Think Global – Act European IV
EUROPE’S TRADE STRATEGY: PROMISE OR PERIL? Richard Youngs | Director, FRIDE John Springford | Research Fellow, Centre for European Reform (CER)
Summary Europe’s growth strategy is based on a larger trade surplus with the rest of the world, to make up for slow domestic growth, as consumers are weighed down by debt. Therefore, Member States have pursued commercial diplomacy, with foreign ministries organising trade fairs, brokering sales of energy, transport, and arms equipment, and in some cases making bilateral trade deals, undercutting EU efforts. Governments are doing everything they can to drum up export growth, especially in emerging economies. This strategy is unlikely to make Europe richer in either the short or the long term. The continent’s shortterm problem is a lack of domestic demand: overall exports to the rest of the world would have to grow at an unlikely pace to offset it. The continent’s long term problem is a slow rate of productivity growth. More competition between Europe’s firms is more likely to raise productivity, and with it living standards, than a government-sponsored export drive.
Introduction Some Europeans are tempted to shift trade policy away from laissez-faire. As China and other emerging powers seek to lock up foreign trade, investment and resources for their firms, EU Member States are tempted to respond. In straitened circumstances, and desperate for sources of growth, European governments are drumming up exports through commercial diplomacy and by brokering deals, particularly in energy. Member States differ on how far governments should directly try to steer trade strategy; but all have embarked on a more systematic engagement with trade. This is not new policy, but more 39