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EVENT HIGHLIGHTS | Open source and an open world: What are the EU prospects on global multilateral governance after the coronavirus pandemic?

In mid October, PubAffairs Bruxelles organised an evening of discussion on the EU and global prospects regarding multilateral governance after the coronavirus pandemic with our distinguished speakers Ms Maria-Soraya Rodriguez-Ramos MEP, Chair of the Delegation for relations with the Pan-African Parliament and AFET Committee Member, Professor Andrea Renda, Head of Global Governance, Regulation, Innovation and the Digital Economy (GRID), CEPS, Mr Andy Purdy, Chief Security Officer, Huawei USA and Mr Henry Llewellyn, Ad interim Chair, Brussels New Generation of young leaders (BNG).

Mr Fabio Massimo Castaldo MEP, Vice-President of the European Parliament held the introductory remarks via a video message.

The event was hosted by Jennifer Baker, senior journalist on tech policy and digital rights.

Vice-President Fabio Massimo Castaldo started his introductory speech by offering an overview of the evolution of the geopolitical landscape that occurred in recent years. More specifically, the speaker explained that the constant growth of social, political and economic uncertainties has triggered a new age of populism and nationalism worldwide. As a result, the opportunities of a fruitful global dialogue have been eroded, making international relations rebound to a state of conflict among deeply polarised geopolitical factions. Vice-President Castaldo proceeded to explain some of the reasons that led to the current situation. The rising nationalism in many countries has contributed to the creation of political uncertainty, as well as to a tendency towards protectionism.

Furthermore, major powers, such as China, the US and Russia, have increasingly opted for unilateral decisions, which have had a tangible impact on global trade and mutual trust between them, despite the fact that the crisis has also constituted an opportunity for global leaders to rediscover the value of cooperation. Indeed, the Vice-President remarked that several countries across the globe have decided to act unilaterally against the pandemic by shutting borders, disrupting or blocking the supply chain and cutting funds to international organisations. The speaker subsequently remarked that the EU, as well, initially experienced a similar situation, as the early uncoordinated response raised doubts about the bloc’s capacity to react to unforeseeable crises.

However, the ability of the EU to agree on a Recovery Plan in a relatively short time has demonstrated the value of a united European approach. Vice-President Castaldo then pointed out that multilateralism is generally viewed as weak and serving the aim of maintaining the status quo. Nevertheless, he also underscored that the current challenges are daunting, but they also offer an unprecedented opportunity to reforge multilateralism and to pave the way towards a world order based on international law and universal norms.

The speaker also referred to President Ursula von der Leyen’s State of the Union speech in which she called for a stronger European Health Union. Rethinking health competences, notably exclusive competence of EU Member States, the speaker concluded, is an example of the possible reforms which can enhance the quality of life of citizens, as well as the capacity of the European Union to be more effective in its collective responses.

Jennifer Baker presented the panel and asked Professor Andrea Renda for his opinion regarding the current state of multilateralism and what kind of opportunities the crisis can offer to the EU.

Professor Andrea Renda began by pointing out the importance of differentiating between the problems that have arisen as a result of the crisis and already existing ones. He explained how Covid 19 has exacerbated and uncovered several weaknesses in both several countries and the international governance. In addition, Professor Renda clarified that, before the pandemic, many of the questions that emerged with the financial crisis have not been fully solved, while several countries across the globe are still unable to converge on a clear set of actions towards climate action.

One of the main goals of multilateral cooperation, the speaker explained, is also to ensure and protect global public goods. However, the inability of major actors to agree on common strategies has further exposed the crisis that multilateralism is undergoing. Within this context, Mr Renda highlighted the necessity of distinguishing between the short and medium-term effects of the pandemic and the pre-existing problems in order to find solutions that adequately address the underlying challenges. The speaker continued his remarks by stating that the current global inability to solve common problems is fostering not only inaction regarding climate change, but also social unsustainability.

In fact, the increased polarisations of politics, inequalities and the deterioration of social cohesion have exposed the flaws inherent in prevalent economic paradigms. In addition, Mr Renda highlighted that other economic models have also shown their weaknesses as well, making it difficult to understand the way to follow in order to deal with the current global challenges. To clarify his statements, the speaker stated that, on the one hand, the US pushed towards unilateral stances and showed the fragility of its socio-economic model, especially in terms of incomes for both the middle and the working class, while, on the other hand, China has tried to take advantage of the turmoil offered by the pandemic in terms of both consolidation of internal mass-surveillance and geopolitical advantage, such as with the so-called “mask diplomacy”.

Referring to what Mr Castaldo had previously stated, Professor Renda, pointed out that the EU needs to prove its ability to act with one voice in order to be an example for the international community. To conclude his first set of statements, Mr Renda expressed his optimism regarding the attempt of EU institutions to become the leading polity of the EU action. Nevertheless, he also showed some disappointment with regard to the lack of resolution from the EU to effectively move towards an effective fulfilment of the Sustainable Development Goals (SDGs).

The moderator subsequently asked Mr Andy Purdy if he agreed with regard to the fact that multilateralism was already faltering before the pandemic.

Mr Andy Purdy began by stating that we are currently witnessing clear examples of geopolitics of power coming to the surface. However, he specified that multilateralism is nowadays even more essential, as this unprecedented crisis requires a clear understanding of what must be done and what can be accomplished through global cooperation. Furthermore, he added, multilateral discussions have always brought benefit to those willing to collaborate and this historical period shows that it is exactly in times of crisis that multilateral cooperation proves its real worth. The Corona crisis, he continued, has certainly contributed to consider whether the EU should have more power in the healthcare sector.

However, the speaker specified that the inadequate response to the virus everywhere around the world has revealed the weaknesses of a multilateral way of solving global crises, as well as a weak capacity of coordination at global level in general. In order to overcome this situation, Mr Purdy explained that global actors and worldwide stakeholders alike need to collaborate, for example, thought the implementation of public and private partnerships in order to establish evidence-based and collaborative policies, while taking into account past mistakes and international system failures.

The speaker subsequently highlighted as an example the interrelations between the question of multilateralism and that of cybersecurity. He explained that the norms that regulate the cyber space have been developed over more than 20 years. However, many countries are now taking considerable steps towards the full regulation of the digital space. Mr Purdy also mentioned the new Global Initiative on Data Security proposed by China and underscored that the global community must move towards common rules on cybersecurity, not only to improve digital safety, but to identify those who do not abide by the rules as well.

To achieve this aim, the speaker pointed out that independent institutions could carry out the task of improving security. With special regard to the creation of common rules, the speaker reaffirmed the iimportance of multilateralism, as the participation of several actors would allow for better collaboration, sharing of best practices and the creation of common criteria. Finally, Mr Purdy stated that stopping malicious activities in the cyber space should be one of the highest points in the global digital agenda, together with fighting those who are covering up these activities.

In a video message a member of the Brussels New Generation of young leaders (BNG), Julian Jacobitz, shared his reflection from BNG members of their expectations towards multilateral governance as members of BNG become the policy leaders of tomorrow.

For example, progression of globalization, technological progress, and actions addressing climate change used to be governed at global level. The direction of progress or even the need for progress is being questioned both by activist groups and by global leaders. Although the overall long-term goals to address climate change have been agreed in the Paris Agreement there has been limited consensus amongst superpowers including the US. The speaker also questioned the long-term goals for digital transformation and suggested that digital now threatens first order values of democracy, trust, science, and the rule of law.

Mr Jacobitz explained that Brussels is a very special place to discuss some of these questions and many of the young professionals who flock here have at least the expectation of somehow benefiting from globalisation and multilateral institutions. He challenged the expectation that multilateral institutions are inherited from one generation to the next for those with an international education and desire international careers instead of driving more inclusive discussion. The speaker questioned how multilateral governance can be effectively communicated without excluding the disenchanted that drives the backlash against multilateral governance and multilateral institutions as we have seen in the last few years.

The moderator then asked to what extent the Corona crisis has put in the spotlight the necessity for better cooperation and governance within a multilateral framework.

Ms Maria Soraya Rodriguez-Ramos began her remarks by reiterating the importance of multilateralism in the current international context. Indeed, she started her speech by reiterating that the Corona crisis has clearly shown that unilateral responses are simply not effective in the face of global challenges. The MEP also specified how the pandemic has had a heavy toll in terms of human lives and made clear the necessity for a better global governance and international solidarity.

However, Ms Rodriguez-Ramos also pointed out that multilateralism is not a goal in and of itself, but a means to reach tangible and common results, such as protecting global citizens and global public goods. In this regard, the MEP mentioned how the uncontrolled human activity and lack of environmental protection have also been a cause of the current situation. In this connection, she elaborated on the biodiversity loss and the changes in the global ecosystem, as well as on how these factors have played a major role in the spread of pandemics. For this reason, she affirmed that protecting biodiversity is also a sort of vaccine for future generations. She subsequently stated that initiatives such as the new Biodiversity Strategy and the European Climate Law will play a fundamental role in reversing the damages of the development model followed so far.

As a result, Ms Rodriguez-Ramos specified that multilateralism is a fundamental component in the achievement of the green transition, as the action of a relatively small “coalition of the willing” will not be enough. Instead, she stated, it would be necessary to establish a more effective international strategy that would reduce the negative impacts on the Earth, while allowing developing countries to participate without being further penalised.

Mr Henry Llewellyn replied by expressing his concerns for the foreseeable future. Indeed, he stated that several observers consider this period as a turning point in History. However, he also clarified that the challenges that we are currently facing already existed and that the effects the Corona crisis has exposed and exacerbated will manifest themselves fully in the time to come.

Among the several questions he pointed out, Mr Llewellyn highlighted the dangers of a generational conflict by affirming that previous generations left a precarious state of affairs with regard to many key issues, such as the environmental question, social protection and welfare systems, as well as the imbalances of the global economy as a whole. Mr Llewellyn concluded his remarks by adding that the future effects of the pandemic are likely to further threaten economic and social stability both in developing and developed countries, while reaffirming that this scenario would worsen the generational conflict already in place.

Jennifer Baker asked the participants to provide a reflection on the possible role of international organisations, such as the UN or the G20, in the rebuilding efforts after the pandemic.

Professor Renda answered the moderator’s question by stating that the current state of play of international relations is, for the moment, hindered by the contrast between the US and China. In fact, the rivalry between the two superpowers in several fields, from the fight against the pandemic to the cyberspace, has prevented attempts to reach a global cooperation on multiple important questions. This dynamic, he specified, is evident not only in the UN, but it has also tainted the G20 by making it nearly impossible to agree on fundamental questions, such as the standards for a responsible use of artificial intelligence.

The speaker subsequently highlighted the threats this dynamic poses for multilateralism, as major powers are trying to create smaller cohorts of like-minded countries, thus creating opposed factions and making cooperation particularly difficult. To exemplify this behaviour, Proessor Renda shared his experience in participating in conferences on global cooperation-related questions. On the one hand, he stated, it is possible to observe how the current US administration has tried to exclude other important players such as China and Russia, whereas, on the other hand, the latter are trying to expand their influence and marginalise the US whenever they can.

In this connection, Professor Renda quoted the paradigm “Protect, Prepare and Transform”, conceived by the EU as valuable slogan towards the path for a global sustainable recovery from the pandemic. However, he added that the current state of play of international relations makes it extremely difficult to follow such a direction, given the climate of uncertainty and the increasingly protectionist and nationalist tendencies emerging across the globe.

Mr Llewellyn replied to this question by remarking on the fact that the United Nations system has lost a large degree of public trust as a multilateral institution way before the pandemic outbreak. He continued by stating that the best way to spread norms and values through national, supranational and international institutions would be to endeavour towards the achievement of full transparency of their respective decision-making processes and operations.

To exemplify this statement, the speaker highlighted the role and practices of EU’s DG COMP as one of the most influential institutions in the world concerning competition-related matters. The reason for the relevance of this part of the European institutions lies in the fact that the EU publishes its decisions in extensive detail, he explained, particularly when it comes to matters of controversy. Given the example offered by European institutions, Mr Llewellyn stated that transparency has to be put at the forefront of global action in order to succeed in going forward with an effective multilateral model of governance.

Ms Rodriguez-Ramos MEP commented on the host’s question by highlighting that the ultimate goal of multilateralism should be the defence and promotion of human rights. Fighting climate change and protecting the environment are, according to the MEP, priorities of utmost importance that the EU, along with the other industrialised countries, should focus on. The MEP added that if one takes into consideration the latest polls of the “Eurobarometer”, this opinion is shared by a large part of EU citizens as well. Entering more into detail on the question of Sustainable Development Goals, the speaker recalled that there are still basic needs such as hunger and lack of drinking water that could be avoided and that would play a major role in giving more opportunities of growth to developing countries.

For this reason, the MEP urged international institutions not to forget the ultimate goal of multilateralism and to find an agreement on tackling these challenges, notwithstanding the rivalries that usually characterise international organisations. On the same note, she provided the example of the European Parliament, which recently approved the EU Climate Law, in her opinion a promising proof that the EU institutions have started to act according to the scientific evidence in order to ensure a sustainable future for all generations.

Mr Purdy began his reply by stressing the need, on a global scale, to set and reinforce a series of standards for cybersecurity as a primary concern for the well-being of global citizens and as an example of how global cooperation could work more effectively. Referring to Mr Timo Koster, former Dutch Ambassador at large for Security Policy and Cyber, the speaker stated that, at times, it is not relevant if the role of “guardian” is entrusted into a coalition of independent countries or an ad-hoc organisation, as long as the task is fulfilled. Mr Purdy also said that, in the domain of cybersecurity in particular, it would always be difficult to reach a multilateral agreement, as the rivalry between powers will likely prevent finding a solution that is commonly accepted by all parties.

Therefore, the creation of an independent organisation that could act as intermediary could also be a model to follow, provided that it would be entrusted with the necessary power to enforce the legislation and effectively protect the cyber space. The speaker continued by highlighting the necessity for international institutions to collaborate with the private sector to obtain the highest expertise and to be able to establish the best standards possible. Concluding his speech, Mr Purdy brought attention to the fact that, with the development of 5G, global citizens will become even more dependent on technology and, as a result, setting the standards for security and transparency is key to ensuring the digital transformation.

The moderator asked the panel how it could be possible to foster the green transition in developing countries and what kind of incentives they would need. She also asked what changes will occur, if any, in aid practices after the pandemic.

Professor Renda replied by explaining that it will be difficult to provide incentives for the transition to developing countries because of the difficult nature of the transition itself and because it is easier to commit to sustainability in times of prosperity than in times of crisis. Continuing his remarks, the speaker reiterated the necessity of achieving not only environmental, but social sustainability as well. In order to achieve these goals, countries and blocs across the world need to revise their whole economic model and strengthen the institutions and accountability.

Furthermore, it would be essential to set up a coherent global strategy that would make it possible to reach the medium-term environmental goals without necessarily compromising the growth goals. In this connection, Professor Renda regretted that international standards are still using the “GDP criteria” as the “North Star” of the progress of the economy, and not the SDGs. In addition, he stated that the European policies and their implementation in EU Member States often lack coherence regarding the green transition, an area in which the EU is willing to lead. On the same note, Professor Renda stated that the EU should first coordinate its own policies before projecting its example onto other countries.

Moreover, the EU would not be able to rely, in the short term, on transatlantic cooperation for climate change. As a result, it would be vital to establish a trusted relationship with China to achieve an alignment on climate goals and to focus on emerging economies, such as Africa and South America, in order to extend the “collation of the willing” as much as possible. With regard to aid, Mr Renda said that, despite the exemplary efforts of the EU, disruptions of the global value chain bring unavoidable consequences in developing countries, potentially further excluding them from virtuous practices.

According to the International Monetary Fund, he stated, the crisis pushed back several countries to the level of the 90s and reduced the accomplishments reached over the years. The speaker also stressed how this challenge cannot be undertaken by a superpower alone and helping developing countries will require a deep multilateral cooperation. Mr Renda subsequently remarked that providing unilateral aid to poor countries might fragment the global community even more. In fact, the Belt and Road, the Digital Silk Road initiatives and the aid offered from western powers, could become a means to extend influence rather than help. It is hence essential, the speaker concluded, that the geopolitical influence be exercised in ways that are not detrimental to developing countries.

Given the high unpredictability of the assertiveness of both US and China, Mr Llewellyn said the current breakdown of multilateralism could force the EU to look for other allies in order to get more certainty in its external action. However, he added, this could become an opportunity for the EU not only to break the current balance, but also to develop effective international norms. To achieve this aim, he continued, it would be necessary to promote transparency on a global scale, as it will help create an environment of trust and mutual understanding. Mr Llewellyn, however, expressed some further concerns regarding global cooperation.

According to the speaker, the green and digital transitions will test countries’ capacity to promote a fair growth model. In fact, while both questions will bring benefits, they also pose considerable challenges. Indeed, on the one hand, they will bring innovation that will foster economic growth and the quality of life, while, on the other hand, both transitions will require time and the fostering of new skills and will create, in the short term, social insecurity both in rich and developing countries.

Mr Purdy highlighted the opinion that the best incentive that could be provided to emerging economies is connectivity. In fact, according to the speaker, connectivity will be fundamental for both developed and developing countries when providing the latter with more opportunities to strengthen their economy and actively participate to global trade. Furthermore, the development of 5G-related technologies would also provide better instruments to fight climate change, as they allow great reduction of the carbon footprint and valuable improvements of the manufacturing process.

Continuing on the same topic, the speaker stressed the importance of global partnerships and stated that it would be useful for the international community to assist in the creation of “incubation centres” where companies can agree on how to deal with the operations in the whole supply chain. Lastly, Mr Purdy called on the international community to collaborate with the private sector at large to find an agreement on how to provide connectivity to the 3 billion people that are still excluded from the digital world.

In the conclusive part of the debate, Ms Baker asked the speakers to provide some final considerations regarding the impact that the US elections will have in the foreseeable future.

Ms Maria Soraya Rodriguez-Ramos expressed some conclusive thoughts in this regard by stating that, despite the latest developments, multilateralism and global dialogue will become ever more fundamental in the time to come. Indeed, multilateralism has been threatened by unilateral actions, such the US decision to stop financing the WHO. However, despite the increasing hostility towards global dialogue, countries across the world cannot afford to be excluded from the international decision-making process, especially when considering the scale of the challenges, such as climate change or establishing international standards for cybersecurity and artificial intelligence. Finally, the MEP stressed the fact that the EU should not fill the gap between US and China, but instead should facilitate the debate between the two parties by assuming the role of honest broker.

Mr Purdy stated that, after the elections, there would probably be a greater predictability in the US behaviour, depending on the winner. However, the speaker also expressed some concerns on the toxic political environment that permeates the country. In fact, he said, this state may endure regardless of the candidate who will be elected. Mr Purdy also called for a better evidence-based decision-making process that may be able to foster dialogue and make decision-making more effective. On a different note, the speaker highlighted the capability of the EU to be a global leader. This has been proven, in his opinion, by the European Union’s ability to reform its industrial strategy and to embark on a transition towards climate neutrality, as well as the new aim to ensure a “Europe fit for the digital age”. To conclude, Mr Purdy stressed again the importance of setting priorities and standards for cybersecurity and data protection. In this connection, he praised the GDPR and the example it has set for the global community.

Mr Llewellyn replied to the host’s question by stating that, as in the case of Brexit, predictions may often be difficult, also because the US electoral system is a complex mechanism. Mr Llewellyn then proceeded to engage on the same topic by saying that the US institutional and political system is structured in a way that allows older generations to impose their priorities on the demographically predominant younger generations. This factor, he remarked, risks further exacerbating the generational conflict in the US and, potentially, across the world. As a conclusion, the speaker referred to the possibility for Europe to become the bridge between the East and the West. However, he also pointed out that Europe should not abandon its openness and transparency-friendly approach if Europe wishes to lead in the world.

Professor Renda stated that the fragmentation of the American society constitutes the evidence of a country on the verge of social collapse. In this connection, he stressed the fact that, regardless of the winner, the US will remain a very divided society. This fact, Professor Renda said, will create challenges not only internally, but globally. Finally, Professor Renda remarked that it will be difficult for the EU to fill the gap between the US and China and concluded by stating that the EU should find new alliances with other important and like-minded actors, such as Australia or South Korea, in order to try to redirect the current trajectory of multilateral governance.

The Q&A session covered the following issues: How the UN can recover from the loss of reciprocal trust that happened during the crisis; the question of the creation of a new international polity to develop common global policies; which reforms the UN should undergo in order to make the institutions fit for the future; how Brexit will impact Europe’s influence on the UN Security Council; what will the impact of the US election be on the UN; the commonalities and differences between China’s New Infrastructure initiative and the Next Generation EU; the role of African countries in the recovery.

Want to know more about the issues discussed in this debate? Then take a look at the selected sources provided below!

State of the Union Address by President von der Leyen at the European Parliament Plenary, European Commission

Next Generation EU – Recovery plan for Europe, European Commission

Sustainable Development Goals (SDGs), United Nations

Shaping the Future of Global Public Goods, World Economic Forums

Connecting for Inclusion: Broadband Access for All, World Bank

Rules-based Global Governance at Risk: Challenges of US Unilateralism and US-China Superpower Competition, G20

The purpose of multilateralism
A framework for democracies in a geopolitically competitive world, Brookings

Strengthening Global Governance & Multilateralism, Economic Research Institute for ASEAN and East Asia (ERIA)

A crisis like no other, International Monetary Fund (IMF) 2020 Report

COVID-19: 3 myths and 5 solutions for the future of multilateralism, World Econiomic Forum

Now is the time for a ‘great reset’ of capitalism, World Economic Forum

Is Coronavirus Widening Generational Divides, or Bridging Them? New York Times

Coronavirus crisis will be paid for by Europe’s next generation, Deutsche Welle

COVID-19 as a global challenge: towards an inclusive and sustainable future, The Lancet

European Climate Law, European Commission

EU Biodiversity Strategy for 2030, European Commission

Protect, prepare and transform Europe: Recovery and resilience post COVID-19, European Commission

European Health Union, Protecting the health of Europeans and collectively responding to cross-border health crises, European Commission

A Europe fit for the digital age, European Commission

Cybersecurity, emerging technology and systemic risk, World Economic Forum

China Launches Initiative to Set Global Data-Security Rules, Reuters

Global Initiative on Data Security, China Government proposals

Will China Control the Global Internet Via its Digital Silk Road?, Carnegie

Unpacking China’s Digital Silk Road, Cligendael Institute

China’s Massive Belt and Road Initiative, Council on Foreign Relations

Public-private partnerships, Sustainable Development Goals Fund

European Industrial Strategy, European Commission

Germany’s silent rebalancing has been undone by Covid-19 | Europp – LSE Blog

Low German wages are often cited as a key contributing factor to imbalances in the Eurozone. Donato Di Carlo and Martin Höpner demonstrate that while nominal unit labour cost growth in Germany consistently undershot that of other Eurozone countries in the first decade of the euro, the country has undergone a ‘silent rebalancing’ following the financial crisis. Unfortunately, this incomplete process is likely to be reversed by the shock from Covid-19.

The history of the euro has been punctuated by external shocks. Just as the financial crisis signalled the end of the first decade of the single currency, the outbreak of Covid-19 has now ended the second phase of Europe’s Economic and Monetary Union (EMU). Given the major implications the pandemic is likely to have, it is worth taking stock of where EMU stands and the future development of its member states.

Prior to the financial crisis, EMU was marked by internal real exchange rate distortions, brought about by excessive wage growth in the South and restraint in the North, particularly in Germany. In a monetary union with a one-size-fits-all monetary policy and no exchange rate adjustments, this is precisely what should be avoided. But how much of this divergence during the first phase has been reversed since the financial crisis? And have wages in Germany grown sufficiently to provide a correction to the previous decade’s undervaluation?

Germany’s silent rebalancing

Figure 1 below shows cumulated nominal unit labour cost (NULC) increases for the period 1999-2019 (1998=100) in comparison to the ECB’s inflation target. We display developments in Germany, France, the Eurozone and Southern Europe (Greece, Italy, Portugal and Spain – labelled as GIPS in the chart). On average, NULC increases were close to the inflation target for the euro area. But the average hides large differences. Germany can be assigned blame for undershooting, which reached a peak in 2007, while Southern Europe can equally be assigned blame for overshooting.

Figure 1: Euro Area cumulated nominal unit labour cost increases, total economy

Note: Indexes, 1998=100. Cumulated nominal unit labour costs reflect a ratio of compensation per employee to real GDP per person employed in the total economy. GIPS is an unweighted average of Greece, Italy, Portugal and Spain. Source: AMECO Database, European Commission (updated 5 November 2020).

In 2009, the discrepancy between Germany and Southern Europe had reached 30 percentage points, pointing at substantial intra-EMU real exchange rate distortions. Remarkably, France features stable NULC growth in line with the ECB’s inflation target throughout the whole period. This is not a coincidence. Although French unions are organisationally weak, the French state has maintained more wage steering capacity than most others. Public sector wages are set centrally under the shadow of state unilateralism. In the private sector, contrary to Germany, statutory extensions of collective agreements’ coverage are encompassing.

Since 2011, however, there has been a partial re-convergence in the EMU characterised by (painful) internal devaluation in the South and gradual wage reflation in Germany which has accelerated since 2017. Southern European countries have restored the competitiveness of their (relatively small) export sectors while harming their (relatively large) sheltered sectors. For lack of import demand from EMU peers, Germany diverted its exports to extra-EMU consumers of capital goods.

But Germany’s ‘silent’ rebalancing before Covid-19 is worth emphasising. To be sure, Germany’s wage growth was not out of this world. But the post-crisis partial re-convergence was nevertheless double-sided and brought about not only by restraint in the South, but also expansion in Germany. Germany’s NULC increases were large enough to correct much of its previous undervaluation, relative to the Eurozone average. But within Germany there has been a two-tier sectoral dualisation between the industrial and service sectors and within the service sector.

German wage dynamics

The second figure displays cumulated NULC changes for the 1998-2018 period (1998=100; data for 2019 are not available yet) for five sectors: industry, construction, low-end services, financial and insurance activities, and the public sector. The findings are remarkable. During EMU’s first phase, restraint in Germany was not driven primarily by the manufacturing sector, but by services and construction.

Marked wage restraint featured in low-end private services, the public sector and construction. High-end services like financial and insurance activities, in contrast, enjoyed sustained wage growth. Increasing dualisation indicates that Germany is not a case of inter-sectoral pattern bargaining, a term used by political economy and industrial relations scholars to describe wage regimes in which the exposed sectors set a competitiveness-safeguarding target which they afterwards transmit to the sheltered sectors. Were that to be the case, we would not observe such inter-sectoral divergence.

Figure 2: Cumulated nominal unit labour cost increases in five economic sectors within Germany

Note: Indexes, 1998=100. Cumulated nominal unit labour costs are a ratio of sectoral hourly compensation to hourly GDP in the total economy. Low-end services are defined as categories G-I in the Stan Industry list. Source: authors’ calculations; data from OECD STAN Database (2020 edition).

Considering that wage-setting is beyond the central government’s reach in Germany (even in the public sector), it is hard to attribute these outcomes to a conscious mercantilist grand plan. Instead, wage developments in these sectors must be understood in light of the respective sector-specific dynamics.

Wage moderation in low-end services (e.g. hospitality and retail) comes as no surprise. This reflects the erosion of unionisation and collective agreements, high unemployment, and labour market liberalisation. It is the extreme restraint in the public sector which is surprising. Public sector employees are highly skilled and relatively well unionised. The public sector’s collective bargaining coverage is the highest across sectors. Yet, public sector wage growth fell even behind the low-end services.

These puzzling public sector developments can be explained only by taking the fiscal policy context into account. Chancellor Schröder’s tax reform in 2000 dealt a blow to the public finances of the Länder. In the quest for fiscal consolidation, the finance ministers of the Länder exited the centralised framework for public sector wage bargaining and fiercely imposed wage restraint and cutbacks throughout the mid-2000s. Germany was unique with regard to its public sector wage developments in the first euro decade. No other euro member came even close.

Wage dynamics in construction resembled those of the public and low-end services sectors. The German construction sector had been shrinking since the Bundesbank’s hard monetary policy stance after the reunification boom. Before the financial crisis, a one-size-fits-none monetary policy resulted in a relatively high real interest rate in low-inflation Germany – which slowed down real estate activity. Based on data from the OECD and the Federal Statistical Office of Germany, the percentage of workers who were employed in construction shifted from 9% in the 1990s to 6% in the mid-2000s, while the number of finished dwellings halved. Beyond the widespread fear of losing jobs, wage policies in the construction sector were shaken up by the European free movement of workers, non-enforcement of the posted workers directive, and illicit work. In no other euro member state did construction wage restraint go as far as in Germany until the financial crisis.

Germany’s great disinflationary push was, in sum, driven by the sheltered sector. Industrial wages were undershooting too, but this was less pronounced than in the case of services, with the exception of financial services. In German industry, trade unions remained and are still powerful. The logic of the industrial wage regime, however, changed due to decentralisation, a process that started in the 1990s and accelerated in the 2000s.

Many firms from then on directly negotiated with trade unions. Where firms remained covered by central collective agreements, opening clauses paved the way to the expansion of firm-level agreements. Firm-level competitive corporatism is only one part of the explanation for the cost competitiveness of the German industrial sector, however. The other part is that the industrial sector consumes construction and other services, delivered by sectors in which wage moderation went much further than in industry.

The Covid-19 effect

In the euro’s second decade, the trajectory of wage growth has changed course and nominal unit labour costs have risen in line with industrial sector dynamics. This rise occurred in the context of an increasingly tight labour market. From above 11% in the mid-2000s, unemployment went down to around 3% (according to the OECD’s adjusted unemployment figures; the national figures are higher). Labour scarcity is a positive contextual factor for wage increases. Wage growth in construction has benefitted from the sector’s steady expansion and rising house prices. The introduction of a minimum wage in 2015 and the reregulation of temporary agency work has strengthened the positions of workers in low-end services.

Germany’s gradual rebalancing was significant, but incomplete. Although the economic and fiscal conditions for rising wages became increasingly better during the second half of the 2010s, Germany has not fully corrected the undervaluation which began following the introduction of the euro. Perhaps, without the pandemic, it would only have taken a few more years for full correction. But the Covid-19 crisis has put an end to such hopes. In the past, Germany reacted to crises by enforcing competitive undervaluation in the private sector and fiscal cutbacks in public sector wage setting. We have no indication that this time will be different.

The bottom line is that we should not be anticipating further wage expansion in Germany. It will not occur in the low-end services sector where Germany has turned into a ‘liberal market economy’. Nor will it come about in the exposed industrial sector, in which powerful works councils are prepared to trade wage increases against job security. As for the public sector, the government has already expressed its intention to return to fiscal consolidation as of 2022. This is an important message for Germany’s neighbours and trading partners. Due to the need to confront the immediate health hazard, some generous wage increases and one-off payments will occur in the public sector and perhaps also in construction, depending on further developments in the real estate market. But we doubt that this will be enough to break the foreseeable overall dynamic of wage moderation.


Note: This article gives the views of the authors, not the position of EUROPP – European Politics and Policy or the London School of Economics. Featured image credit: Alex Osaki (CC BY-NC-SA 2.0)


EVENT HIGHLIGHTS | The EU-China dialogue on cybersecurity and global tech governance: What perspectives ahead?

In September, PubAffairs Bruxelles organised an evening of discussion regarding the EU-China dialogue on cybersecurity and the question of global tech governance with our distinguished guests Ms Maria Spyraki MEP, Vice-Chair of the European Parliament’s Delegation for Relations with the People’s Republic of China, Dr Jean-Marc Rickli, Head of Global Risk and Resilience, Geneva Centre for Security Policy (GCSP) and Professor Bart Preneel, Computer Security and Industrial Cryptography Research Group (COSIC), KU Leuven.

Mr Abraham Liu, Chief Representative to the EU Institutions and Vice-President for the European Region, Huawei, gave the keynote speech.

The debate was moderated by Giulia Pastorella, Associate Director, Tech and Trade, Weber Shandwick.

Giulia Pastorella opened the discussion by drawing attention to the question of how tech governance can be facilitated on a global level amidst rising tensions between the United States (US) and China. She pointed to the challenges for the European Union to position itself on the global stage with regard to the question that is often described as the beginning of a Tech Cold War”.

The moderator continued by introducing the panel and finalised her opening statements by giving the floor to Mr Abraham Liu.

Mr Abraham Liu initiated his keynote speech by stating that Huawei is employing 14,000 people across Europe and contributed around 16 billion euros to the GDP of the EU in 2019, while paying 1.6 billion euros in direct taxes. The speaker continued by mentioning that Huawei is planning major investments in Europe by building new production facilities, instead of acquiring European start-ups, while emphasising the high number of jobs which these investments are creating. Mr Liu subsequently stated that the 20 years of Huawei’s presence in Europe implies that the company is perceived as an established and trustworthy player across the old continent.

The speaker continued by expressing his concern about the challenges his company is facing due to the current disruptions in relations between China and the US. He elaborated on this matter by asserting that this dynamic, in his opinion, will have a negative impact on investments in the EU. The keynote speaker also expressed doubts over the idea that the tensions between the US and China will have positive effects for European companies, as well as for the EU strategic autonomy objectives. “Reducing competition is never a good idea”, he stated and urged for a Europe-wide engagement in preventing disruption to global supply chains as a result of current tensions. Mr. Liu subsequently stated that only a multi-vendor approach to technology, as opposed to protectionism, could guarantee security and digital sovereignty at the same time.

Going more into detail about Huawei’s cooperation with European governments, the speaker explained that there have been major efforts to verify Huawei’s equipment, creating deeper trust in its products and making the company the most tested company on the global tech market. He also stated that, in his opinion, the accusations against Huawei are part of a strategy for global tech dominance that is intended to damage Europe, as well. Mr Liu subsequently called European institutions to follow an approach based on Europe’s own rules and values.

Following these remarks, the speaker discussed the company’s position as a leader in the development of security standards. He asserted that the issue of security should not be exploited for internal political disputes and elaborated on how current tensions are interfering with the rollout of 5G technologies in Europe. He subsequently emphasised that Europe should have access to the most advanced 5G technology in order to increase its competitiveness, also given the necessity of a rapid global recovery from the Corona crisis.

In addition, Mr Liu explained that European consumers are also being harmed with regard to their rights and choices by the latest measures taken by the US and presented the opinion that digital sovereignty can only result from the freedom of choice granted by market competition. He continued by highlighting the importance of multinational trade frameworks and shared his preference for the setting of common global rules and standards based on open market access and fair competition. The speaker consequently referred to an initiative presented by the Chinese government which provides a framework for data security global standards with the aim of engaging other countries to follow a multilateral approach to this issue, while respecting their sovereignty and the right to manage their own data.

Mr Liu further emphasised the interdependent relationship between the EU and China in economic terms and drew attention to China’s growing role in the global value chain. He also expressed understanding for the EU’s orientation towards strategic autonomy, while emphasising that caution is advisable when drawing the line between strategic autonomy and protectionism. The speaker also shared his optimism on the fact that despite the pressure coming from the US, the conclusion of the EU-China Comprehensive Agreement on Investment will strengthen multilateralism in international relations. He subsequently asserted that an agreement will give the industries of both negotiation parties new certainty and will show the important role globalisation continues to play in terms of economic growth.

The speaker reiterated that Huawei is a trusted commercial partner around the globe, while highlighting that trust must also be built at a government level in order to overcome trade disputes, foster technological collaboration and eventually avoid negative impacts for citizens. Mr Liu then moved on to listing additional challenges which Europe faces, namely the recovery from the Corona crisis and its role in technological innovation. He concluded his keynote remarks by confirming his company support for Europe’s efforts to accomplish its digital ambitions and shape the global economic recovery.

Giulia Pastorella opened the discussion by asking the panellists about the main challenges they anticipate in the developments of global tech governance.

Maria Spyraki MEP began her response by calling into question whether current global diplomatic trends are actually moving towards effective global tech governance, hinting at some possible developments that could be described as the “Balkanisation” of technology. She consequently warned of the dangers of fragmented European and international policy approaches and called for a consensus enabled by constructive global dialogue aimed at a pragmatic strategic cooperation. The MEP explained that the more citizens use digital technologies, the more added value is created from investments in these technologies, and also warned against a fragmentation of global investment policies. She subsequently elaborated on the importance of reciprocity in investments between Europe and China, as this factor plays a major role when it comes to public procurement for digital technologies, while emphasising how crucial a balanced market access for both parties is. The MEP finally drew attention to the topic of discrimination in market access and finalised her remarks by pointing to the question of the elimination of discriminatory rules as an important step towards a fair trade and investment balance between China and the EU, a state of play that would be highly beneficial to both parties. 

Dr Jean-Marc Rickli answered the moderator’s question by referring to the broader context of tech governance, which is defined by the changes in current international relations. With the rise of China, the speaker continued, the structure of the international system after the Cold War has evolved, while technology has emerged as a significant source of influence. He subsequently added that this creates a continuously growing competition over the definition of the rules for governance of technologies on a global scale. Moreover, Dr Rickli highlighted the two opposing positions of governance in cyberspace, namely the perspective that derives from a free market point of view and the perspective of sovereignty as a primary national interest. With reference to a study published by Harvard University, he stated that the US and Europe were originally dominant in the field of cyberspace, whereas China is gaining more influence. The speaker subsequently shared his insights into Europe’s position towards China in the 2010s. During this period, he clarified, the EU was divided into non-cooperative and cooperative Member States, the latter being particularly driven by their respective evaluation over the opportunities provided by the Belt-and-Road initiative. Dr Rickli continued by referring to a change in this dynamic as a result of the Corona crisis, when some European countries shifted towards a more critical stance towards China. The speaker substantiated this consideration with examples of recent diplomatic incidents between China and the EU, which he viewed as being in line with the trends of the current international system. Indeed, he explained, the US has taken a more isolationist and nationalistic stance, while China has adopted a more active global role at the same time. This has induced an open confrontation between Washington and Beijing. He then emphasised that the European model, defined as aiming at defining standard setting according to consensual rules and norms, lacks the industrial capacity necessary to have a peer-to-peer approach with both the American and Chinese counterparts. As a result, the panellist urged Europe to reflect on its own capacities, which must move beyond the setting of rules and facilitate the development of competitive technologies in Europe. He concluded his response by emphasising the importance of an effective global governance of emerging technologies, as current dynamics are emphasising more the respective actors’ competitive, rather than collaborative, approach.

Professor Bart Preneel began his response by drawing attention to cybersecurity as a multidimensional problem, rooted in the fact that technology is the main infrastructure of modern society. This consideration, the speaker continued, creates the necessity for an integrated strategic approach, as no nation state can cope with cybersecurity threats autonomously. He therefore called for international cooperation on the matter. Professor Preneel also described the most challenging aspects of cooperation on cybersecurity, such as the need for nations to protect their sensitive information in the context of intelligence work and, from a long-term perspective, their own cyber warfare capacities. This dynamic, the speaker explained, has also led to a lack of exchange of sensitive data, an “inherent weakness” of the EU’s cyber capacity. In addition, Professor Preneel expressed doubts as to the effectiveness of a fragmented approach to cybersecurity in dealing with cyber challenges on the global stage. The speaker continued by highlighting that digital technology touches every area of society and should be treated with a holistic approach. In his opinion, the separation of military and intelligence issues from consumer and infrastructure aspects of cybersecurity causes a conceptual fragmentation. Subsequently, he elaborated on the term ‘digital sovereignty’, which he described as being driven by a combination of political and economic interests. However, he also warned against a lack of necessary investment in key industries and an effective industrial policy. In addition, Professor Preneel drew attention to a phenomenon that is observed following cybersecurity incidents in Europe and around the globe when a given nation state takes the lead in responding to a threat, but a common response is missing. Following these explanations, the panellist focused on the question of how values are embedded in technologies. He explained that, compared to the US and China, the EU should take the chance to integrate its values into emerging technologies, particularly regarding the governance of citizen’s data such as on social media platforms. The cybersecurity specialist concluded his remarks by reiterating the importance of both a cyberspace free from warfare and the need to govern the digital world, while calling for balanced, global cooperation on these matters.

The moderator asked the panellists to give an overview of the relationship and the current dynamics between the EU and China with respect to cyber governance and security issues.

Ms Spyraki MEP replied to the question of the moderator by stating that one of the determining factors shaping the relationship between the EU and China is also the confrontation between China and the US. The MEP subsequently clarified her statement by describing the current implications for cybersecurity and the technology sector as spill-over effects from trade tensions between the US and China. She further exemplified her point of view by referring to the recent decision of the US Department of Commerce to prohibit companies from selling semiconductors produced with US software to Chinese companies without acquiring a respective licence beforehand. The speaker added that this is an example where a government restricted a company of another country to protect its own technological sovereignty. Ms Spyraki then began explaining the cybersecurity state of play in the EU. With the implementation of the Cybersecurity Act in April 2019, she continued, EU Member States adopted EU-wide Cyber Security Certification Schemes to guarantee that products and services met common cybersecurity standards. This clearly shows the broad consensus on the matter between Member States, the MEP stated. She then mentioned how the Corona crisis creates difficulties with regard to the matter of European strategic autonomy, as the Covid outbreak has highlighted not only the need for self-sufficiency in medical supplies, but also in the domain of digital sovereignty. The speaker finally expressed that she perceives the crisis also as a chance for a fresh start in the relationship with China and called for an enhanced dialogue between the EU and China on the question of cybersecurity. 

Dr Rickli began his reply by agreeing with Professor Preneel’s statement that emerging technologies serve also as an enabler of power in the domains of security and defence. He subsequently elaborated on this idea by referring to the Chinese concept called “Civil-Military-Fusion”, which he described as a program that integrates civilian and military efforts in key sectors to enhance the defence capacities of the country. Continuing with his remarks, the speaker explained how conflict escalation proceeds differently in the cyberspace rather than in the “physical world”. He illustrated this statement with a comparison to nuclear deterrence, notably based on the communication of one’s own missile capabilities to the respective counterpart. On the contrary, in the cyber domain, revealing its own capacities means disclosing vulnerabilities as well. He went on to explain that unveiling the state of the development of artificial intelligence, real or pretend, has also ended in an escalation of frictions for the governance dominance in the field of technology. However, Dr. Rickli warned against the rising potential risks resulting from the shift of the international system structure from multipolar to purely hegemonic. He continued by expressing concerns about possible military tensions stemming from the competition in the civil technological sector. Finally, the panellist reiterated that the differentiation between civil and military use of digital technologies is often difficult, while stating that the aim of being the dominant actor on a global scale is also pursued by the delegitimisation of the counterpart.

Giulia Pastorella followed up on these statements by asking Ms Spyraki MEP if there are more obstacles or opportunities for a dialogue between China and the EU, given the fact that the EU itself has recognised China as a “systemic rival”.

Ms Spyraki MEP started by reiterating her stance on the necessity of reciprocity-based relations between the EU and China. She subsequently highlighted the importance of mutual market access for investments and urged all concerned parties to focus more on common approaches, rather than emphasising differences. However, the MEP expressed satisfaction over China’s efforts to improve its data protection regulations and remarked that these efforts can contribute to creating trust between the two actors. She furthermore shared her opinion that both sides need to realise how crucial cooperation is in order to create mutual benefits. The speaker then described how different China and the EU are regarding governance and regulation of cyberspace. To overcome these differences, Ms. Spyraki urged both sides to accept mutual market access as a common goal. She then expressed hope for the easing of tensions between the US and China after the US elections and for the possible positive effects of tension de-escalation in international relations can have on EU-China relations. The MEP concluded her remarks by calling on all concerned parties to focus on common interests, reciprocity and mutual access to the markets for investment.

The moderator asked the panellists how cybersecurity standards can be used as non-tariff trade barriers and how this strategy affects efforts of global tech governance and which role the EU should take on the global stage.

Professor Preneel began his statement by confirming that cryptography is an effective barrier to protect intellectual property rights and to prevent market access. He referred to the example of different network standards, which are encrypted as part of licensing processes for building telecommunication networks. The speaker followed up on this elaboration by stating that, a decade ago, he was invited by the US trade delegation to China to convince the Chinese government of abstaining from building its own crypto standards. In fact, he explained, the global crypto standard AES was of a substantial economic value to the US industry. He subsequently remarked that China had proceeded in developing its own standards for encryption for all wireless Internet connections, a fact which allows the securisation of the national networks and the prevention of access from outside. Professor Preneel expressed his disappointment as to this development and declared that he is in favour of open standards applied in most parts of the world. He then moved on to explain that the trend on the cybersecurity market is developing towards certification schemes, which are used to protect the market by implementing price barriers for certificates. The speaker consequently raised the concern that EU countries might use this mechanism to protect their own companies from open competition. Additionally, he mentioned that cybersecurity companies are closely monitored with regard to their compliance with cyber standards, resulting in unimpeded access to new products for the monitoring authorities. Professor Preneel subsequently expressed doubted as to the EU cybersecurity certification scheme being able to solve these problems and reiterated his stance on open systems as the only solution to the certification issue. Only this way can the control over cryptography and cybersecurity be limited, the speaker asserted, while remarking that Europe should advocate on a global level for the common use of open systems, as major parts of the Internet run on open software. He added that cloud infrastructure is facilitated by open hardware and urged European governments to oblige market-leading phone producers to unlock their products for open software use to ensure that European digital solutions can be introduced independently from companies. With regard to data governance, the panellist confirmed the exemplary role of the GDPR, but also expressed concerns as to its limited means of enforcement, especially against major foreign actors. He also drew attention to the discrepancy between globally flowing data streams and the aim of making them a subject of national jurisdictions. He furthermore suggested establishing a European cyber ecosystem rather than searching control over the data of citizens of individual Members States. Subsequently, Professor Preneel indicated a common understanding between the EU and China that cyberthreats are leaving society vulnerable and that it requires long-term investment to cope with these threats. He elaborated on this notion by describing how technological advancements in fields such as robotics and mobility are progressing at a fast pace, making major efforts in cybersecurity necessary to avoid problems for these sectors in the future. Indeed, these circumstances provide a ground for cooperation on higher security standards between the EU and China, the professor said. He consequently mentioned the cooperation between Huawei and the Government of the United Kingdom on Internet router security, while highlighting this example as a model of cooperation between China and Europe on open cyber infrastructures. However, the speaker unveiled that abuse of digital technology is, to some extent, unavoidable and proposed to hand the control over these technologies to artificial intelligence, while warning against the potential surveillance of European citizens. The aim of preventing abuse of emerging technologies, he explained, will create different security architectures of the internet, based on divergent governament approaches. Professor Preneel concluded by stating that the architecture of the Internet holds the potential for disagreement between China and the EU, as both apply different concepts of governing technology.

Ms Spyraki MEP took on the moderator’s question by suggesting that the EU should play the role of an “honest broker” in the international arena and pointed at the outcome of the upcoming Presidential elections in the US as the decisive factor for the future relations between the US and China. She subsequently highlighted the importance of market access to both the US and China for the EU and advocated for an improved dialogue to foster pragmatic strategic cooperation and suggested the market access of all three actors be enhanced instead of narrowed down. On the matter of security, she reiterated the importance of the Cybersecurity Act as a pan-European measure and asserted the need for cooperation on cybersecurity standards, the open Internet and common rules of tech governance. The speaker additionally emphasised the importance of data exchange around the world, whilst upholding the idea of data protection granted by the GDPR. The MEP explained that these measures can not be enforced by one actor over the others, but have to be implemented based on consensus. In fact, she described her previous elaboration as the only way to create a level-playing field in the cyberspace and for creating trust between stakeholders. She concluded her response by warning against the alternative of weaponising both the economy and technology developments. 

The Q&A session covered the following issues: The role of the EU in mediating the tensions between the US and China; the question of balance between market and security needs; the role of data sovereignty in the relation of the EU with the US and China; the implementation of the GDPR; the vulnerabilities of cloud services; the dispute over the 5G roll-out in Europe; areas of common interest and disagreement between China and the EU and the bifurcation of the IT stack.

Want to know more about the issues discussed in this debate? Then take a look at the selected sources provided below!

EU-China 2020 Strategic Agenda for Cooperation, European External Action Service

EU strategy on China, European Commission

European Parliament’s Delegation for Relations with the People’s Republic of China

The EU Cybersecurity Act, European Commission

The European Digital Strategy, European Commission

Digital sovereignty for Europe, European Parliament Think Tank

Cybersecurity Incident Taxonomy, European Commission

Delegation of the European Union to China, European External Action Service

EU-China leaders’ meeting via video conference, 14 September 2020, European Council

EU Cyber Forum – Promoting a free, open, safe and secure cyberspace, European External Action Service

Cybersecurity – review of EU rules on the security of network and information systems, European Commission

National Cyber Power Index 2020, Harvard Kennedy School for Science and International Affairs

The Coming Tech Cold War With China
Beijing Is Already Countering Washington’s Policy, Foreign Affairs

Surrogate Warfare: The Transformation of War in the Twenty-First Century, Paperback by Andreas Krieg and Jean-Marc Rickli

How Restricting Trade with China Could End US Semiconductor Leadership, Boston Consulting Group

Balkanising technology will backfire on the US, Financial Times

The Impact of Autonomy and Artificial Intelligence on Strategic Stability, Geneva Centre for Security Policy

The Increasing Importance of Hybrid Politics in Europe: Cyber Power is Changing the Nature of Politics, Geneva Centre for Security Policy

EU-China FDI: Working towards more reciprocity in investment relations, Report, MERICS and Rhodium Group

Policy Insight | New Asia-Pacific trade deal. Implications for East Asia and the EU | CEPS

The conclusion of a new overarching Regional Comprehensive Economic Partnership (RCEP) Free Trade Agreement (FTA) between 15 Asia-Pacific countries has been celebrated across the globe. Its signatories are the 10 members of the Association of Southeast Asian Nations (ASEAN) countries and Japan, Korea, China, Australia and New Zealand; India withdrew from the agreement at the last moment.

The signing of the RCEP is certainly good news for world trade and investment. It brings together a group of countries representing 30% of the global population and generating 29% of its GDP. It aims to facilitate and solidify global value chains; accept opening-up in terms of tariffs (while aiming to discipline non-tariff barriers); build a legal framework for services, trade, and investment; and address e-commerce issues such as the commitment not to impose data localisation. Much like the EU-Canada Comprehensive Economic and Trade Agreement (CETA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (an FTA between 11 APEC countries, without the US), and the EU/Japan Economic Partnership Agreement (EPA), the RCEP demonstrates once again that the US under the Trump administration was effectively alone in its attempts to disrupt further globalisation. Nevertheless, the RCEP is not a deep FTA and stipulates slow liberalisation over long periods of time, among its other peculiarities. It may also impact East Asian regionalism in the long term.

This paper explains the Association of Southeast Asian Nations (ASEAN)-led origin of the RCEP in the context of APEC, summarises the substance of the agreement, and gives an inevitably crude first estimate of its impact on trade and overall income, as well as its structural implications. It concludes with reflections on the possible long-term implications of the RCEP for East Asian regionalism, for world trade and investment, and for the European Union.

Follow this link to download the full publication

Europe’s Capital Markets puzzle, by K. Lannoo and A. Thomadakis | European Capital Markets Institute (ECMI)

On 18 November, the European Capital Markets Institute (ECMI) published a policy brief by Karel Lannoo and Apostolos Thomadakis named Europe’s Capital Markets puzzle, which acknowledged that creating an attractive framework for more market financing in Europe is proving to be an increasingly complex puzzle.

The EU and other European states are battling on several fronts, but without the unity and vision that is needed to move forward. Brexit is one of the difficult pieces of the puzzle, but also problematic is the dominance of universal banks, even more in mainland Europe, and limited acquaintance with more market finance. Market financing is however paramount for Europe’s competitiveness. 

The EU Commission’s latest action plan – the New CMU Action Plan – lacks workable solutions and gets lost in small items that will not allow for significant change or bring Europe’s markets up to speed. A positive development on the horizon is the emergence of a euro safe asset, a crucial building block for European capital markets, but the issues it raises are not reflected in the action plan either. Six years after the launch, we are no closer to the benchmark set by the United States.

The real actionable items of the new plan are limited; several elements are intentions, proposals for studies or elements to strengthen existing frameworks. Of course, there is no need for an extensive new legislative agenda. But rather a clear vision and strategy on what the EU wants to achieve, by when and how, on which there seems to be no agreement. The incremental approach followed over in recent years is now harming the EU’s long-term interests.

Download the full publication here

About the authors:

Karel Lannoo is General Manager of ECMI and CEO of CEPS.

Apostolos Thomadakis, Ph.D. is a Researcher at ECMI.

 

Global Outlook on Financing for Sustainable Development 2021: A New Way to Invest for People and Planet | OECD

The Global Outlook on Financing for Sustainable Development 2021 calls for collective action to address both the short-term collapse in resources of developing countries as well as long-term strategies to build back better following the outbreak of the COVID-19 pandemic.
The financing gap to achieve the Sustainable Development Goals (SDGs) in developing countries was estimated at several trillions of dollars annually before the pandemic. The report demonstrates that progress to leave no one behind has since reversed, and the international community faces unprecedented challenges to implement the holistic financing strategy set out in the Addis Ababa Action Agenda (AAAA). The report finds that trillions of dollars in financial assets held by asset managers, banks and institutional investors are contributing to inequalities and unsustainable practices. It highlights the need to enhance the quality of financing through better incentives, accountability and transparency mechanisms, integrating the long-term risks of climate change, global health, and other non-financial factors into investment decisions. The report concludes with a plan of action for all actors to work jointly to reduce market failures in the global financial system and to seize opportunities to align financing in support of the 2030 Agenda for sustainable development.

Common currency, common identity? How the euro has fostered a European identity | Europp – LSE Blog

Featured image credit: Paolo Margari (CC BY-NC-ND 2.0)

Does European institution building in key areas of national sovereignty go hand in hand with the emergence of a common identity among European citizens? Drawing on a new study, Fedra Negri, Francesco Nicoli and Theresa Kuhn show that the introduction of the euro has fostered a European identity, leading to a small but significant decrease in the share of people who identify only with their nation and not with the EU.

Over the past few decades, the European Union has acquired important powers in policy areas that are intrinsically linked to national sovereignty. Indeed, the supranational Court of Justice of the European Union (1952), the EU Customs Union (1968) and the Schengen Area (1985) can be seen as the first building blocks of a set of European core state powers. More recently, the euro (launched in 1999; currency changeover in 2002) has pushed European integration even further.

From its onset, the euro was intended to be more than a mere instrument for economic exchange. It aimed to provide a symbol of collective identity that could be tangibly experienced, not only by national and European political elites, but also by a wider audience of European citizens as they engage in cross-border exchanges, purchases, and interactions. As Thomas Risse put it in 2003, ‘[w]e miss the significance of the advent of the Euro for European political, economic, and social order if we ignore its identity dimension’ (p. 487). A common currency is one of the most visible ‘identity markers’ that shapes the EU as a taken-for-granted social fact and helps in building an imagined community.

Almost two decades after the currency changeover, can we say that the euro has helped make the European society real in people’s minds? To start with, have a look at the figure below that displays the share of Eurobarometer respondents who identify only with their nation and not with the EU by country group over time.

Figure 1: Share of Eurobarometer respondents who identify only with their nation and not with the EU

Note: Mannheim Trend File (1996-2002) and Eurobarometer waves (2003-2017). Unweighted by population.

Overall, their share ranges between 13% (Luxembourg in 2016 and 2017) and 72% (UK in 2010). Compared to the full sample average (44%, horizontal grey solid line) and to the countries that introduced the euro in 2002 (41%, dashed line), the share of respondents who identify only with their nation is systematically higher in the member states that entered the EU in 2004 and 2007 and adopted the euro between 2007 and 2015 (46%, dash-dotted line) and in those that did not adopt the single currency (49%, dotted line). It is worth noting that the share of respondents who exclusively identify with their nation increased in all countries between 2005 and 2010, years characterised by both the rejection of the Treaty Establishing a Constitution for Europe in France (May 2005) and the Netherlands (June 2005) and the euro-crisis. However, from 2010 to 2014 – the years of the debt crisis – the share of respondents who identified exclusively with their nation decreased.

Given these trends, we formulate two hypotheses. Our baseline hypothesis maintains that the introduction of the euro is associated with a lower share of people who report an exclusive national identity. Second, we expect that, if the integration of a core competence of sovereignty, such as monetary policy, influences collective identities, then this does not simply happen from one day to the next, but is constructed over time. Thus, our second hypothesis maintains that the negative effect of the euro’s introduction on exclusive national identity increases over time.

The empirical analysis combines Eurobarometer survey data with macro-economic indicators from Eurostat. Our units of analysis are 26 EU member states, observed in the post-Maastricht period from 1996 to 2017 (the UK is included as it was a member state in the sample period; Cyprus and Croatia are excluded due to missing data).

Supporting our baseline hypothesis, our results show that, immediately after its introduction, the euro became a symbol affecting Europeans’ feelings of belonging towards Europe: in detail, the adoption of the euro is associated with a modest in magnitude, but statistically significant and robust across model specifications, reduction (-3%) of the share of people with exclusive national identity. This evidence builds a bridge to the first study on the relationship between the introduction of the Euro and European identity, published by Thomas Risse shortly after the euro changeover, in 2003. He demonstrated that the single currency, being ‘a visible link from Brussels to the daily lives of the citizens’ (p. 501), affected respondents’ identification with Europe already in the short run.

It could be questioned whether an effect of -3% is large enough to claim that the euro has had a positive effect on European identity. A look at descriptive statistics provides a partial answer: the standard deviation of the share of respondents reporting an exclusive national identity within the countries in our sample is equal to 5.7%. Moreover, across countries and years, its mean value is 44%. Considering these descriptive statistics, a change of 3% triggered by the adoption of the euro is not as negligible as it may seem. Moreover, it is worth noting that the euro is not the only supranational institution affecting European citizens’ ordinary lives. Thus, there are reasons to believe that, together, European institutions are capable of building and fostering collective identities.

Instead, contrary to our expectations, our results do not support our second hypothesis: the currency changeover exhausts its effects on European identity in the short run. The euro triggers a momentum-like, short-run, negative effect on the share of people with exclusive national identity, but such a negative effect does not increase over time.

All in all, our study suggests that common identities may stem from the construction of state powers, insofar as these contribute to creating the conditions that allow meaningful social interactions. While the lack of common identity is often used as a rhetorical artefact to constrain the construction of supranational institutions, our study suggests that integration processes could benefit from effective institutional designs as the latter may be essential factors in the emergence and fostering of a common identity.

For more information, see the authors’ accompanying paper in European Union Politics

European strategic complacency is not an option, by Josep Borell | Project syndicate

Featured image Credit: European Union, 2020 Source: EC – Audiovisual Service

“It is now more clear than ever that Europe must take its security, broadly understood, into its own hands. Doing so will not only secure the European Union’s proper place on the world stage, but will also ensure a healthy transatlantic partnership in the years ahead” Commission Vice President and EU High Representative Josep Borell argues on Project Syndicate.

Read the full article here

Understanding the role of political knowledge in support for fiscal solidarity | Europp – LSE Blog

Featured image credit: Adolfo Lujan (CC BY-NC-ND 2.0)

It is often assumed that citizens with higher levels of political knowledge will evaluate political arguments in a more rational way than other citizens. But is this really the case? Drawing on a new study, Klaus Armingeon finds little evidence for the idea citizens with greater political knowledge displayed a more rational approach toward fiscal solidarity during the Eurozone crisis.

There is a simple and convincing idea that motivates everyone from teachers of civic education to political activists carefully putting their arguments to the general public: citizens who are well informed and have substantial political knowledge will evaluate political arguments in a rational way. If arguments contradict previous beliefs and decisions, these choices will be revised.

Unfortunately, this is largely a folk tale. Recent political behaviour research highlights the role of ‘motivated reasoning’ in the process of preference formation. Whenever citizens are confronted with new political proposals, they (unconsciously) check whether this conforms with their basic values or prior positions. If there is no contradiction, citizens are happy and those with substantial political knowledge use this knowledge to rationalise their decision. However, if the proposal goes against the basic convictions of a citizen, this knowledge is helpful in explaining why the proposal has to be declined, with the initial decision on the proposal being based on prior values or political stances.

In a recent study, I apply this insight from political psychology to analyse support for fiscal solidarity during the Great Recession. Given fiscal support for countries such as Greece was ultimately supported by EU governments, one might assume that knowledgeable citizens would tend to follow the reasoning of their governments. As we know, even the German and Dutch governments arrived at the conclusion that the costs of the dissolution of the Eurozone would likely be larger than the costs of a bailout.

Hence, we might expect that politically knowledgeable citizens of Germany and the Netherlands should exhibit stronger support for fiscal solidarity than less knowledgeable citizens. Unsurprisingly, and much to the frustration of civic education teachers, I found little evidence for this effect in my study, which consisted of a reanalysis of a large Europe-wide survey.

I also tested whether knowledge ‘crystallises’ prior attitudes and stances – very much in the sense of motivated reasoning. I found strong support for this in my empirical analysis. The two graphs below visualise this effect. The left figure (a) is based on party cues: whether a respondent feels attached to or votes for an EU-friendly or Eurosceptic party. The right figure depicts the effect of knowledge conditional on prior values about EU membership of the nation. The more knowledgeable citizens are, the stronger the effect of cues or prior values.

Figure: Predicted support for fiscal solidarity

Note: For more information, see the author’s accompanying paper in European Union Politics.

It should be added that this crystallising effect of political knowledge is limited and varies from country to country. This is another blow to our teachers of civic education. Of course, this is not a plea for dismantling civic education in school. It might still matter for more general issues such as attitudes towards the EU, democracy or election turnout. However, political sophistication seems to play only a secondary role in preference formation for policies; much more important are deep-seated values and orientations which mainly evolve through political socialisation as well as cues from political parties to which citizens are attached or which they vote for. These findings are not a swan song of democracy either. Rather, they show the central role of parties and interest groups in identifying the social and political interests of their supporters and proposing to them positions which are in their interest.

What does this mean for the support of Europeans for generous EU policies to help countries hit most strongly by the Covid-19 crisis? The most plausible conclusion is that values and attachment to Euro-friendly parties will be key, rather than knowledge about the specific economic and social problems caused by the pandemic. Garnering support for generous policies may have less to do with rational arguments and far more to do with the basic orientation of citizens toward European integration and the messages parties send to their followers.

For more information, see the author’s accompanying paper at European Union Politics

INVITATION | Digital Farming: How can the EU turn ambitions into a reality? (November 10)

We are delighted to invite you to an event which will be held on Tuesday, 10th of November 2020 at 18.00.

The event will consist of a evening discussion on how to make the EU ambitions towards digital farming a reality with our distinguished speakers Ms Nathalie Sauze-Vandevyver, Director Quality policy, Research & Innovation, Outreach, DG AGRI, European Commission, Mr Franc Bogovič MEP (SLO/EPP), Mr Pekka Pesonen, Secretary General, Copa Cogeca, Mr Joao Pacheco, Senior Fellow, Farm Europe and Mr Daniel Pereira, Head of The Climate Corporation Europe Middle East and Africa, Bayer.

The debate will be moderated by Sarantis Michalopoulos, Journalist, Euractiv.

Given the current developments regarding the Covid-19 outbreak, this event will be held in streaming

This event is kindly sponsored by

 

About the debate

Strengthening the Single Market and adapting it to the digital age is a key cornerstone for Europe’s recovery from the corona crisis. Digitalisation of farming is one of the most prominent features of the European Green Deal, more specifically digital and precision farming is highlighted in the Farm to Fork strategy as a key technology to help achieve the targets and deliver on sustainability goals set forth. Indeed, Europe’s green growth strategy aims at enhancing resource efficiency and global competitiveness by turning ever-pressing climate, biodiversity and environmental challenges into sustainable growth opportunities. While this comprehensive approach has been applied to all sectors of the EU economy, agriculture has emerged as a strategic sector given both food security evolving as a key issue following the Corona crisis, and its impact on the environment and natural resources. Accordingly, greater farming digitalisation has been pointed out by several commentators as a crucial innovation domain which is poised to allow all European farmers not only to better understand field and crop conditions on a far more granular level, but also to improve crop management and timing of decisions on inputs such as crop protection, water, fertilisers and/or energy consumption, so that the optimal amounts of resources are used only when needed.

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