Europe, economic policy and collective security

One of the greatest challenges for Europe, which includes the European Union, concerns achieving a true squaring of the circle, that is, achieving a global balance between economic policy and collective security, understood here in their broadest sense, that is, economic policy as the set of public policy instruments at the service of economic and social development and collective security as the set of instruments at the service of the sovereignty of States, international peace and cooperation, and both against the geopolitical irrelevance of Europe in the context of major global balances and, in particular, in the triangular systemic relationship between the USA, China and the EU.

This squaring of the circle between economic policy and collective security has been clearly aggravated by the recent decisions (April 2) of the US President on tariff policy, the so-called tariff reciprocity. In simple terms, this squaring of the circle refers to the growing interdependence between, on the one hand, the productivity-competitiveness binomial, now affected by tariff policy, and, on the other, the conditionality and filter imposed by collective security which, by requiring additional resources, introduces some negative externalities on that binomial. Let us look at some areas where this interdependence is felt more critically.

Firstly, tariff and trade policy. In the most immediate terms, we may see negotiations between the parties to accommodate this change, and we may see a direct impact on prices and inflation, or even a partial accommodation of the tariff by the value chain in question. In the more immediate terms, we may see several approaches: firstly, moving towards bilateral negotiations, secondly, towards a bloc policy and, thirdly, towards strategic decoupling that selects the most relevant partners and trade areas. What is at stake in this area is the protection of European production chains and logistics chains, in accordance with criteria of reciprocity and non-discrimination and, more specifically, intra-industry trade that directly affects production and logistics chains. The applicable measures refer to changes of a tariff nature, but also to other types of measures such as contextual costs, state aid and regulatory and regulatory measures, among others. In any case, the productivity-competitiveness binomial is clearly at stake.

Secondly, energy policy and the green transition. In this area, the best example of asymmetric systemic interdependence is undoubtedly Germany, as it is unable to keep up with the various paces of decarbonisation, denuclearisation, greening, electrification and deregulation. The result is an arrhythmia in the German economy that has worsened over the last three years. Its dependence is also evident in its imports of fossil fuels from Russia, which have been affected by sanctions, and in its exports to the US and China, which are awaiting new tariffs, in addition to delayed industrial innovation in the area of ​​new smart technologies. Economic opportunity costs have changed and the productivity-competitiveness trade-off is seriously under threat.

Thirdly, the digital transition and artificial intelligence policy. In this area, digitalisation is no longer enough. Everything we have said previously about new context and transition costs can only be overcome, in terms of productivity and competitiveness of products and services, if artificial intelligence and quantum computing are rapidly introduced into value chains and, in this way, reduce their opportunity costs. Technology, capitalisation and digital literacy are therefore absolutely necessary. If this does not happen, we will be relegated to the background in the intelligent globalisation process.

Fourthly, social and territorial cohesion policy. In this area, there is also a significant asymmetric systemic interdependence because there is no convergence between the two sides of the coin, that is, creating wealth to distribute and redistributing it to avoid poverty. The key is to achieve harmony and synergy between the two trajectories. Globalisation in general and European integration in particular make social and territorial cohesion an increasingly complex objective, as they require a growing alliance between productivity and competitiveness. The result cannot be to increase wealth and poverty at the same time, because that would polarise post-industrial society in a very dangerous direction.

Fifthly, collective defence and security policy. In this area, in the current situation, not only has the systemic interdependence between economic policy and collective security policy increased, but the asymmetry that has existed up to now in collective defence and security policy needs to be quickly corrected, whether within the framework of NATO or other communities such as the European Union and partnerships with countries outside the European Union (the United Kingdom and Norway). And here we return to the beginning, that is, to geostrategy. Thus, if we return to the Cold War, we return to bloc politics and, progressively, to a certain strategic decoupling . If we return to bilateral negotiations, then we return to political realism and a certain law of force. If we return to a multilateral platform or partnership, even if precarious, we can reach some important consensuses. And everything is open at this point.

The great complexity of this squaring of the circle lies in the fact that the five areas mentioned are all underway with very different arrhythmias at national level and generate an accumulated impact of external effects, both positive and negative, which are difficult to monitor and manage. Furthermore, in the case of the European Union, the global impacts are compounded by arrhythmias between Member States and subnational regions.

Having reached this point, the question that emerges is how to escape, mitigate or circumvent the conditionality and external effects triggered by public policies in these five areas in order to minimise their impact on the opportunity costs of the European economy. Here are some outstanding questions.

• Firstly, it is necessary to define which geostrategic option is of most interest to the European Union in light of current events: bloc policy, bilateral diplomacy, new strategic realignments; this option is of interest, in the first instance, to collective security and, first of all, to the defence and security industry, but also to other critical related sectors.
• Secondly, it is necessary to define which European value chains are most affected by the measures in the five areas mentioned and to verify which cost elements need to be readjusted, with a view to their simplification, reduction and/or elimination, whether these are formality, bureaucratic, regulatory or tax costs, among others.
• Thirdly, it is necessary to define which value chains and business consortia need to be activated for the purposes of selective reindustrialisation and how to carry out their intra-industrial and business distribution across the European space.
• Fourthly, it is necessary to define the technological programme that will serve industrial policy and the reindustrialisation of value chains, as well as the necessary research and development consortia and partnerships.
• Finally, the overall financing programme must be defined, in terms of budgetary and monetary matters, banking and finance, capital markets and European public debt; the guidelines in the Draghi Report already point in this direction.

Having reached this point, the signs are already quite clear. We are rapidly changing paradigms in international relations, from the force of law to the law of force, from the soft power of trade and investment to the political realism and diplomatic cynicism of power relations, and from multilateral negotiation to the preference of areas of influence. For the European Union, this means squaring the circle, which can be defined as follows: on the one hand, strengthening its soft power to protect the well-being of its citizens and keeping member countries with different interests united, and on the other hand, safeguarding and strengthening its collective defence and security, while remaining cautious in the way it practices selective strategic decoupling of areas of influence and power relations. However, time is not on its side; Europe, and even more so the European Union, has been caught off guard by Trump’s aggiornamento in terms of geopolitical and geostrategic priorities. Whatever solution is adopted for the ceasefire and peace in Ukraine, the final balance of costs and benefits in terms of security guarantees of this agreement, everything related to the reconstruction of Ukraine, as well as the future of the European Union's relations with the USA, the Russian Federation and China, remains to be determined. To be followed in the next chapters.