In the world prior to the Global Financial Crisis, the EU focused on promoting change through trade, encouraging geopolitical convergence by means of economic interdependence. That world –transformed by the COVID-19 pandemic, the crisis stemming from the Russian invasion of Ukraine and growing Sino-US rivalry– no longer exists. In the current geopolitical scenario, interdependence has turned into a double-edged sword, and hard-to-quantify concepts such as strategic autonomy and economic security have emerged. How can the EU adapt to the challenge of a global economy beset by neomercantilism, neoprotectionism and state interventionism without losing its essence?
This report sets out to answer the question by means of a series of proposals enabling a reformulation of both the EU’s growth model and its economic governance.
The global economy is not what it once was, and ensuring economic security, autonomy in energy, the resilience of supply chains and technological supremacy are often deemed to be more important objectives than the maintenance of open markets or enhancing efficiency. This has paved the way, especially in the US, for new instruments of trade policy, an insistence on domestic production and controls on exports and investments in technology, with supply chains examined to reduce dependencies on China. The EU resists such extremes, because while it agrees on the need to reduce its risks (‘de-risking’) with China, it does not wish to go so far as complete economic severance (‘decoupling’). It is, however, obliged to reconfigure its economic strategy to align it with the new era, and has launched various initiatives in recent years to reduce its strategic dependencies and minimise its vulnerabilities in at least seven areas: energy, critical raw materials, technology, supply chains, defence, working population and finance.
Properly identifying and understanding these vulnerabilities has enabled the authors to develop a series of proposals giving rise to a new growth model. This involves increasing the potential growth of the European economy, improving the competitiveness of its firms, hastening the energy and digital transitions, and boosting social cohesion.
First, the EU must bolster public finances with an appropriate budget that finances basic European public assets and contributes to the macroeconomic stability of the Eurozone, funding this with new European taxes and emissions of joint debt, and configuring a permanent fiscal capability; the institutionalisation of NextGenerationEU (NGEU) could be the embryo for this.
Secondly, it must enhance private European financing, avoiding the fragmentation of European finance markets, ensuring once and for all the consolidation of the banking union and the capital market and making headway in the creation or a risk-free sovereign asset, without overlooking the single market in services.
Third, it must devise an authentic European industrial policy, one that goes beyond mere decarbonisation, minimising the State aid that destroys the single market while rationalising the programme of public assistance available to companies, establishing a one-stop system and devising assistance models with a greater uptake, while strengthening regulatory environments in leading-edge technologies and improving information systems.
Fourth, it must incentivise a European ecosystem more favourable to technological disruption and ensure the supply of critical minerals, fostering new trade agreements, rationalising public assistance, making European programmes less bureaucratic, accurately identifying the sectors of the future, promoting risk capital and ensuring cohesion between the various national technology strategies.
Fifth, it must promote close cooperation between companies and public administrations, developing more inclusive models of public-private partnership, with a simpler and more transparent institutional and judicial framework, sufficient funding and with the participation of multiple agents at various levels, focusing efforts initially on the deployment of critical infrastructure and data governance.
Sixth, it must foster the ongoing training and reinforcement of human capital, reforming programmes of professional training and dual education and introducing periodic reviews to ensure their constant appropriateness to business needs, while strengthening the ties between educational institutions and companies.
And, seventh, it must propound a framework of international solidarity, bolstering multilateralism and at the same time strengthening bilateral and inter-regional economic and trade agreements, adapted to the needs and restrictions of each partner, contributing to the setting of global standards that properly reflect European values. In short, there is an imperative need to devise a new social contract for Europe, rebalancing the roles of the State and the market, but instead of falling into the dangerous temptations of interventionism and protectionism, procuring a new model of dynamic and productive growth that reduces European vulnerabilities and at the same time protects the common good and ensures social cohesion
The authors would like to thank Marta Domínguez Jiménez and Manuel Hidalgo Pérez for their comments on the first draft of this report.
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