Europe must prepare for five years of radical change

Financial Times carries an article about a change of economic paradigm that will boost European competitiveness, accelerate and consolidate the European defence industry and enlargement, Caliber.Az reprints the article.

If the result of the European elections in France turned democratic life upside down, the centre of gravity of the European parliament ultimately did not move much. Nonetheless, the next European executive must prepare for major upheaval in the near future.

This five-year European mandate should be one of “radical change”, to use the words of Mario Draghi, former president of the European Central Bank. Three themes will dominate the agenda: a change of economic paradigm to boost European competitiveness; accelerating and consolidating the European defence industry; and enlargement.

Boosting competitiveness is urgent. China has had an aggressive industrial policy for decades: subsidies, internal demand compression and managing exchange rates have been used to its competitive advantage in defiance of all the rules of international trade. It also invests massively in research to establish dominance in many areas, notably renewable energies and electric vehicles.

The US reacted to this challenge with the Inflation Reduction Act, which aims to protect the production of clean technologies, particularly in automobiles, on American soil. The EU needs to catch up quickly.

Any European strategy must rest on three pillars: completing the single energy market to guarantee a carbon-free offer at competitive prices; protecting the European market without falling into isolationism; and strengthening investment in infrastructure and R&D while ensuring private finance can get to European companies.

The second priority is reorganising the European defence industry. There have been a number of failed attempts to establish a European defence community over the years. One of the consequences of the post-cold war “peace dividend” has been low defence investment and, as a result, a fragmented defence industry. The struggles the EU has experienced in providing military support for Ukraine show this clearly — we are still having difficulty supplying the weapons and ammunition that Ukrainians need, and European production is insufficient and unsuitable.

To be clear, this is not a question of creating a common army. European armies already co-operate within the framework of Nato and in joint operations. But it is a question of expanding capacity in the production of military equipment. Companies across the EU must work together to respond to orders and equip our armies in a co-ordinated manner, allowing us to respond better and faster to threats.

Finally comes the question of the reforms required to ensure that the future enlargement of the bloc takes place in the best possible conditions. Reaching out to neighbouring countries is key if we are to remove the threat of instability on our borders. But such security comes at a price — and will mean changes to the EU budget and to its governance.

We will not do with 35 member states what we currently struggle to do with 27. The single market must remain the common foundation. The UK’s experience since Brexit clearly shows that harmonised rules for European trade form the simplest and most supportive framework for our businesses and the jobs they support. The reforms suggested in Draghi’s forthcoming report on European competitiveness and Enrico Letta’s on the future of the single market will help improve it.

But, to reiterate, we will not do everything as a bloc of 35 states. The European defence industry is a case in point. It is concentrated in six countries, and the UK, no longer a member of the EU, is a key player. It is therefore logical that this group of countries works together. We could envisage different groups of countries working together in the same way in, for example, the quantum computing sector.

The European budget, as currently constituted, cannot deliver a range of ambitious targets, from the reconstruction of Ukraine to the deployment of low-carbon energies, plus the implementation of a genuine industrial policy and investment in artificial intelligence.

There are three levers available to secure a larger budget: private financing; private-public co-operation; and an increase in the union’s own resources (raised by a digital services tax, customs duties on products not meeting EU standards and possibly more common borrowing for well-identified projects that pay for themselves in the medium term).

The future of the EU depends on its ability to address these challenges. In the French elections, meanwhile, France’s capacity to assist in that future is at stake.

The writer is a former French minister of state for Europe