How the EU can Lead the Rest of the West
The EU should lead like-minded middle powers by offering coordination, restraint and market access rather than pretending to be a new hegemon. A commentary by Daniel Gros
In a celebrated speech at Davos earlier this year Canada’s Prime Minister Mark Carney aptly characterized the state of global relations as a rupture. His concern was the fate of middle powers adrift in this new Hobbesian world.
In Brussels, the new global disorder has led to a different reaction. The trend is now towards asserting the economic power of the EU and emphasizing its own sovereignty.
The basis for this view is that in economic terms the EU is in a similar league (albeit somewhat smaller) than the US or China. Moreover, the EU is several times larger than the next economy, be it the UK, Japan or even India. The EU thus does not want to be considered a middle power, but as a big power (at least in geoeconomic terms).
This trend of asserting the EU’s power is misguided. Instead of emphasizing the EU’s ability to go it alone, the EU should grasp the opportunity to lead the large group of like-minded middle powers that are looking for their place in this world without a benevolent hegemon.
The EU cannot aspire to substitute for the role the US has played in the past, but it could contain the fallout from a US that has become an extractive superpower and a China that is using its industrial strength to coerce weaker partners.
Carney’s middle powers do not spontaneously organize themselves as a group. Herein lies an opportunity for the EU. It could provide the crystallization point by offering to lead, not as a hegemon, but as a ‘primus inter pares’.
There would be no need for a big international agreement or new institutions. Instead, the EU could show through concrete policy choices and a new informal mechanism for cooperation that it recognizes the value of working with like-minded partners.
The list of potential partners is long. The closest ones in Europe are Switzerland, Norway or the UK, but Canada and, further away Japan, Korea and Australia are also high-income stable democracies and typically align with the EU on multilateral rule-setting, supply chain resilience, and digital governance.
The combined economic weight of these like-minded middle and small powers is not far from that of the EU alone. The combined GDP of the EU + like-minded countries would be larger than that of the US, and its combined industrial power would be close to that of China.
There would be no need for a formal treaty to get the group going.
The starting point could be a summit in Brussels that yields a political declaration on a Compact for Open and Resilient Economies (CORE).
The participating countries would pledge to consult with each other before taking trade or industrial policy decisions that might have a significant impact on other participants.
The EU in particular would promise not only to solicit comments from its partners before important pieces of legislation in these areas, but also to allow others the right to participate (without vote) in some of the many working and expert groups that thrash out the details of proposals for legislative and other EU decisions before they come for a formal vote.
The final decisions would be taken following exclusively internal EU procedures. But partners in CORE would be allowed to participate in the shaping of decisions on trade and industrial policy.
Something similar is already foreseen on a much larger scale in agreements with very close neighbours, like Switzerland. The internal legal order can accommodate such an informal and flexible arrangement under Article 217 of the EU treaty.
This approach would go beyond the free trade agreement the EU already has with all the potential like-minded partners. These FTAs work as a ‘hubs and spokes’ system, each with its own bilateral committee that mainly deals with difficulties after the EU has taken a decision. These bilateral arrangements would continue to operate as before because each FTA is different. But the CORE framework would constitute an overall umbrella for much wider ex-ante consultations. Something similar, rather limited, but also more formal exists already in the field of research. Several non-EU countries participate in the EU’s big research program, called Horizon Europe. These countries participate as associate members also in the design of the research programs (and also provide their own financial contribution).
Political declarations are useful only if they translate into concrete policies.
For example, the Industrial Accelerator Act promotes the idea of giving preferential treatment to goods ‘made in Europe’ (or rather made in the EU). The justification is that this what the US and China are doing and the EU cannot remain the only large economy with open market because it risks losing its industrial base to predatory competition.
A strategy of relying on made in the EU would be very costly. The share of the EU in the global economy and industrial output is only about 15%, and declining. Reshoring entire supply chains will be next to impossible. The CORE approach would provide an alternative, namely, to pursue a strategy of ‘made with Europe’ under which the EU would count inputs coming from CORE participants as equivalent to ‘European’.
Given the much larger economic area covered by the CORE group, it would be much more efficient to rely on goods ‘made with Europe’, rather than goods made in the EU. Moreover, several potential partners in this group have capabilities that the EU is lacking (raw material from Canada or Australia, chips from Korea or Biotech from Switzerland).
Switching to a made with Europe strategy would not only be more cost-effective; it would also earn the goodwill of its partners whose combined markets remain vital for EU exporters. One can of course argue that supplies from CORE partners would remain less reliable than intra-EU supplies. But the risk of supply interruptions from these like-minded partners should be close to zero not only because of the geopolitical alignment, but also because these middle powers know that, individually, their leverage at the global level is close to zero.
Another example comes from trade policy. Many official pronouncements emphasize the value the EU puts on its partners to maintain an open global trading system. But recently important decisions go in the opposite direction. The worst example is the new, very restrictive regime for steel that the EU has put in place this July. Under this new regime, the quotas for tariff free imports will be cut by half, and any imports above the quota will face a prohibitive tariff of 50%.
This radical change will also apply to the like-minded trading partners (except Norway) although the EU has a free trade agreement with all of them. Moreover, there was no warning nor any prior consultation. Disregarding the interests of its like-minded partners is also self-defeating. The motivation for the restrictions on steel imports was to isolate the EU industry from global overcapacity. With this unilateral action by the EU, retaliation seems inevitable, putting everybody in a prisoner’s dilemma type situation that will not be conducive to solving the global issue.
The purpose of the CORE is to avoid this kind of disruptive unilateral EU action. Consultation needs to start already in the design phase, maybe opening the door for joint instead unilateral action. At the very least the EU’s like-minded partners should be given the opportunity to shape the final decision to minimize its disruptive effects.
The rupture in the global economic order gives Europe a choice. It can respond by narrowing its ambitions to defensive sovereignty and “made in Europe” preferences, or it can build a wider community of open and resilient economies based on a “made with Europe” concept.
The EU cannot replace the United States as global hegemon. But it can offer something more useful for the present moment: leadership without domination.
That means giving like-minded partners a voice before decisions are taken, treating their inputs as part of European resilience, and avoiding unilateral measures that export costs to allies. Such a restraint may look like a concession. It is not. In a world of extractive superpowers, Europe’s long-term interest lies in becoming first among equals
A previous version of this article was published in Project Syindicate
IEP Bocconi does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
