The EU and China: Geo-economic Agendas Compared

 November 22, 2015

The wave of blowback terrorism currently sweeping Western European capitals is likely to obscure a major event due to take place on November 24th and 25th in China: I am referring to the annual meeting of the leaders of 16 Central and Eastern European countries (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia and Slovenia) with the Chinese leadership in Suzhou. Following immediately after this weekend’s ASEAN summit in Malaysia, the meeting provides an extremely useful glimpse of China’s geo-economic agenda from the Balkans to Poland and Hungary.

An even more useful exercise, however, would be to compare the EU’s geo-economic agenda, with that of China and Russia in our parts of Europe.

The leading exponent of the West’s geo-economic agenda has to be considered Pascal Lorot, the founder of geo-economics. In the 1990s he published a booklet, suggestively titled “La conquête de l’Est”. The book contains the main tenets of the West’s economic expansion in the ex-Soviet bloc states from Central and Eastern Europe. Although NATO expansion has preceded that of the European Union, the main actors of the West’s geo-economic agenda in the region are the global corporations headquartered in France, the US or other participating Western countries.

While financial transfers from the EU to new member states from Central and Eastern Europe have diminished significantly over the years, having contributed only marginally to upgrading their infrastructure to EU standards, Western global corporations have taken over even the water supply or gas distribution in countries like Romania.

The results of the economic penetration in the area are, in some cases, nothing short of disastrous. Thus, companies like Vivendi or Gaz de France have succeeded in imposing to consumers at least ten tariff increases for water and gas in the last four years alone, contributing heavily to further impoverishing Romania’s population whose income levels, however, were already well below the EU average. To top it all off, Brussels is about to stunt Romania’s economic growth by imposing an EC-backed premier, unelected and undesired by the locals.

Moreover, throughout the region, Western global corporations have systematically deprived all the governments of much needed taxation income via transfer pricing and other accounting gimmicks.

Sure enough, there are a few success stories of Western economic expansion in the region, like that of German, American and French auto-makers in countries like Hungary, Slovakia, the Czech Republic and Romania, but these are the exception rather than the rule.

At the time of their EU accession in 2007, citizens of predominantly Orthodox countries like Romania and Bulgaria were hoping that this would put an end to their countries’ economic plight. The ensuing cultural shock suffered during the latest drive of Western expansionism has instead reopened old wounds. The 1204 ransacking of Constantinople by the crusaders is still alive in the collective memory of the Balkans. On that occasion, Western military “assistance” morphed into full-blown pillage and plunder, followed by the occupation of the Byzantine capital.

By contrast, since 2012 when the first China-CEE meeting took place in Warsaw, China has proven more willing than the EU to invest heavily in these countries’ infrastructure and manufacturing sector. In 2013, the first direct rail link between southwest China and the Polish city of Lodz was inaugurated, greatly facilitating two-way trade between the two countries. Nowadays, it takes only 15 days by rail for Chinese goods to reach Poland, or for Polish agricultural products to reach China. The upgrade of Baltic countries’ ports with Chinese investment is also underway, not to mention the upgrade of the port facilities in Piraeus, Greece by Cosco.

To date, the most ambitious Chinese infrastructure project in the region is the building of a very fast rail link between Piraeus and Hungary, connecting Athens and Skopje with Budapest via Belgrade. Not very far behind are the Russians, who are planning to build a gas pipeline from the Balkans to Central Europe along the same route. The Russians have also agreed to finance, to the tune of a few billion euros, the upgrade and construction of nuclear reactors in Hungary in spite of vehement EU protests.

The leaders of Central and Eastern European countries are now in a position to choose from the two geo-economic agendas the one that best suits the needs of their economies. As matters now stand, it seems that the West has largely exhausted its economic growth potential and is instead trying to exploit – colonial-style – the resources or populations of the new member states accepted after 2004. With its large cash reserves and “win-win” economic philosophy, China looks set to capitalize on local disenchantment with the EU by expanding steadily into this region.

Development Eurobonds and Economic Growth

 March 31, 2012

The harsh austerity measures afflicting southern EU members like Greece, Spain, Portugal or Ireland are generating massive unemployment and negative economic growth, not to mention the type of social turmoil that can conceivably degenerate into civil war. As the European Union is far from a truly federal structure, fiscal transfers from economically viable member-states to distressed areas of the Union are currently out of the question. Still, policy measures aimed at reversing the negative trends in economic activity and employment should become the top priority both for Brussels and EU national governments, if the deterioration of economic conditions is to be prevented from spreading.

The amounts needed to kickstart economic growth in the south and to drastically reduce unemployment, to be sure, would have to be in the vicinity of 1 trillion euros. These would fund EU-wide mega-infrastructure projects in transportation, energy generation and the maintenance of adequate provision of education and healthcare services. Unfortunately, most EU governments are now locked in a battle to reduce their fiscal deficits, in a vain effort to appease restless international financial markets and speculators. One of the few solutions advanced by – among others – Jean-Claude Juncker, the president of Ecofin, is that of issuing eurobonds, although the idea was flatly rejected by Germany and France.

The European Commission lacks the financial muscle to undertake such projects. To overcome that, it should, however, be enabled to issue a batch of one-off eurobonds earmarked for financing development and economic growth projects in distressed regions of the EU. Issued over a period of five years and sold exclusively to EU nationals, by a banking system that owes a lot to states and depositors alike, these eurobonds with long maturity dates could be an adequate financial instrument needed to raise large amounts of money in these times of huge economic stress.

By putting the European Commission in charge of the proceeds, the projects to be undertaken will not only benefit the countries most in need, but the European Union as a whole. As matters now stand, the alternative is to use crypto- financial transfers from northern countries to the South, which would result in higher taxation levels affecting the rich as well as the struggling European middle classes. The eurobond solution could also prove instrumental in redeeming the badly tarnished image of EU authorities, who are currently being perceived as a mere conveyor belt of highly unpopular austerity policies dictated by the financial markets.

"It's Economic Growth, Stupid !"

 March 28, 2012

Over the last two weeks, economic discussion among EU leaders has revolved around two main topics: austerity and increasing to 1 trillion euros the money available to the ESP. Few of the current leaders, if any, are concentrating on finding solutions to the real economic challenge facing the Union, that of kickstarting economic growth on the continent. As Barry Eichengreen argues,

“Though no one can say for sure what Tobin would have thought of Europe’s crisis, his priority was always the pursuit of full employment. One suspects that he would have urged European policymakers to dispense with their silly fixation on a financial transactions tax and instead repair their broken banking systems and use all monetary and fiscal means at their disposal to jump-start economic growth”.

With the exception of a few EU members (Germany, Finland, Austria, Denmark), growth is stagnant, or negative (in Greece, Portugal and Ireland, for example) and the average rate of unemployment has crossed the psychological threshold of 10 percent. Whilst countries like China have spent close to 1 trillion USD in 2008-2009 in order to maintain employment and growth, the EU is envisaging to invest a measly 100 billion euros to the scale of the continent, if that. To compound economic woes, aggregate demand in deficit EU countries is about to suffer further shocks as a result of the unwise implementation of draconian austerity measures.

According to Jean-Claude Trichet, former ECB director, the average budget deficit within the EU is 70 percent of the aggregate GDP. That compares very favourably with Japan’s 212 percent or with the US’ 100 percent public debt ratios. Maastricht Treaty “fair weather” provisions notwithstanding, most EU member countries could add a few percentage points to their deficits in order to adequately finance growth and employment investment schemes coordinated by Brussels. To avoid pressure from international financial markets, national governments could – as the Japanese have always done – sell their treasury bonds to their own citizens, vital stakeholders in a solid economic recovery.

Whether our political leaders realise it or not, the only way out of the current crisis is by spending close to 1 trillion euros over the next few years on various development and infrastructure projects. The EU’s energy security, for example, does need the Nabucco project to go ahead in order to diminish our dependence on Russian oil and gas and pipelines. Although the European Commission is trying to allocate money for other much- needed infrastructure projects, the EU budget is at the mercy of member states’ contributions. That brings into question Brussel’s ability to adopt and implement the pan-European growth agenda we need.

And yet, a comprehensive pro-growth strategy is essential, if both the employment and current sovereign debt crises are to be overcome. To get to it, national leaders should, however, do away with their fixation on golden rules and austerity measures, and start investing massively in projects that will slash the current unemployment rate, taming it to the levels experienced by Germany, Austria or Finland. The urgency of such an investment and spending agenda is, unfortunately, recognised only by economists. Unable to deliver the right mix of economic policies, EU politicians have found it more expedient to give in to xenophobia, racism and nationalism, some of them for electoral reasons.

Whilst populist discourse might in normal times prove helpful in winning elections, in the current economic climate it could only aggravate matters and prolong the crisis. In fact, voters in major European countries are more concerned with their diminished purchasing power and job prospects than with illegal immigration and/or security issues. Any politician or their advisers who fail to grasp that should make an exit from the political game. (sources: Project Syndicate, Le Monde, Reuters, Deutsche Welle, Xinhua)

The EU's crisis-busting projects

 October 23, 2011

On the 19th of October, the European Commission has announced in a press release that it will invest 31.7 billion euros into the transport infrastructure of member countries in need. Until now, as the document states, rail and road networks have been developed within the EU on a national basis. Opportunities for interconnectivity have thus been lost and that has severely restricted the free flow of goods and people across the continent.

Mediterranean countries such as Spain,for example, stand to benefit most from such investments. According to La Vanguardia, a rail link along the coast from the Franco-Spanish border to Algeciras in the south will finally be built in the next few years, at a cost of some 19 billion euros. The railway will bypass Madrid altogether. This development is also in line with the measures advocated in a recent Project Syndicate op-ed (“Mediterranean Reborn”) by Javier Solana. According to him, the building of new rail links connecting southern Europe with the centre of the continent will reduce costs as well as pollution levels and help rebalance the current trade flows from the Pacific region to Europe. Since northern European countries have far better-equipped harbour and rail networks than the south, merchandise from the Far East or India that comes via the Suez Canal into the Mediterranean currently bypasses ports like Venice, Marseilles or Barcelona in favour of Amsterdam, Rotterdam or Hamburg, even though the trip is three days longer.

The Commission will allocate money for the upgrading and linking of oil and gas pipelines, as well, in an effort to streamline energy distribution across the continent.

Taken together, these projects have the potential of creating tens of thousands of low-level jobs across southern Europe, at a time when unemployment in Spain, for example, has reached alarming levels. (sources: Presseurop, European Commission press release, La Vanguardia, Project Syndicate).