Crisis mode: On
It seems that the proper way to characterise the events of the last few years is the age of polycrisis and permacrisis. Multiple crises are unfolding before our eyes simultaneously, such as the COVID-19 pandemic, Russia’s brutal onslaught on Ukraine, the cost of living crisis, climate change, natural catastrophes, and the appearance of new disruptive technologies, to name just a few. There appears to be no end in sight to the extended period of insecurity and instability through which we are living. Crises are both global and interlinked. To illustrate this viewpoint, looking at the Global Economic Policy Uncertainty Index data from the last two decades is useful. 1 Heightened uncertainty has become a standard feature of daily life (Figure 1).
As Figure 2 illustrates, the current volatility is more than mere perception. Namely, both the EU and the rest of the global economy appear to have swapped the age of great moderation for the age of great volatility. The EU experienced sharp economic downturns in two of the most significant crises since the Second World War—the Great Recession and the COVID-19 pandemic. Heightened economic volatility and uncertainty have also taken a toll on the state of democracy globally and in the European context. Figure 3 presents V-Dem Institute’s assessment of the direction of key components of democracy in the EU, displaying a moderate, albeit concerning, decline since the early 2010s. A similar trend is also observable in the global state of democracy.2 In addition to a less effective political system breeding more discontent, new crises are waiting in the wing. Others might add that, in addition to suffering from economic recessions, social and geopolitical recessions should also be added to the list of woes (O’Connor, 2022; World Economic Forum, 2022).
To make matters worse, crises buffeting our systems have become more confusing. It is often too difficult to pinpoint an underlying cause and, by extension, propose neat and clean solutions. This is in stark contrast to our past experience, e.g. the spectre of institutional sclerosis haunting European states in the 1970s and 1980s led to the ambitious move of creating the European single market, which, in turn, boosted the continent’s dynamism and performance (Tooze, 2022). Moreover, the Montreal Protocol effectively tackled the ozone layer crisis in the 1980s caused by CFC emissions. Previously, it was relatively straightforward to argue for unleashing the potential of the market or propose new globally binding environmental agreements. Nevertheless, there are several factors that militate against this ‘concise diagnosis and effective therapy’ sequence in the current global context. First, today’s crises are more complex and demand coordination between a myriad of stakeholders. Distributional battles have become fiercer due to the sheer speed and scale of the crises and the corresponding reshuffling of power that they produce. Second, the nature of power has undergone a profound transition; it has become easier to obtain power, but on the flipside, it has also become much more difficult to use power to control others and to keep it once you have it (Naim, 2013).
Unfortunately, the silo mentality has been reinforced by social networks and other means of communication (Acemoglu, 2022; Haidt, 2022). Today, it is more difficult to distinguish truth from fiction, while states and societies are often prone to use those networks in an increasingly authoritarian fashion, making possible the ghastly fusion of the Orwellian and Huxleyan worlds. This type of development in a moment of multiple crises, especially overlapping ones, is dangerous and counterproductive. It is already a stylised fact that crises bear political pathology and sap societal creativity (Simonton, 1990). When faced with urgent threats emanating from a crisis, people tend to fall into the trap of rigidity and groupthink, which reinforces existing biases. Information restriction (suppressing information channels or narrowing horizons of attention) and control constriction (power concentration at higher levels of hierarchy) lead to maladaptive reactions (Staw, Sandelands, and Dutton, 1981). However, when the operating environment changes radically and coping mechanisms are unclear, flexibility and diversity are essential for survival.
Navigating our way forward
Generally, crises are only good in moderation and if shared by others (Spicer, 2022). While it is always difficult and occasionally impossible to pick one’s own fights in a crisis, it is still possible to shape some sort of collective response. The first step on the road to such a shared response is to agree on the very existence of a common threat. The second step entails the need for a common narrative, which basically involves creating stories capable of changing people’s behaviour. Experts too often define wicked problems3 in terms of their background solutions, best captured by the adage, „If the only tool you have is a hammer, you will start treating all your problems like a nail.’ Furthermore, these solutions are also shaped by pre-existing values and biases.
In contrast, the most viable way to convince people on moral and social issues is not with facts. Human reasoning does not occur in a logical world but rather in an emotional one based on stories (Haidt, 2012). In that regard, liberal centrism possesses a specific quality in being able to reconcile extreme positions. Accepting as a point of departure that our Western political system, based on the pillars of liberal democracy and a market economy, is a form of liberation that permits constant innovation, including new forms of exploitation enabled by those very innovative abilities, seems quite a sensible story. Therefore, even if our system does not deliver desirable outcomes all the time or is, on many occasions, shaken by deep crises, one should not throw the baby out with the bathwater but instead try to reinvent the system itself, as has been the case multiple times in our modern history.
The pending reinvention in the 21st century will crucially hinge on breaking the polarisation spiral affecting our societies and devising answers to the three Is (investment, insurance, and innovation). First, the polarisation spiral is fed and perpetuated by how social networks work; thus, changing their architecture is one of the most pressing issues of our time. Reducing the virality of the content through demetrication efforts (e.g. hiding data on engagement with posts or tweets) is essential to avoid negative popularity contests. Narrowing the reach of unverified accounts is also inevitable if the goal is to address the issue of troll farms, foreign agents, or conflict instigators. Problem-solving and crisis management is a self-reinforcing process: just as trust is necessary for reaching solutions, delivering such solutions is the best way of building further trust (Lehne, 2022). Solving this chicken-or-egg problem by reasonably tweaking our information environment in line with liberal principles facilitates forging consensus and an effective crisis response.
Second, investments to facilitate green transition will have to be scaled up significantly. New innovative solutions to mobilising and crowding-in capital must be developed by both the private and public sectors. New public-private partnerships will have to emerge, yet this feat is almost impossible to accomplish unless there is an agreement on introducing a global minimum corporate tax rate and updating the rules on where the largest corporations pay their taxes. Securing new streams of income or reducing the existing tax burden does not have to come at the expense of efficiency and market dynamism. On the contrary, unbridled tax competition drives market concentration and monopolisation since it tilts the playing field in favour of large incumbents (Tilford, 2018). Hopefully, this agreement will live up to its commitment starting in 2024, after facing multiple delays.
Third, new forms of insurance against currently uninsurable risks, such as decreased demand for a certain skill set, will reduce anxiety and insecurity (Schiller, 2003). The development of new insurance markets in tandem with reinforcing the existing social safety nets is fundamental to prevent the ascent of authoritarian populism and the state of policy paralysis in tackling emerging crises. The call for global economic coordination made in the previous point on investments could also be useful in helping states to use their fiscal capacity wisely and stimulate the development of new insurance markets.
Fourth, both technological and institutional innovations are necessary for addressing questions of what and when it comes to dealing with crises. New technologies such as generative AI open up many possibilities for managing climate change more effectively. Still, new institutional innovations will also have to emerge due to the great potential for abuse of those same technologies; for example, generative AI is too powerful and transformative to leave in the hands of a few monopolistic companies that control the computing power to feed algorithms or that have access to vast troves of data. Tax codes must be revamped as well to put workers and technology on an equal footing to avoid excessive automation if workers are taxed at significantly higher rates (Acemoglu, 2021). Finally, the rapid progress of artificial intelligence requires the creation of an intergovernmental panel, just as there is on climate change. Therefore, innovation is too important to be left to innovators alone.
Summary of the content and some critical reflections
How crisis-proof is the EU, and what can be done to improve its crisis management capabilities? The first thematic block of this volume is titled States in Crises, and it primarily focuses on the EU and how its architecture and policies could be made more efficient, resilient, and democratic. Complementarily, the second thematic block Markets in Transition bring more sector-specific stories. In the past, crises were often a stimulant for EU integration. However, it would be naive to conclude that more crises will lead to more integration, especially if they are asymmetric, affecting the different parts of the Union unevenly. Some relatively recent crises, such as the EU’s financial crisis, led to new and reinforced architecture in the form of banking integration, notwithstanding the additional work that needs to be done. Other crises with more asymmetric effects, such as the migration crisis, continue to linger in the absence of an agreement on how to best tackle them collectively.
Overcoming crises requires solidarity; this requires enlightened self-interest among the member states, which, in turn, is tightly interwoven with mutual interdependence. Eventually, rising global interconnectedness and a rapidly changing environment make somebody else’s problem your problem. Therefore, preventing excessive concentration of power at the higher levels of hierarchy while, at the same time, pooling joint resources when it is reasonable to expect that common effort adds value is a golden formula. To give a fresh example, letting the European Commission issue new bonds in the context of the current energy crisis would set a bad legal precedent and represent a procyclical fiscal policy. In contrast, member states’ reluctance to embrace some degree of resource pooling for strictly ensuring the provision of EU-wide public goods would be equally bad.
Overall, there are ten interesting and complementary contributions in this issue, despite the authors’ diverse academic and professional backgrounds. In the next couple of pages, I will try to do justice to each of the contributions by distilling their key ideas and arguments. For the sake of clarity, they will be divided into three sections: they will be divided into three sections: Reforming the EMU, Agriculture-Climate-Energy Nexus and Industrial Policy, Technology and the Geopolitics of Standard-Setting. Hopefully, readers will enjoy all six contributions, broaden their horizons, and leverage the authors’ ideas in their academic, professional, and civic endeavours.
1. Reforming the EMU
The first two contributions cover the functioning of the EMU. In his very lucid analysis, Velimir Šonje (Managing Director and Founder of Arhivanalitika) elaborates on how the inflationary crisis has impacted the current institutional architecture of the EMU. The ECB’s decision to raise interest rates by 300 basis points since July 2022 has definitely put peripheral member states under pressure. However, the situation is currently under control, and the monthly inflation rate in January 2023 fell for the first time since January 2021. Conversely, fragmentation risk has been partially addressed by the newly created Transmission Protection Instrument (TPI), which should enable the ECB to purchase bonds when there are unwarranted and disorderly market dynamics threatening the integrity of the European single market.
However, the underlying issue of the EMU’s long-term institutional development remains unresolved. Šonje poses the key question: Who receives information feedback from government bond markets, and what incentives does it create? He is sceptical of deeper fiscal unification due to policymakers’ inclination to misrepresent the EU’s situation as that of a large and relatively closed economy (Figure 4). Misjudgments like this raise the possibility of costly policy errors such as overstimulating demand, similar to the US reaction to the COVID-19 pandemic. In his opinion, fiscal decentralisation is the key to preventing both fiscal dominance in the Eurozone (member states holding the ECB as permanent hostage) and bureaucratic dominance in the EU (weak central bureaucracy oversight with limited democratic accountability). The recent Qatargate scandal vividly underlines this danger, as too big linguistic, psychical and psychological between decision-makers and citizens facilitate corporate or foreign agents capture.
The main takeaway from this contribution is that the EU needs infrastructural integration of government bond markets within an existing fiscally decentralised political model. This can improve bond price discovery and markets’ disciplinary role. Furthermore, this kind of solution reduces moral hazard; however, it also puts a floor on the forces of disintegration by potential activation of TPI in case of emergency. However, TPI eligibility criteria are still waiting to be decided upon. Nevertheless, a fiscally decentralised political model enables the EU to steer clear of political resentment caused by high power distance and the lack of trust in the case of excessive centralisation.
The second contribution by Damir Odak (Former Vice Governor at Croatian National Bank) is dedicated to the banking union issues and its completion. The issue of the banking systems’ resilience has always been critical for the survival of EU integration, especially now in the midst of an inflationary crisis. The system currently faces elevated inflation and interest rate hikes. Furthermore, it relies on a heavy mortgage portfolio plagued by two risks: fixed rates and housing prices. While bank shares, on average, are valued above their book value in normal circumstances, the P/B ratio of Eurozone banks had fallen under book value in 2009 and has continued with some oscillations at this level ever since. The author advocates the completion of all three pillars of the banking union, including the deposit insurance scheme (EDIS). He considers that the creation of a single supervisory mechanism is important regardless of the difficulty of equally treating banks, which are objectively unequal due to operating in different markets.
However, it seems that the ‘singleness’ of the EU financial market will be under constant pressure unless the sovereign-bank nexus is established at the EU level. A banking union resting on three pillars still falls short of fulfilling this objective, however. Namely, in all previous historical episodes, a fiscal union has always preceded a banking union. Odak concludes that whether creating a fully fledged banking union will serve as a point of further integration is an open question. Regardless of this ultimately big political question, retaining integrated banking supervision and establishing missing pillars is essential to fortify the EMU against potential shocks.
The third contribution written by Emanuele Bracco (University of Verona) deals with the the role of fiscal policy in nudging people into making optimal choices. Having this in mind, the author coined a very illustrative term ‘fiscal forward guidance’. Similarly to relying on forward guidance in monetary policy decisions, which rests on clear communication of monetary policy decision-makers’ take on future interest rates and asset purchases, innovative fiscal policy-makers can also impact consumers’ and citizens’ choices by environmental and behavioural taxes over the long-run. In that regard, the author is aware that taxing harmful products and behaviour always faces difficult trade-offs such as the possibility of strategic delocalization of production to localities with less stringent regulation or of consumers opting for illegal or counterfeit products.
Therefore, in order to retain fiscal space and protect tax collection capacity, while at the same time allowing for the promotion of innovation, health and sustainability, EU member states should set a clear path of tax hikes for harmful products and behaviour. Those tax hikes should maintain tax differential over less harmful ones. Precisely this could guide consumers and firms towards safer products and maintain sufficient tax revenues. Finally, a clear path outlined for companies would enable them to exploit new opportunities by investing in process and product innovation. On the other hand, bans and command-and-control measures should be preferably avoided.
2. Agriculture-Climate-Energy Nexus
The following four contributions are neatly interwoven and form an agriculture-climate-energy nexus. All three papers overtly or tacitly imply the need for policy and technology change to address the pressing challenges of today’s complex world. However, technological change does not happen in a vacuum and is always tightly related to policy change, i.e., who shapes it and how it is being shaped. There are multiple policy equilibria, and cui bono always takes centre stage. Some interest groups promote certain ideas that reflect their goal of maintaining the status quo, while other interest groups try to monopolise the discourse of change and impose their particularistic goals on broader society, regardless of their impact on total economic and social welfare. On the other hand, even when there are no starkly opposing interest groups to certain technologies sometimes the unwarranted fear of new technologies also forms an obstacle.
In the first contribution Joost van Kasteren (RePlanet EU) deals with the introduction of new breeding technologies (NBTs), based on gene-editing. In spite of having the potential to greatly enhance agricultural yields, improve sustainability of production, raise the nutritional quality of food and establish a more secure supply-chains, NBTs face adverse regulatory framework in the EU. Environmental and health risks of these new technologies are comparable to, or even less than, classical breeding technologies or mutation breeding.
However, the European Court of Justice ruling dating from 2018 stated that new breeding methods such as CRISPR/Cas shall be treated in the same manner as GMOs. A very strict approval procedure prevents the creation of new innovation ecosystem. On the other hand, multiple jurisdictions, such as the UK, Switzerland and Canada are likely to take the lead, in direct contravention to the EU’s ambition to excel in the green economy and strengthen its technological autonomy. Hopefully, in 2023 the European Commission will spearhead a renewed debate on the appropriate regulatory framework, which shall move away from the existing one that works to the detriment of consumers, the environment, biodiversity and the competitive position of Europe’s agriculture industry.
While technology change does not make it to the frontlines of a contribution to agriculture, Marko Lovec (Faculty of Social Sciences, University of Ljubljana) provides a very comprehensive overview of Common Agricultural Policy (CAP) and its historical resistance to change. Most reforms thus far have been very partial, and the policy change debate has often been hijacked by vested farm interests. This has also precluded the introduction of new technology fixes to sustainability problems created by agricultural production. According to the author, carbon pricing instruments would support investment in alternative and innovative feed. Indeed, those changes would mobilise investments in vertical farming and aquaponics to bring production closer to urban areas and increase the role of renewables in agriculture, facilitating smart integration of agriculture, climate, and energy policy. Based on his analysis, the necessary steps forward include delinking the issue of CAP reform from passing the Multiannual Financial Framework. This, in turn, is only possible by raising public awareness of the explicit and implicit costs of CAP in its current form and by increasing the role of the European Parliament as a colegislator.
In terms of climate change, technology will play an inevitable role. However, it is important not to fall into the trap of easy tech fixes for what is essentially a wicked problem; that is, a problem too difficult or perhaps even impossible to solve because of its complex, interconnected, and constantly evolving nature. Moreover, almost every innovation opens up a new set of problems and challenges, e.g. algae growth in the ocean may contribute to the storage or removal of CO₂, but it is legitimately feared that it might also lead to severe acidification. This is precisely the argument that Laura de Vries (European Climate Pact Ambassador in the Netherlands) elaborated. Additionally, an even more important argument revolves around her warning about who owns and controls the deployment of climate technologies, particularly those that could have irreversible consequences for the planetary ecosystems. Of particular concern appears to be solar radiation management.
She strongly advocates democratising climate technologies to prevent new power asymmetries from taking place. Although she does not stipulate this directly, this would probably require a better alignment of risks and rewards in future collective research efforts. One potentially useful idea would be the creation of professionally managed public venture funds, which would take equity stakes in a large cross-section of new technologies, funded by the issuance of ‘innovation bonds’. It is of utmost importance for that kind of pioneering effort to be decoupled from short-term political pressures and favouritism, following the successful institutional innovation of independent central banking. This would require a major transformation of how the state’s role in the economy is conceived. According to distinguished economist Dani Rodrik (2015), there is a necessity to traverse the path from a welfare state to an innovation state. However, the state must ensure that new technologies serve society and that their direction reflects social priorities. It is useful to remember what those priorities are: safety, a sound environment, empowerment of human labour, and the promotion of democratic values and human rights.
In the next contribution, Christian Sandström (Jönköping International Business School and the Ratio Institute) compellingly argues on the dangers of government-led investment cycles that often turn into green bubbles, costing taxpayers and many investors enormous sums of money. He recounts the Swedish experience with subsidised ethanol cars and ethanol production and shows how this policy led to inferior and costly technological solutions and products. His arguments convincingly point out the danger of repeating the same mistake with the state approach to hydrogen-based technologies. This fear stems not only from the lack of policymakers’ awareness of the principle of technological neutrality but also from historical experience with costly and perverse incentives that promoted systematic subsidy entrepreneurship.
The author of this introduction considers that Mazda’s European CEO Martijn ten Brink recently made a good point on the merit of upholding the principle of technological neutrality. He said that the 2035 ICE ban is a disgrace to politicians (Potts, 2022). While this statement might appear harsh on its face value, it still conveys an important message that the car industry is in the dark regarding which technology might be the most cost-effective in ensuring green transition. The comparison between hydrogen fuel cell electric vehicles and battery-powered EVs does not result in a clear winner on lifetime carbon footprint criteria, as the calculation largely hinges on how materials for their production are being sourced (Fletcher, 2022).
In that regard, politicians should refrain from picking the winner since they have even less information than the industry itself about what might and might not work. According to Sandström, an even more precarious threat is to be found in the high likelihood that primary beneficiaries of interventionist industrial policies will be vested interests, as the most recent example of grants approved by the European Investment Fund attests. Interestingly, the funding had been predominantly allocated to carbon capture projects instead of projects aimed at preventing CO2 emissions in the first place.
The main takeaway from this section is that politicians enjoying democratic legitimacy have the mandate to impose broader societal goals such as net-zero emissions until a certain deadline, fitted with a coherent set of incentives and disincentives. However, when it comes to innovation and its role in tackling climate change, the EU should abstain from command-and-control measures, as Emanuele Bracco (University of Verona) argues in his contribution to the second thematic block, titled Markets in Transition. Instead, it should rely on taxation, emission trading, and cutting regulatory red tape, as is argued by Sandström. The author of this introduction also deems it important to boost the financing of cutting-edge basic science research, which constitutes a genuine public good. In addition, establishing independently run public venture capital funds is also crucial; it gives taxpayers a stake in developing and deploying new technologies. Nevertheless, it should not be forgotten that states also have to improve the regulatory framework for clean technology private venture capital, which is significantly underdeveloped in the EU compared with the US and the Asian Pacific region.
Subsidies should only find their application in speeding up the adoption of already proven and scalable technologies, such as for increasing solar and wind power capacity. Harnessing the Wright law, stipulating that for every cumulative doubling of units produced that costs will fall by a constant percentage, will be key. There is still no market saturation in green technologies, but subsidies should be targeted primarily to SMEs and households, time-bound, and then removed once the main obstacles and market failures are overcome.
We have never witnessed such an immense challenge in scope and timing. Previous energy transitions were primarily technology- and market-driven, while public policy plays the dominant role today. These transitions, which have been unfolding over decades if not centuries, were additive, not fully displacing incumbent technologies. Hence, in addition to relying on the previously mentioned policy instruments, the author of this introduction considers that the EU needs to break a taboo on nuclear energy by expanding base-load electricity generation, without which it is impossible to compensate for wind lulls or cloudy days.4 Unfortunately, the market for nuclear energy suffers from a lack of standardisation, which hampers economies of scale; thus, the EU should make important strides in this area while ensuring that the commercial advantage of this power source does not come at the expense of regulatory safety.
3. Industrial Policy, Technology and the Geopolitics of Standard-Setting
The last three contributions presented in this introduction deal with the idea of shaping the world of tomorrow by setting the appropriate industrial policy, technical standards and regulatory framework. Fear of future technological change is always an issue if there is low social trust into policies necessary to prevent its abuse. Serious design flaws in the algorithms and biased data sets might easily lead to privacy violation and identity-based discrimination. In addition, more and more workers that do not program algorithms directly face a stifling ‘code ceiling’, which causes soaring inequalities (Walsh, 2020). Without proper regulation and education of users AI will tend to exacerbate, rather than ameliorate, pre-existing political, social, and economic problems (Sambuli, 2022). And this undertaking should be framed not in technocratic but existential terms, in order to protect liberal democracy from being undermined by nascent corporate oligopoly.
In their contribution on the role of trust in AI in the healthcare Francesco Cappelletti (Policy and Research Officer, ELF) Francesco Goretti (European Laboratory for Non Linear Spectroscopy, University of Florence) endorse the view that AI has the potential to assist HCPs (health care providers) in their tasks, provide consistency over time, and produce faster and more precise results, especially when it comes to developing and personalising new drugs. This is also in line with a special note from Aleksandra Krygiel Nael (Head of Government Affairs and Policy, MedTech EMEA, Johnson & Johnson). She states that policy makers and healthcare stakeholders should also leverage technology, data and public policy to increase evidence-based decisions and reduce inefficiencies and wastage in the healthcare systems. However, Cappelletti and Goretti decisively argue that solutions should be developed and deployed responsibly, with a focus on transparency, accountability, and patient privacy.
Scary algorithms need not be our future. Yet, despite the EU’s recent proposal of an AI Act in 2021, the first such effort by a major regulator which aims to block certain uses, more has to be done in coordination with major allies to set appropriate ethical guardrails through coordinating bodies such as the EU-US Trade and Technology Council, or where politically impossible, work on creating a first-mover advantage. As of this writing, the EU’s regulatory power has started to fade in comparison to the United States and more and more corporate rules is being handed down by Washington (Forohar, 2023). If losing a regulatory race against United States sounds hard to swallow, then it is even more disconcerting to be on the losing side with regard to the rising regulatory impact of an authoritarian China.
In the final text of this thematic block on States in Crisis, Tim Rühlig (German Council on Foreign Relations) dissects the new era of geopolitical competition in setting technical standards. Once an arcane field reserved for technical specialists from private companies, determining technical standards has undergone profound politicisation. In the context of the digital economy, institutional ‘lock-ins’ and network effects play an ever more important role. Being a standard-setter offers at least four distinct advantages. First, it enhances competitiveness by leveraging the first-mover advantage. Second, it increases regulatory and legal influence since standards developed for large markets tend to have extraterritorial reach. Third, technological standards have far-reaching security implications, and the standard-setter can exploit critical vulnerabilities to its own advantage. Fourth, standards facilitate discreet value transmission because technology is not value neutral, and the standards that guide its application promote certain social and political values, such as more or less privacy.
While setting technical standards has been the prerogative of Western companies and their professional associations since the Second World War, China’s ascendancy has challenged this modus operandi. It will be a giant task for EU policymakers to walk a tightrope between the ‘business-as-usual approach’ and emulating China’s statist measures. Imitating the Chinese approach would be counterproductive to the EU’s innovation capacity and competitiveness. In that regard, the author does not shy away from making detailed recommendations to EU policymakers on how to uphold the EU’s signature policy, the so-called ‘Brussels effect’ or unilateral regulatory globalisation resulting from the European Union’s de facto externalising of its laws outside its borders (Bradford, 2020).
In the final contribution Gerald Pogorel (Telecom Paris-Institut Polytechnique de Paris) discusses the future outlook of the EU’s industrial policy. In that manner he advocates that the EU must define in a consistent way its policies within a “3-Circle” framework: the „Union Circle“ (the 27), the “Friendship Circle”, the EU and its allies in Europe, in the Americas, and Australasia, and the “Wisdom Circle”, involving the political and economic intricacies of dealing with rivals like China and other authoritarian middle-powers. He warns of the risk of scrapping the EU’s state aid policy in exchange for a free-for-all approach that undermines the Single Market (the „Union Circle“) and leads to a massive loss for EU taxpayers and consumers.
When it comes to the „Friendship Circle“, the EU should boost it diplomatic stance, enhance coordination to avoid expensive duplication5 and avoid beggar-thy-neighbour policies towards friends. In that regard, the author of this introduction would add that the EU should properly frame what does the strategic autonomy actually represent, what are the precise trade-offs between economic efficiency and resilience and who is to pay for the security premium, if production is not to be based on the comparative advantage principle.
Finally, regarding the „Wisdom Circle“, Pogorel states that the only realistic way forward is for allies in the Friendship circle to hedge their bets. Based on presented trade data, that clearly show rising trade between both pairs, US-China and EU-China, and in spite of rising geopolitical frictions, it is improbable and extrememly expensive to opt for a major trade decoupling. On the contrary, de-risking is the right approach since risks to supply chains can be measured and their probabilities considered. They can be mitigated, starting by increasing inventories, multi-sourcing, diversifying providers.
At the end, the author presents some novel solutions for increasing the EU’s industrial competitiveness such as: complementing Horizon R&D with financially less constrained instruments allowing for more risk-taking, creating programmes in charge of producing EU public goods devoid of member states return provisions and establishing a joint study programmes between the EU and its transatlantic and transpacific partners. Those are all welcome initiatives presented by Professor Pogorel but at the end one has to pose a really unpleasant question. Can the EU really become the technological and industrial powerhouse without more integration in the field of defense and security policy? The answer to that question is left to the reader and future issues of this journal.
Endnotes
- GEPU a joint project funded by: Alfred P. Sloan Foundation, Becker Friedman Institute, Chicago Booth School of Business, MacArthur Foundation, National Science Foundation and Stanford Institute for Economic Policy Research. GEPU Index covers GDP-weighted average of national EPU indices for 21 countries: Australia, Brazil, Canada, Chile, China, Colombia, France, Germany, Greece, India, Ireland, Italy, Japan, Mexico, the Netherlands, Russia, South Korea, Spain, Sweden, the United Kingdom, and the
United States. - V-Dem provides a multidimensional and disaggregated dataset that reflects the complexity of the concept of democracy as a system of rule that goes beyond the simple presence of elections. We distinguish between five high-level principles of democracy: electoral, liberal, participatory, deliberative, and egalitarian, and collect data to measure these principles.
- Wicked problems are problems that are difficult or maybe impossible to solve because of their
complex, interconnected and constantly evolving nature. Policy problems cannot be definitively
described. In a pluralistic society there is nothing like the undisputable public good and there is
no objective definition of equity. There are also no definitive solutions to the problem (Rittel and
Webber, 1973). - Furthermore, one additional step justifying this decision is the EU’s energy import dependency
which is staggering, In comparison to China’s rising dependency which is still in the range of 20-25%, as well as to the US’ progress in becoming a net exporter of energy over the past 15 years, the EU’s dependency ratio has fluctuated in the very high range of 55-65% over past three decades (Kotarski, 2022). - Furthermore, the EU should design some matching subsidies, if faced with the total lack of cooperation on the equal treatment between US and EU producers on the Washington’s part. However, the EU should welcome the US in a race-to-the-top in spearheading green transition. In the long run, bigger US market for cleantechnologies will also favour EU businesses.
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