Eurozone finance ministers are pushing trade high on the agenda to ensure a stronger geopolitical focus on economic security and “risk-aversion” strategies, with plans to strengthen the eurozone's competitiveness is not hindered.
The focus on trade will come as ministers from the 20 euro member states, also known as the Eurogroup, meet in Brussels on Thursday (11 April) with the aim of clearing the path to next week's special summit of EU leaders. There is. Strategies for increasing European single market and competitiveness.
“The Eurozone is a highly open economy and deeply integrated into global supply chains. We have seen global trade slow down. [and] The risk of fragmentation is real and likely increasing,” a senior EU official said at a press conference ahead of Thursday's meeting.
“There is clear agreement that further trade fragmentation is not in the EU’s interests,” the official added, adding that as with industrial policy, “supply-side resilience and strategic autonomy are He said that there is a need to “balance” and “harmonize” gender. […] Everyone agrees that the single market is truly the EU's greatest asset. ”
“We are well aware that competitiveness issues will be high on the EU's policy agenda in the coming months,” the official said.
“Finance ministers have overall responsibility for the economic performance of the euro area and are in a position to assess these trade-offs.”
EU leaders will develop a “competitiveness plan” calling for “a new horizontal single market strategy by June 2025”, according to a draft document seen by Euractic on priorities to be agreed at next week's Council meeting. The plan is to “pursue open and fair trade policies.'' […] At the same time, it will stimulate world trade. ”
It is expected that emphasis will be placed on “promoting open trade relations and respecting the order based on WTO rules.”
Concerns about trade fragmentation as a major headwind to the region's economy have been exacerbated by Russia's war in Ukraine and continuing tensions between the United States and China.
Risks to the European economy were highlighted at the recent European Commission meeting study He stressed that increasing trade tensions and trade-restrictive policy measures, including subsidies, have led to “an increasingly restrictive situation in cross-border trade.”
The paper warned that decoupling policies, including “new protectionist industrial policies”, could have “serious consequences”.
The paper warned that “continued trade fragmentation could potentially have significant economic costs,” and that, depending on the severity of fragmentation, permanent global production losses could be “a disproportionate amount of GDP.” It warned that it could reach up to 7%.
For some countries more at risk, “a scenario combining trade fragmentation and technological decoupling could result in production losses of 8% to 12% of GDP.”
Overall, the document pointed out that de-risking strategies should carefully target “areas where the benefits of inducing value chain repositioning outweigh the costs.”
The single market as a panacea for trade uncertainty
Separate committee focused on targeted risk avoidance report A paper published in February said it would “cut ties with 'riskier' partners.” [such as Russia and China] Costs are uneven across sectors and countries.
Notably, the study found that these costs were “a small fraction of the benefits.” That could be achieved by deepening the bloc's single market, one of the Eurogroup's five policy priorities for 2024.
“Resolving persistent trade tensions within the EU could offset the losses caused by severing ties with the EU. [these] We are partners.”
The study estimates that the single market has led to a 63% jump in trade between EU countries, resulting in a reduction in trade costs equivalent to a 12% reduction in trade tariffs.
It said further reductions in the cost of trade in the intra-regional single market, equivalent to a tariff reduction of around 6%, would be enough to fully offset the losses from trade cuts with non-EU partners.
Trade scenario: “Death by a thousand amputations”?
Meanwhile, European Policy Center analyst Philippe Rausberg told Euractic that deepening the EU's single market and maintaining trade ties with China are both highly desirable.There are not only economic reasons, but also political reasons. ”
Victor de Dekker, a researcher at the Egmont Institute who studies the security implications of China's dominance of the global critical raw materials (CRM) market, said: He noted that the suspension of trade relations between the EU and China is “not necessarily the main risk we face” regarding CRM.
In contrast to Europe's “intensive dependence on fossil fuels from countries such as Russia and Saudi Arabia,” this regionReliant on China for supply of multiple CRMs including lithium, magnesium and rare earths “Given the nature of the product, this is not a major threat. CRM can be used, reused, and recycled.”
Rather, he emphasized that the more likely danger is a scenario in which China uses “weapons” and is “slashed a thousand times.”[es]Its CRM dominance led to the enactment of “a long and irregular series of export restrictions.”
Recent paper Analysts at the IMF, the London School of Economics and other leading research institutes say that if trade with China were completely halted, Germany would lose 1.26% of its annual gross national expenditure (GNE) over the long term. I estimate that I will lose it.
More specifically, if this “hard decoupling” were to take place immediately and the EU's trade with China stopped from day one, Germany's GNE would fall by 5% in the short term, then gradually fall by 1.26% in the long term. It will be closer to the trend. Despite the size of the drop, it will still be lower than the 5.7% contraction suffered by Europe's largest economy after the 2009 financial crisis.
This permanent long-term loss compares with China's 2.05% annual decline and Russia's 4.94% decline.
Julian Hintz, director of trade policy at the Kiel Institute and one of the study's co-authors, argued that a hard decoupling would “absolutely” be worse for China than the EU.
“I think that’s a really overlooked aspect,” Hintz told Euractic. “The debate in Europe is really about: [how] We are dependent on China, just like two years ago it was all about how dependent we were on Russia. But these dependencies are never unidirectional,” he noted.
“Europe's economy is much more diverse than people think.”
The EU's current strategy is toremove the riskAlthough not a decoupling from China, Hintz argues that it acts as an “insurance premium” that EU countries are paying to limit the immediate impact of a potential hard decoupling from China. did.
By mitigating risk, he explained, “we're essentially paying the price for not making this immediate, deep cut.” [in trade]”.
“If you cut out 'cold turkey' you're going to see this sudden decline.” [in GNE] Comparable to the financial crisis. ”
In the area of critical materials, DeDecker agreed:[EU] Planning capabilities should not place too much emphasis on scenarios where all supplies from China cease.
“Rather, we should prepare and act in a prudent, long-term strategic manner that is appropriate for a period of unpredictable and protracted friction.”
[Edited by Anna Brunetti/Zoran Radosavljevic]
