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Roula Khalaf, Editor of the FT, selects her favorite stories in this weekly newsletter.
The EU faces major challenges. This includes accelerating innovation, deepening financial integration, protecting its security and maintaining the values of freedom, democracy and social welfare on which its society has been built since the second world war. None of this will be easy because of the bad changes the bloc is currently facing, especially the political turmoil in France and Germany. However, in facing its future, it will build on the great achievements of history. The EU, after all, has been able to expand and extend its union for almost seven decades (and even longer if one goes back to the European Coal and Steel Community, created in 1951).
The enlargement of the EU took it from an initial membership of only six (Belgium, France, Germany, Italy, Luxembourg and the Netherlands) to the current 27 (down from 28, alas, after Brexit). It is not just growth that has been remarkable, but the extent of economic integration among members. As Annette Bongardt and others have said in 2013: “One can broadly identify three phases of EU convergence at the country level: 1) 1950-1973 — convergence of western Europe to US living standards; 2) 1974-1993 — convergence of northern and southern Europe into continental Europe; 3) 1994-2010 — convergence of eastern Europe towards western Europe. This process of convergence is extensive and stable, with only Italy starting to diverge in the third period due to the decline in GDP growth. Then, after 2013, the shock of the Eurozone financial crisis happened, which created a lot of difference, for a while. There has also been the fastest recent US productivity growth in the recent past, where I watched last week.
Of the nine countries that joined the EU between 1973 and 2000, all but one (Greece, unfortunately) increased their GDP per head (at purchasing power parity) relative to the average of the original six by 2023. Ireland, in a large margin , the winner. However, due to the role of foreign direct investment, the GDP will be 30 percent higher than the gross national income in 2023. Again, all 13 countries that joined between 2004 and 2013, mostly from the central and Eastern Europe, increased their GDP per head relative to the original EU six, some of them in large proportions. Poland’s real GDP per head, for example, has risen from 40 percent of the six EU levels in 2004 to 73 percent in 2023. (See charts.)
To give a comparison with a country of the same size, even outside the EU, Ukraine’s real GDP per head increased from 28 percent of the EU six average in 2003 to only 31 percent in 2021 and down to 28 percent in 2023, after the invasion of Vladimir Putin. Turkey, even on the outside, is doing well. However one reason for that is the (weakening) hope of the membership, which pushed the policy until mid-2010.
What is happening to the US’s neighbors is not the same as what is happening within the enlarged EU. Mexico, the most important at the moment, has retreated: its real GDP per head fell from 35 to 29 percent of the US level between 2004 and 2023, despite the opportunities allegedly provided by free trade agreements. trade.
The fundamental difference between EU enlargement and Mexico’s agreements with the US is that the former is institutional and normative: it offers a route to Europeanization. The US cannot offer that. On the contrary, the US social pathologies I just mentioned pour over his border, like this exports guns and imported drugs. it fuels gangsterism and undermines the rule of law. Because of the concern of immigrants crossing the border, why don’t the Americans try to make the weak countries in this region more prosperous? Despite this, the EU has done little for the Middle East and northern Africa.
The EU’s success has been largely internal. Even the Eurozone crisis of the 2010s, despite the mistakes made in the creation and subsequent management of the currency union, was successfully overcome. As of 2020, all crisis-hit countries are doing better than Germany, including Greece and Spain.
Economic integration in Europe or the convergence of its member states is inevitable. It is the product of clever statecraft, some of which, ironically, go back to Margaret Thatcher’s promotion of a market in the 1980s. But now there are new and bigger challenges. The security provided by the US will, at best, be more expensive and, at worst, disappear altogether. Russia, backed by China, is a threat to Europe in the east. Ukraine, desperate to enjoy the blessings of being within the EU and Nato, is in danger of being abandoned by those who should know better. Aging societies in the EU are increasing financial burdens. Hatred of immigration is getting worse, while its demand is increasing. Not least, as shown in the Draghi reportraising productivity growth — by building the digital economy, deregulation and deepening integration — is essential.
It is also necessary to find some way to formulate and implement a common foreign and security policy. There is also a need to agree on a substantial increase in the EU’s financial resourcesthrough own taxation and borrowing capacity. That, in turn, will bring the EU back to the debates of the early 1990s on political union. It should also reduce the ability of recalcitrant members, such as Viktor Orbán’s Hungary, to block important common policies. Many would say that all this is impossible. But there must be some benefits to flow from the removal of British recalcitrance.
Europe must not accept a social model which risks giving the US pathologies of premature death, mass murder and stratospheric incarceration rates. But radical changes are essential. The survival of the whole of Europe, free and fragile, depends on whether Europeans have the courage and wisdom to face the challenges of today.
