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Is Europe’s foreign policy under threat from Its economic dependence?

As Europe struggles to deal with the refugee crisis, it seems like a long time ago that Greek Prime Minister Alexis Tsipras threatened to undermine EU sanctions against Russia writes Hans Kundnani. His flirtation with Russian President Vladimir Putin last year was widely seen as a way for Greece to increase its leverage in negotiations with its eurozone partners and the International Monetary Fund, which were reaching a critical stage in the spring. In the end, a deal was struck in the summer that prevented a default and allowed Greece to remain in the single currency, though it is unlikely to do much to solve Greece’s deeper economic problems — and Greece remained supportive of European policy toward Russia.

However, as I argue in a new GMF policy brief, the situation of an EU member state seeking external help — or coming under external pressure to undermine an EU policy — is likely to recur in the future. Long-term changes in the structure of global trade are transforming the economic basis of the EU’s external relations. In particular, for nearly all EU member states, trade with other member states is decreasing as a share of total trade. Intra-EU exports have declined as a share of the EU’s overall exports from 68 percent in 2000 to 63 percent in 2014. This shift away from intra-EU trade raises difficult questions about the future of European integration.

The way eurozone countries decided to respond to the crisis is also exacerbating the trend of increased economic dependence on non-Western powers. In particular, a policy of prolonged and coordinated austerity, as well as constitutional limits on public debt to which eurozone countries have agreed, limit the potential for Europe to generate growth internally. This leaves no alternative to externally fueled growth, making EU member states more dependent on economies outside the EU in different ways. While the eurozone “core” will likely increasingly rely on non-Western powers as export markets, the “periphery” will increasingly rely on them as sources of investment.

Increased dependence gives non-Western powers leverage that can be used to prevent EU member states from taking tough positions or agreeing on common positions with each other or with the United States. In the medium term, China could be an even bigger challenge for Europe than Russia. EU member states have much to gain from trade with, and investment from, China, so it is likely to have increasing leverage over them. The increasing economic dependence of EU member states has already constrained the ability of Europeans to take tough common positions on issues such as human rights. As one official puts it, China has “bought a blocking minority” in the European Council.

In recent years, Europeans have made slow, incremental progress toward develop foreign policy institutions and “strategies.” The Lisbon Treaty created a European foreign minister position in the form of the high representative for foreign and security policy. Additionally, the treaty initiated the European External Action Service, which in turn created the institutional basis for a more coherent European foreign policy. The EU is also currently undertaking a review of the EU’s global “strategy.” However, in these discussions, the growing economic dependence of EU member states on non-Western powers is rarely discussed.

Unless European policymakers go further in connecting internal and external policy, this leverage by non-Western powers could undermine the progress Europeans are making in developing a more coherent foreign policy. At the moment, there is no mechanism for EU member states to collectively reconcile their internal and external interests. For example, after Tsipras threatened to undermine sanctions, the EU had no way to discuss how to balance the need to resolve the euro crisis with the need to uphold the European security order to reconcile member states’ interests in each.

The EU has long made trade-offs between the different interests of member states on both internal and external policy. Indeed, such trade-offs are the basis of European integration. But the changing relationship of EU member states with the rest of the world — in particular the increased leverage that non-Western states will have over them — mean that it is now necessary for the EU to go further in connecting its internal and external policy and to make even more complex trade-offs between member states’ interests. In short, the EU needs a mechanism through which it can prioritize between internal and external objectives.

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