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30 years after Covid will the EU still exist?

Thursday, 26 November 2020
This is an opinion article by an external contributor. The views belong to the writer.

A question I ask myself more and more is would I like to live in the future or the past? Typically as an economist I would like to see the future but more often I would choose the past which I know more of.

But we cannot live in the past, that is why with the tremendous uncertainty around us we ask the question about the future for the EU in a new report ‘Europe 2050. Seven main risks in the post-COVID era’.

Going 30 years into the future

Exactly a hundred years after Robert Schuman presented his plan integrating France and Germany in terms of coal and steel, will Europe manage to overcome the growing costs of the energy transformation and drop the once binding coal?

AD 2020 European Union is internally divided, with enormous debt, a plague of zombie companies, with growing generational and class conflicts, and digitally dependent on global powers.

Nonetheless, Europe has to find its place on the map of global trade shaken by the emerging trade wars and the reversal of globalization. This is the first challenge for the EU. Especially since these trends exacerbated during the pandemic, when voices about the need to shift production “closer to home” started to appear more often in the political mainstream.

Old people will rule us all

The second challenge is rising intergenerational conflicts over the provision of public services. Eurostat forecasts that, in 2018-2050, the median age in the EU will increase by 3.8 years, to 46.9 years. Unlike North America, where the population should grow by 75 million people, the EU’s population could amount to fewer that 450 million people, decreasing by 49 million.

This means fewer people of working age and fewer workers. Older people’s political priorities are different and more likely to concern pension security and healthcare than education.

Moreover, growing up in a given economic or political context influences future political preferences. A generation that grows up during a recession and, earlier, during a financial crisis, will have different convictions about public institutions and redistributive policies than people who grew up in times of prosperity.

Increasing division of religion and between North and South

That brings us to risk number three: There is a growing divide within countries; a process of growing precariousness catalysed by economic crises. We face the risk of technological unemployment and social unrest with religion, race and – most likely, in the near future – climate in the background.

The fourth risk ahead is a risk of another Great Divide in Europe, but this time not between West and East, but between North and South. 

In August 2020, after the establishment of the Italexit party, more Italians found a place where they can channel their negative attitude to the EU. This country was hit especially hard by the consequences of COVID-19 first wave and they felt ignored and left alone in the fight with this deadly virus.

Adding that to still burning bruises of austerity imposed on southern Europe by Troika after 2009, we experience anger of a desperate population which, left unanswered, could lead the region to leave the European Project.

Unwanted degrowth

Another threat on Europe’s way to prosperity is secular stagnation. Former US presidential adviser Larry Summers stated in 2013 that unless states increase public spending and their engagement in the economy, the West could again face secular stagnation, when market forces are not enough to set the economy on a path of full employment growth due to a permanently negative natural interest rate. The big EU enlargement in 2004 of 10 less developed Central Eastern European countries delayed this process, but now it could come back at the least convenient moment in our economic history.

The sixth problem is of course climate change. Will the EU stick to the ambitious climate and energy transition costs? Following the recent vote in the European Parliament, the EU pledged to reduce emissions by 60% before 2030 and to achieve climate neutrality in 2050. We need to strive for this target, but it is unclear whether it can be achieved. Although a large group of the world’s richest countries support it, it is society in these countries that consents to continuing the transformation.

No innovation

And finally: The Old Continent is no longer the source of most important inventions and breakthrough solutions, both social and technical. 

Europe is lagging behind the US and China, even though its economic potential is comparable to theirs. Many EU countries have a long tradition of industrial innovation, but protecting traditional branches of industry limits investment in technological innovation. European companies are twice as likely to implement existing innovations than their American competitors, but just 8% of European companies implement products and services that are entirely new. When it comes to modern technology, the main innovations created in the EU concern regulations, but this could be too little to maintain the pace of development, including social development.

Paradoxically, though, the European project – which seems fragile – could be strengthened through attempts to overcome these challenges and adapt to a changing world, in which the role of not just the EU, but also of the US, China and multilateral organisations, is changing. It is worth being aware of what is ahead, because we might be able to change the future, instead of longing for the past.

By Piotr Arak