Beyond banking: What the financial crisis means for the EU ★ The financial crisis seems to be reinforcing existing global trends, such as the power shift from west to east, hostility to economic globalisation and rising nationalism. It will have a huge impact on the shape of European politics and economics for years to come. ★ Since there is no single European treasury, expectations about what the EU could do to bail out banks were overblown. Yet after a series of unilateral decisions and ineffective snap summits, Europe’s leaders have shown that they can work together. ★ The EU is heading for recession and faces a prolonged period of very weak economic activity. An early recovery is unlikely unless the countries that have been running large external surpluses do more to stimulate domestic demand, including through increased government spending. ★ The economic downturn is likely to strengthen populists on the left and right across Europe. Fears of rising unemployment and falling incomes will trigger new calls for protection against imports, foreign investment and immigrants. ★ The financial turmoil could make some people in the Nordic countries and Central and Eastern Europe keener to join the euro. But it also poses a serious test for the long-term viability of the single currency. ★ The crisis has exposed weaknesses in the EU’s regulatory system. As a result, the EU will adopt tighter rules for the financial sector, and the debate over whether it should have a pan-European financial services regulator will intensify. ★ Fears of recession have emboldened those countries that argue that cutting carbon emissions would damage their economies. Their opposition makes it less likely that the Union will meet its original climate change targets. The EU’s claim to global leadership in this area is now at risk. ★ The EU will also find it harder to reach agreement on issues such as enlargement, economic reform, energy and migration. However, the chances of the Lisbon treaty finally being ratified by all member-states have risen a little. ★ The western-centred financial crisis will reinforce the perception that the US and the EU are becoming relatively weaker. The US will remain the dominant global power, but its ability to set the agenda for tackling problems such as the Iranian nuclear programme may be impaired. ★ Russia could be among the biggest losers from the financial crisis. The country may become more aggressive, authoritarian and autarkic. China can hope to come out of the crisis relatively unscathed. But the chances of it agreeing to binding reductions in carbon emissions at the 2009 Copenhagen climate change summit have diminished. ★ The financial crisis has reinforced the case for a serious reform of the institutions of global economic governance. The Europeans should take a lead, for example on making the G8 a larger and more representative body.
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