The EU needs to update its ABC of external relations

Giles Merritt warns that three major policy challenges confront the EU despite Biden’s victory, Brexit’s conclusion and the trade pact with China

The European Union’s New Year Resolution must be to brush up on its ABC of foreign policies. Europe is facing greater volatility than ever, and the EU must respond with unprecedented imagination and political courage.

How Europe handles relations with America, Britain and China will re-define its external relations for years to come, and if handled adroitly could also help stabilise a world drifting towards chaos and even conflict.

Re-thinking its three ABCs is part of a wider EU ‘to-do list’ that spans climate change, a divergent rather than convergent union, and damagingly elusive policies on digitalisation and productivity. Overhanging these is the urgent need to rekindle a Covid recovery strategy that’s still hanging fire while the pandemic is accelerating.

To start with ‘A’ for America, overhauling the severely dented transatlantic relationship looks deceptively straightforward. It isn’t. The Biden administration backed by narrow Democrat majorities in both houses of the US Congress will be a welcome relief after the Trump presidency, yet mending fences is going to be hard. The US and the EU risk being divided on trade liberalisation, competition policies to clip the wings of America’s online giants, and how to deal with China.

Establishing a common US-EU agenda on other issues than climate change will be tough. There’s also the Middle East tinder box, Afghanistan and the Iran nuclear question. Against a background of corporate closures, small business bankruptcies and soaring joblessness, political leaders will struggle to favour shared goals at the expense of national considerations.

‘B’ – how the EU should deal with Britain – is equally daunting. Irritating though the Johnson government’s boorish negotiating style has been, few in Brussels would favour antagonism. The first test comes at the end of March, when the European Commission is to decide on the degree of “equivalence” to give to UK-based financial services. How much access should Brussels allow the City of London to EU markets?

Frankfurt, Paris and Milan hope to be Brexit beneficiaries by gaining substantial chunks of the banking and financial trading business London has long dominated. Johnson and his Brexiteers excluded services from their negotiations, apparently fearing that it gave Brussels too much leverage, so the EU will now decide the matter unilaterally.

Financial services pose a dilemma for the EU; should it display its muscle and share out the spoils, or should it avoid the risk of disrupting European capital markets so crucial to economic recovery from Covid? Brussels must find a constructive tone of voice as well as political finesse.

Then there’s ‘C’- China. At first sight, the Comprehensive Agreement on Investment just signed by Beijing and Brussels heralds a new era of trade openness and mutual business development. Take another look and it becomes clear that the EU’s relationship with China is set to be increasingly fraught.

Public opinion in Europe is largely critical of China’s human rights record, whether in relation to Beijing’s treatment of the muslim Uyghur community or its flouting of the ‘one country, two systems’ guarantees it gave when the UK handed Hong Kong back in 1997. Europe’s policymakers, at EU and national level, will face difficult choices when balancing perceived economic benefits against the likely electoral costs of kow-towing to Chinese authoritarianism.

The EU’s policy options look more uninviting still when the US dimension is added in because a China-sceptical Biden administration is liable to ask Europe for unambiguous support. China’s uncompromising attitude to what it regards as internal matters was summed up recently when a senior Chinese diplomat bade “good riddance” to Germany’s departing UN ambassador because he had had the temerity to question Beijing’s human rights performance.

On the credit side, the EU is arguably in good shape to deal with these challenges. It has so far weathered the corona crisis creditably, pushing through the €750 billion recovery fund while securing a green light from member states for future EU-level taxes of some sort. And it handled Brexit with dignified aplomb that contrasted well with Johnson’s jingoism.

Less optimistically, it’s exactly ten years since the EU equipped itself with its own diplomatic service, yet “speaking with one voice” on external affairs remains an uphill struggle. Whether Brussels can eventually override the competing goals of its larger members remains to be seen. To do so, the EU institutions need to commit a great deal of their hard won political capital in the knowledge that a setback could be disastrous.

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