaysia and Thailand will be the leading Asian countries. Now the world looks different. With all internal differences and challenges China is trying to establish a longterm project of globalization with a strong Chinese influence.

b) The challenges China has to face

That does not mean, that the „Silk Road“ Concept as part of the „One Belt, One Road“ will easily succeed and will not be confronted with serious problems. Conflicts with Russia in Central Asia may arise. Pakistan and Afghanistan are always threatened with terrorist activities, which may affect also China. The Maritime part of it will have to overcome many differences and disputes about ownership and Exclusive Economic Zones in the South China See. Many countries along the Land and Maritime Silk Road may fear a Chinese imperialistic role.

But China tries to concentrate on the mutual economic benefits. And in addition to the investments in the infrastructure along the silk roads and the promotion of trade we have to see the clever strategy behind the creation of the Asian Infrastructure Development Bank. Yes, the New Silk Road is a bumpy road, but at least China has enough vision and courage to build that road and to go along it.

And Europe, what kind of long term global strategy do we have? At least we should have a constructive answer how we could participate in building such a road and how we could use that road for our own purposes and in our own interest. In this respect it is a good sign, that many EU countries participate at the Asian Infrastructure Development Bank in spite of the opposition by the US. But we need a wider strategy of cooperation with China and at the same time protections our vital interest.

c) Integration of China into the global system

What is obvious, is that building a New Silk Road or Roads is a further step towards global integration. And that brings chances and risks, especially as China is emerging as a big financial power. As Christine Lagarde said recently at the China Development Forum: „Increased global integration brings with it greater potential for spill-overs – through trade, finance or confidence effects. As integration continues, effective co-operation is critical ……“ And Martin Wolf in the FT concluded: „The last time a hegemonic financial power emerged, the world suffered the Great Depression. It has to do better this time.“

d) Openness without self-denial

Neither the European history with alls its wars and in-fights, nor our history as colonial masters can be compared to the Chinese history and tradition. And we should never uncritically look to China as the panacea as it was fashionable to look to Japan as the role model of any modern industrial economy some decades ago. But we should not be afraid from Chinese competition. We should regard the Chinese outreach to Europe as a chance to improve our trade and cultural connection not only to China but also to the areas in between like Central Asia.

We should defend our interests, for example against social dumping and unfair takeovers. Nobody can demand self denial and negation of our economic interest, social achievements and cultural values. But the opposite of self-denial is not closeness and isolation. It is intelligent openness and readiness to meet new challenges and transform them intro assets for our own development. And that is also specially true for the refugees, who so many see only as threats and dangers.

e) It is not only about our economies, but also about our cultures

And finally let us not forget the Silk Road was not only a line or belt of economic exchange, but also one of cultural exchange between people coming from different countries with different cultural and religious backgrounds. Buddhism and Islam have been spreaded along that connection parallel to trade. Often it was connected with wars in the past, now it should be done in a peaceful way, looking not so much to the dangers but to the opportunities. But it would be very wise to add to the economic challenges and benefits also the cultural ones.