The EU in the world – Losing ground

As the European Union looks back on its first 50 years, it is the challenges and opportunities that lie ahead in a rapidly changing international economic and political environment that provide perspective on where Europe has come from and where it is headed.

It is easier to envisage the global role the Union will not be playing 50 years from now than to see with clarity what it will become. The EU will no longer be the world’s largest single economic space. China and the United States are likely to relegate the EU to at least the third spot in the economic league tables.

This fate is certainly not destiny. But the recent, prolonged underperformance of the European economy raises serious doubts about the political willingness of Europeans ever to accept the harsh costs of economic reforms that are necessary in order to enjoy the benefits of faster growth. If this European preference for redistribution over growth continues, the EU will remain a more equitable place to live, but a relatively less rich one.

And Europe’s global cultural influence will only wane over time, giving way to Asian dominance - reflecting an amalgam of Chinese, Indian and Japanese principals - and possibly even greater sway by American culture, that will demonstrate new vitality through a hybrid of European, Hispanic, African and Asian values.

The European Union will compensate for its own lack of internal economic dynamism by formally and informally deepening its integration both with its immediate neighbours to the east and south and with the United States.

By 2057 EU outsourcing of the production of goods and services will be as common and as accepted by Europeans as intra-EU commerce is today. In winter, British consumers will breakfast on fruit from Azerbaijan. French tourists will make their travel plans through an agent in Algeria. And temporary and semi-permanent workers from Egypt and the Ukraine will not only sweep Europeans’ streets, but be their bosses in their offices.

The transatlantic market, now the world’s richest economic space, is likely to be more integrated than the EU is today. Tariffs will be a distant memory. Investment barriers, even those now in place for national security reasons, will have been eclipsed by a single capital market. All new regulation - be it health and safety standards or financial service safeguards - will be developed in parallel. There will be an unrestricted free flow of labour as French accountants prepare the books for Californian companies and American doctors work in British clinics. Only residual American nationalism will stand in the way of formal economic and political integration modelled on the Treaty of Rome.

Europe’s trade with and investment in China and India will, of course, far exceed such commerce today. And Chinese and Indian investors will own iconic European brands, from Volkswagen to Carrefour. Thanks to Europe’s seemingly permanent trade deficit with Asia, the European Central Bank, much as the US Federal Reserve today, will set interest rates with one eye on their impact on the willingness of Asians to continue to buy European bonds.

The EU’s greatest influence on the global economy over the next half century could well prove to be in the fairly esoteric field of regulatory harmonisation. It is not that European standards will necessarily become global ones. But the EU has the deepest experience among the major economic powers in the process of harmonisation: the political and bureaucratic ins and outs of reconciling the irreconcilable. From a European vantage point in 2007 this reconciliation has seemed messy, difficult and woefully inadequate. But Europe’s unique achievement in transcending jealous sovereign control over domestic regulatory prerogatives will give it a competitive advantage in the global regulatory dialogue that will supplant trade negotiations in the years ahead.

Europe’s relative economic clout will shape its diplomatic and security role in the world of 2057. The EU will have incorporated the nations of the Balkans. The cost of bringing the standard of living in those nations up to something approximating western European standards coupled with the decision-making difficulties of governing an enlarged Europe will have ended all Turkish hopes of joining the Union, despite an ebbing of current divisions over religious issues thanks to the large Muslim minority within the EU.

Relatively slow growth will continue to impair European ability to spend more on defence. So, despite growing European economic interests in Asia, Europe will continue to have to depend on the US to ensure Asian stability.

And it is in its relationship with Russia that the EU will exercise the greatest leadership and make its most profound contribution to global security. Through ever deeper investment, trade, cultural and diplomatic ties, Brussels will help peacefully integrate Russia into the family of nations.

In 2057, the EU will not be the economic and diplomatic superpower that some of its most ardent supporters might have hoped. But its role in the global community will be no less critical.

• Bruce Stokes is international economics columnist for the Washington-based National Journal and a journalism fellow at the German Marshall Fund.

As the European Union looks back on its first 50 years, it is the challenges and opportunities that lie ahead in a rapidly changing international economic and political environment that provide perspective on where Europe has come from and where it is headed.