Wednesday, June 24, 2015

Towards a new EU trade policy

The European Commission organised an "EU trade policy day" on 23 June to talk about the future of EU trade policy with business representatives, NGOs and think tanks. With the input from the conference, the Commission will now work out a new EU trade policy that it wants to present in autumn.

The EU might be a rather toothless tiger in defence policy, but its trade policy is an area from which it gets power in the world and legitimacy at home. If cleverly done, trade policy increases people's income and creates good jobs in the EU and abroad. If done poorly, the same policy can lead to widespread labour rights abuses, environmental degradation and destruction of companies. Therefore, the review of the Commission deserves to be looked at in detail.

Predictably, participants at the conference heard that most economic growth no longer takes place in the EU. Good trade policy must give EU companies safe access to the growth engines in the world like China or India. As new middle classes develop in the world, the EU should get ready to supply these middle classes before others will do it. That's what some people say.

But at the same time, it became clear that trade policy is no longer just about market access and reducing tariffs. Today's trade policy must also have good answers on labour rights, environmental protection, intellectual property, regulatory cooperation between trade partners, democratic participation and distribution of wealth. Today's  citizens want to know how their products or services have been produced. Does the low price stem from competitive business structures or low environmental and labour standards? The desire for information has led to a proliferation of private standards for fair trade, sustainable fishing or sustainable forestry. At the conference, some Members of the European Parliament then made it clear that the Parliament also wants to see a much stronger focus on fair trade in the upcoming "new generation" trade agreements (EU-Canada, TTIP, Trade in Services, EU-Japan, EU-Mexico, etc.). 

That is interesting: If this is really supposed to work, it means future trade agreements must have good structures to guarantee their monitoring and enforcement. Where one trade partner does not meet labour or environmental standards, the other trade partner may be allowed to retaliate. This also means that the "new generation" trade agreements could turn into a struggle of values, in particular if negotiations with China or India should come off the ground. Past efforts to bring them within a "Western" trade value system have not always worked so well. Will the EU be strong enough to assert its values against the lure of accessing these big markets?

The Commission will now draft its new trade strategy and share it with the general public in autumn. It will be interesting to see where the Commission puts its priorities. Then we will see if the EU is ready to negotiate and enforce more value-based trade partnerships, or whether classical market access logic will prevail.

Monday, June 15, 2015

The finale for Greece and the EU

The #Grexit debate has reached its peak. The next two weeks will decide if Greece stays in the euro or not. This is the biggest crisis that the EU has faced in a long time and probably its biggest crisis ever.

It is becoming clear that the Greek government will probably force the other Eurozone countries to choose A or B: Continue lending money to Greece without conditionality, or bear responsibility for Greece's exit from the euro. Whichever way you turn it, there are only bad solutions left.

Solution A: Keep on lending money to Greece without conditionality
  • No substantial improvement for the Greek people in the near future
  • More money needs to be transferred to Greece without guarantee that this money will be paid back
  • Negotiations for a third bailout package may need to start so that Greece can pay back the remaining outstanding debt
  • Public opinion in many other Eurozone countries will turn downright hostile toward the EU, right-wing parties will become more powerful. In the worst case, people will be so disappointed and disgusted by this European Union that we will see the breakup of the European project.

Solution B: Exit of Greece from the Eurozone
  • All funds given to Greece are lost
  • Massive economic and social problems for the Greek people, for example because the price of imported medicine will sharply increase as the drachma devalues
  • Massive financial loss for the French and Italian governments which together own 38% of the Greek government debt
  • Possible knock-on effects in Portugal, Italy, Spain which may strive for an exit from the Eurozone themselves to avoid further painful restructuring of their economies
  • Massive speculation against the stability of the euro which in the worst case may lead to the collapse of the Eurozone

This is a huge challenge for our politicians and for European solidarity as a whole.  Nobody wants the European project to break apart, but whichever scenarios is chosen, it will create massive losers.

Europe's politicians are just as fed up with this entire situation as the European people, but it is now absolutely fundamental that our politicians keep a cool head. Otherwise, we may look back to the next two weeks as the beginning of the end of the European project.