Wednesday 13th October, A Fabian EU in a G2 World Seminar  

Speakers: Poul Nyrup Rasmussen, President of the Party of European Socialists, Patrick Pearson, Head of Financial Markets Infrastructure, European Commission's Internal Market Directorate General, Elisa Ferreira MEP; Andre Sapir Professor of Economics, Universite Libre de Bruxelles and Senior Fellow at Bruegel, and Maria João Rodrigues, Special Advisor to the EU Presidencies and to the European Commission. Proceedings were chaired by Sunder Katwala, General Secretary, Fabian Society. 

Towards a G2 World?

The central theme of the discussion was the potential for, and barriers to, greater EU cohesion in multilateral settings on key issues. It was suggested that this emerging global context meant that there was decreasingly little scope, space or legal latitude for effective "solo" national initiatives. There was a broad awareness among EU and national decision-makers that we are ‘all in this together’ in that sense, but also the reality of differing national perspectives and interests as to the content of a coherent and joint EU approach.

The history of global financial regulation was largely of a US and European transatlantic partnership, with the two major regulators also being the main market participants. There had now been a much greater shift and speed of change in who the market participants were, but a much less rapid change on the regulatory side. This created tensions with increasingly powerful players with increasing interests yet who were not yet full participant in governance. 

Adapting to the fact of China's rise to global influence requires a reading of China's own strategic choices, and assessing the scope for EU influence on these. Chinese strategic debates about a 'peaceful rise' as an increasingly significant player in a global multilateral framework and/or the potential for projecting power as a global player as part of this reflected domestic political trade-offs and a balance between using growth to address domestic inequalities through regional development and a focus on increased defence capability. The main EU engagement strategies involvement the use of the (bilateral) strategic partnership - where it was suggested there was some scope to package trade-offs to achieve 'win-win' outcomes, but where this could be vulnerable to a series of different national relationships - and the EU's voice and power in rebalancing the overall global multilateral framework (particularly through the G20 and UN frameworks) to facilitate an emerging Chinese role and engagement. As a rising power, China was aware of the potential and need to rebalance the Transatlantic.

Many Europeans had excessive expectations of the strength of transatlantic cooperation with the new Obama administration, and those expectations had been disappointed. Much of this came from a structural misreading of the US system and the role of the Presidency within it. The US domestic system is itself multipolar, and the negotiation resources of a President are inevitably as much or more inwardly directed (for example, towards Congress and domestic political pressures) as outwardly directed (to multilateral partners). The European reality is also of a mutilpolar internal order. There has been significant moves with the successful April 2009 G20 London summit- both in developing a forum in which advanced and developing countries better matched the emerging global reality, and in the content of policy coordination at a time of immediate crisis - but there had been a reversion to 'business as usual' in finance and politics as the immediate crisis receded.

Overcoming barriers to EU coordination

The call for greater EU cohesion and coordination depended also on recognising the reality of different perspectives and interests inside the EU. Given these different interests, and the national pattern of them, could EU global influence be deployed more effectively than was currently the case? How far should the emerging G2/G3 context change understanding within Europe of the balance of debate between Brussels and London, Paris, Berlin and other national capitals, if opportunities for global influence were to be maximised? While the internal multipolar process of getting there could not easily be short-circuited, this global context did create some significant pressures towards EU policy convergence:

It was suggested that current European approaches demonstrated and sought to employ each of three potential strategies for EU influence: (i) moral suasion, which sought to persuade other and often more powerful actors of the merits of a particular approach; (ii) technical expertise, by promoting solutions which would effectively address a shared problem or issue; (iii) common interests, by seeking to promote an effective multilateralism. 

Each of these strategies could be seen in the approach of the EU and member states since the 2008 crisis, though an effective multilateral framework ultimately depended on it being underpinned by and helping to facilitate a convergence of interests. 

The "who do I call" question remains open, despite the creation of new EU global roles. This was evident in the number of European voices in the G20 and there were occasions - most notably the first transatlantic summit in Prague with the Obama administration - when the desire of everybody to be in the room had effectively wasted the opportunity and undermined the EU's credibility with a key partner. More structurally, there was an important opportunity for EU members to coordinate their voice and voting power more effectively in the World Bank and IMF if a clear strategic approach was to be taken, and signalled to other participants. The external action service would be one test of effectiveness, or whether national bartering would play too great a role in the process.

Future of financial governance

There had been a significant policy agenda since the 2008 crisis, providing a cocktail of the highly technical and the enormously political. There were shared broad policy objectives - about the importance of transparency and safety in the system. Policy debates had demonstrated some of the divergences between major EU players, as well as the tenacity of interests involved "when dealing with numbers with twelve zeros". So EU level policy development was necessarily complex, but it was also possible to demonstrate that robust outcomes with legitimacy could be derived from it.

At a global level, it was suggested that the structures required now existed - in a series of "overlapping multilateralisms" - though there was sometimes too much structure, in that it was easier to create new infrastructure than to simplify or lose aspects of this which had become less relevant. (Such as in the continuing role of the G8 after the establishment of the G20).  There was limited further value in shifting the deckchairs with regard to the institutions involved, though there remained a significant issue about the lack of capacity behind the G20 to follow through on summit decisions.

There were significant policy choices about when an EU-level policy approach might be more practical than a global deal. One topical controversy was over taxing financial transactions. Here, it was suggested that awaiting a full global deal meant waiting for something that was never likely to happen, and that the market coverage and power of EU members was great enough to make an impact. It was argued that the existence of national charges in several domains showed that claims of capital flight from an EU-wide approach were exaggerated, and that a level around 0.05% of financial transactions was viable.
 

We are grateful to our partners Business for New Europe, Friedrich Ebert Stiftung, ICAEW and TheCityUK for their support of this series.