The European Union is the political and economic union of 27 member nations. The bloc itself, is facing a new and uncertain future since, within the last 18 months, it has not only been subject to the withdrawal of one of its founding countries (a new phenomenon in the history of the union), but it has also, along with the rest of the world, been navigating its way through the first global pandemic of its kind for a century. Well then, what now?
Backstory
The precursor to the European Union (EU), where it began to coalesce, was in the aftermath of the Second World War. The first elements of cooperation – according to europa.eu - were to be economic. The premise behind this, and not surprisingly, was that countries that trade openly with one another become interdependent and are less likely to go to war. The outcome was the European Economic Community, which was formed in 1958, and involved Belgium, the Netherlands, Germany, France, Italy, and Luxembourg. Many more countries have gotten involved since that time (and one has notoriously left), and the relationship between the members has evolved beyond the purely fiscal to encompass climate and environment, healthcare, security, justice, law, and movement. In 1993, the EEC became the EU.
Figure 1: Goals set out by the EU and agreed upon by its 27 member states (europa.eu)
The purported values of the EU are to foster Human Dignity, Freedom, Democracy, Equality, the Rule of Law, and Human Rights. Indeed, the goals set out for the member states are outlined in figure 1. The impetus for the emergence of the EU was a profound one. The historian Stephen Ambrose lumped the events of the 20th century together to call them a ‘European civil war.’ A fitting phrase since it was the ebb and flow of national strengths, combative politics, and volatile international allegiances, that ultimately led to the two great wars, the greatest financial depression in history, and the cold war. The eventual formation of the EEC at least (and then the EU), ultimately ended up presiding over a comparatively prolonged, if not nervous, peace. In terms of trade and trade financing, the EU has created an economic engine in the single market. Within it, goods, services, people, and money, are exchanged or travel freely. Other areas this may extend to in the future are energy, knowledge, and capital markets.
The EU is the largest trading bloc in the world. It is the biggest exporter of goods and services and is the largest import market for over 100 countries. According to the 2019 Global Health Report by Credit Suisse, it comes second in global net wealth (the US being first) at €60 trillion. 19 of the 27 member states are involved in a monetary union called the Eurozone where they use a single currency – the euro. After the US dollar, the euro is the most traded currency in the world and is also the second largest reserve currency. By revenue, of the 500 largest corporations in the world in 2010 (CNN Money), over 160 of them have their headquarters within the EU.
Squabbles
One of the most recent significant frontiers geopolitically – and therefore impactive on trade – has been the friction between the US and China, and the emerging Chinese economy. The US was once the primary market for exports to the Asia-Pacific (APAC) region but has now been supplanted by the Chinese. These two squabbling giants are the most important economic partners of the EU and as outlined by the European Council on Foreign Relations, their ongoing friction is remolding globalization. To speak of war between China and the US is to be melodramatic: neither wants it and as a recourse to their rivalry, it’s simply not a realistic outcome. But in wanting to dominate each other, the US and China are looking to alter the scaffolding upon which globalization hangs.
Making calculated investments to manipulate markets, the Chinese are seeking to undermine the influence of the EU on the international stage: they are making attempts to weaken multilateral organizations and diminish the EU in developing marketplaces. The US too, in wanting to remain shoulder-to-shoulder with Chinese hegemony, has sought to employ darker fiscal practices and politicize aspects of the international marketplace held to be inherently good, such as the US financial system and the International Monetary Fund (the new US president may well ultimately undo some of the measures set in place by his controversial predecessor). Where interdependence was previously seen as a force for security, the future may see it more as a means by which to destabilize. A possible pending threat to the EU in the new world order is that of sanctions, sensitive data loss, and export controls: all potential repercussions of the Sino-American financial aggression, the beginnings of this perhaps seen when the Chinese government was trying to leverage EU political concessions during the pandemic by threatening to withhold much needed medical supplies.
Moving to Tech
Although at risk of over-egging the pudding by mentioning China again, it is an intriguing monetary innovation of which China is at the forefront, that makes them once more worthy of note. According to Bloomberg (on 16th July), China’s digital currency – the yuan – has reached 34.5 billion in transactional value ($5.3 billion) and 20.8 million individuals have opened virtual wallets with a total of 70.7 million transactions. China’s central bank is way in front of the competition in terms developing a national digital currency. What with the reverberating discussions in trade finance surrounding blockchain and technological progress, it does seem that China is going to be the first to the line.
While China has been busy developing and launching their virtual currency, the Governing Council of the European Central Bank has only just decided to initiate the ‘investigation phase’ of their digital euro project (again on 16th July and according to IBS Intelligence). This phase will accommodate key issues such as design and distribution and is set to last for 24 months. The digital euro must – apparently – meet the needs of Europeans whilst preventing illicit activities or causing instability financially or on policy. At this stage, the thinking is that a digital euro will operate side-by-side with cash and not be a replacement for it. Encouraging as this step may seem, it feels like a very ginger move forward in comparison to the pioneering Chinese. Notwithstanding the wider questions surrounding cryptographic technology and the rise and rise of cryptocurrencies, the driving reason as to why trading blocs such as the EU, China, Iran, and Russia have instigated digital currency projects, is largely down to the way in which the US has been using the SWIFT international payment system for its own political purposes, something that won’t have gone any way to healing the Sino-American rift that is affecting the entire global community.
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