Sinan Ulgen / Jan 2025
Image: Shuttersto
The EU has for long distinguished itself as a regulatory superpower. It may not have the most dynamic economy within the community of democratic nations but it is a pioneering force in setting some major rules of economic governance that provided a transposable blueprint for other nations interested in these principles of good governance. In recent times, the EU’s contribution to the rules based economic system ranged from climate policy to the GDPR shaped data governance regime. Next in line could be its AI Regulation.
The EU’s privileged status was however very much conditioned on a global landscape that valued a rules based system and allowed for an effective enforcement of these rules. This was made possible by a code of conduct which disassociated economic governance from national security. Economic rule making was to target growth, development and efficiency objectives. This world is now coming to an end. No clearer signaling of this unwanted unraveling can there be than a newly elected US president that can so easily disregard the commitments of his government to other nations in areas as diverse as the UN Charter, international trade rules or climate objectives.
This transformation has compelled the EU leadership to devise a new set of principles for the conduct of the bloc’s external economic relations. The EU is thus finally developing its own rules for economic statecraft with several initiative encapsulated by the concept of Open Strategic Autonomy .
The April 2024 speech by President Macron is a watershed moment in this respect. Back in Sorbonne, seven years after a similarly ambitious speech on the future of Europe, he highlighted the urgency of adapting to the changing geopolitical and economic environment in the face of rising global competition, technological advancements, and the quest for sustainable growth. Macron outlined the imperative for a robust industrial policy to drive economic growth and competitiveness within the EU. He highlighted the significance of supporting key sectors such as energy, healthcare, and technology to ensure Europe's resilience and self-sufficiency. He argued for the EU to back a strategy of national champions in order to successfully compete against the US and China. He particularly called for embedding European preference in strategic sectors like defense and space and allowing derogations from free competition rules to support key sectors in transition, such as artificial intelligence and green technologies.
Macron's speech was followed by the unveiling in September 2004 of Mario Draghi’s report which focused on the EU’s lack of competitiveness essentially resulting from poor productivity growth. Draghi maintained that developing a more cohesive Single Market and a competitive industrial strategy is crucial for the EU to maintain its competitiveness, secure its economic power, and enhance its global influence in a rapidly evolving global economic environment where other countries are adopting assertive strategies.
At Carnegie Europe, we assembled a group of experts to explore the ramifications of this sea change for the EU. Our findings indicate that EU policy making will be faced with new challenges marked by the reality of a harsher global political and economic environment. At one level, the EU will need to craft an industrial policy strategy that strikes the right balance between its aspirations to support key industries and the imperative to maintain fair competition within the Single Market. This shift towards protectionism has implications for the EU's internal cohesion, with potential imbalances and vulnerabilities that require collaboration between the European Commission and member states. The EU's ability therefore to address the interconnected challenges of global turmoil, shifting political realities, and the demands of its diverse member states will determine its future trajectory and influence in a rapidly evolving world.
At another level, the EU will need to navigate the complexities of ensuring that its ambitious policy agenda remains, to the extent possible, compatible with its commitments to multilateral rules but also more friendly to the concerns of less developed and emerging economies. As the traditional champion of a liberal rules based regime, the EU has a special responsibility in protecting global multilateralism. In addition, a key consideration will be to reach a new understanding with the Global South that would involve firstly the acknowledgment and secondly the mitigation of the negative externalities of the EU’s strategic autonomy policies. A case in point is the CBAM regime which for many developing nations is perceived as “green protectionism” that could significantly impede their development objectives. Ultimately, the success of the EU's policy agenda will depend on its ability to strike a balance between pursuing its own interests and upholding global trade rules and maintaining international support for its policy objectives.
