A Digital EU
Despite daunting competition, efforts are underway to reposition Europe as a digital leader. COVID-19 has highlighted the central role played by the digital revolution in European societies, and in the European Union’s economic development. Remote work, digital entertainment, and e-commerce quickly became more prevalent, and the overwhelming shift to digital accelerated demand for new infrastructure.
This has revived talk of designating strategic companies to supply digital infrastructure, which also reflects concerns about the penetration of European markets by American and Chinese firms that may bring with them added security issues (the EU’s foreign investment screening regulation and its toolbox on 5G cybersecurity are important in this regard).
Yet, there are relatively few world-beating digital companies in Europe; most have a marginal presence in global markets. The fragmentation of the internal EU market, coupled with relatively risk-averse domestic regulation, can make it a less hospitable environment for aspiring firms than the US or China. Russia’s invasion of Ukraine further underscored the growing importance of cyber defense, while issues related to the fair taxation of US tech multinationals with large presences in Europe remain unsettled - though commitments to a global corporate tax minimum of 15% may have an impact on this situation.
The EU continues to use its regulatory power to set digital standards and shape relations with non-European countries and companies - through, for example, the General Data Protection Regulation and the Directive on Copyright in the Digital Single Market. However, to achieve the “European tech sovereignty” Commission President Ursula von der Leyen has called for, Europe must address strategic areas where it lags behind.
In 2020, the European Commission presented its “Shaping Europe’s Digital Future” strategy, which aims to reposition Europe as a digital leader. It proposed new rules including the Digital Markets Act (DMA) and Digital Services Act (DSA), which are expected to be adopted in 2022 and meant to foster innovation and competitiveness - while creating a digital space that safeguards fundamental rights.
In 2021 the Commission proposed ways to turn Europe into “the” global hub for trustworthy artificial intelligence, and the first-ever legal framework on AI and a new Coordinated Plan with Member States aims to guarantee the fundamental rights of citizens and businesses while spurring AI use, investment, and innovation. Meanwhile the Commission also proposed the “European Chips Act” to strengthen the region’s position in the vitally-strategic area of semiconductor production.
Spurring Europe’s Economic Recovery
COVID-19 elicited a comprehensive response, but war in Ukraine threatens the region’s growth
As COVID-19 spread, the European Union was forced to confront its steepest economic downturn since 1929. Mobility restrictions designed to keep people safe dampened business activity and consumer spending, industrial output, investment, trade, and capital flows. Supply chains were disrupted.
To help the hardest-hit member states recover and rebuild without incurring excessive additional debt, the European Council - following a proposal by the European Commission - agreed in July 2020 on a ground-breaking, €750 billion recovery fund, and enabled the Commission to borrow on open markets and distribute grants and loans. The EU’s economy contracted by 6.8% in 2020, and unemployment rose. By March 2022, over 72% of the EU’s total population had completed a full primary course of vaccination. Despite new variants and record numbers of new cases, countries across the bloc began rapidly relaxing travel restrictions, protective measures, and vaccine passport requirements. That was a far cry from the early days of in the pandemic, when the European Central Bank had to act to ensure adequate liquidity flows into the economy. To spur a recovery, national governments have implemented dramatic domestic fiscal stimulus measures, raising the EU’s public deficit (temporarily) to record heights.
Together with the long-term, €1.1 trillion EU budget for 2021-2027, these financial measures are designed to prevent further economic divergence among member states. They are also, importantly, meant to help the region increase investment in sustainability, digital platforms and access, social services, and climate resilience. The Commission has an expectation that member states will return to pre-pandemic economic growth by the end of 2022 - after a strong economic rebound in 2021 (with GDP up 5.8%), growth was projected at 4% for 2022 and at 2.8% in 2023. However, Europe’s recovery faces serious uncertainties. Inflation accelerated to a record rate of 4.6% by late 2021, and is expected to grow further in 2022. Russia’s invasion of Ukraine has weighed heavily on economic growth expectations. Crippling sanctions on Russia’s economy, individuals, and its financial system also entail high costs for Europe and the US. Supply chain disruptions, energy shortages, and the ripple effects from a declining Russian economy will be felt across the globe. Shortfalls in food and fertilizer production, resulting from the impact of the war on Ukrainian and Russian agriculture, will drive price hikes and may cause food crises in some regions.
The EU’s response to COVID-19 included an unprecedented economic recovery effort, a comprehensive vaccination campaign, support for global vaccine access, and the increased coordination of health resources.
The European Union has sought to foster resilience with its economic, social, health, and (most recently) defense policies, and to strengthen its readiness to muster collective action.
As restrictive measures recede, pandemic-related stimulus is expected to fuel long-term digital and green transitions. Meanwhile Russia’s attack on Ukraine has brought ground war back to the continent, re-invigorated security cooperation within NATO, and may be a turning point for European defense policy. But challenges persist: Europe’s position on China remains unsettled, its democratic institutions are under threat, and migration requires a more comprehensive approach.
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The EU’s Geopolitical Showdown
A ‘geopolitical’ European Commission must guide Europe while the risk of a global great-power standoff increases. The EU has established its leadership in science and desire to forge cooperation, but its supply chains for energy, raw materials, and strategic health and digital products have created dependencies. With geopolitical tensions heating up and the ideological chasm growing between Western democracies and authoritarian regimes, balancing security interests with economic ties becomes more difficult.
The Russian invasion of Ukraine has raised the stakes in an intensifying global great-power competition. While the US and China vie for influence in terms of standard-setting, trade, and infrastructure - both physical and digital - Russia has applied blunt force to subjugate a sovereign state. As Russia and China call on NATO to stop enlargement, they have moved closer to a united front against the West; China has shied away from backing Russia militarily, but those who fear Chinese military intervention in Taiwan or the South China Sea are watching its positioning closely. Meanwhile a self-declared “geopolitical” European Commission aims to make the European Union a strategic global player capable of advancing its interests with one voice. COVID-19 laid bare the difficulties and opportunities for positioning Europe between the US and China.
Emerging powers in South Asia and elsewhere demand attention, which is acknowledged by the EU strategy for the Indo-Pacific - though it has yet to translate into action. In a world where a peaceful, rules-based globalization is on the backfoot and power politics is on the march, Europe must continue to advocate for democracy and multilateralism, and to serve as a laboratory (and model) for successful trans-national governance.
In Europe’s favour: The united Euro-American response to Russia’s aggression in the form of economic sanctions and military support for Ukraine testifies to a revived transatlantic partnership. On the other hand, Europe has yet to find unity on strategic questions such as energy security, or its common approach to China. One way the EU has chosen to direct its geopolitical efforts is through a focus on regions. Its “Strategy with Africa” aims at advancing economic, political, and security cooperation - not least to counterbalance Chinese influence in Africa. In its more immediate neighbourhood including the Western Balkans, Eastern Europe, and North Africa, the “geopolitical” EU needs to provide more convincing answers on how to best address growing instability.
The Plight of European Democracy
Populism, backsliding on the rule of law, and COVID-19 have advanced illiberalism. Populist political movements, including at the EU level, continue to call the foundations of the European project into question; the 2022 French presidential elections are a test of their momentum. The messy divorce of the United Kingdom from the EU may have dissuaded other Eurosceptics from following suit, but Euroscepticism remains virulent.
Russia’s aggression in Ukraine has redirected Europe’s collective attention outward and onto one of its immediate neighbours. An unexpected unanimity in response to this security threat and related refugee crisis have mostly taken the spotlight off of internal friction. But fundamental values and democratic principles underpinning the European Union remain under pressure internally, and externally. In several member states, the rule of law as enshrined in Article 2 of the Treaty on European Union has come under threat, and disciplinary Article 7 proceedings have been brought against Poland (related to judicial independence) and Hungary (related to judicial independence, freedom of expression, and other matters). Worrying trends have also been observed in Romania and the Czech Republic. While the EU Multiannual Financial Framework (2021-2027) and the pandemic recovery fund include rule-of-law clauses, their effectiveness remains to be seen.
The Conference on the Future of Europe has created further opportunities for engagement by inviting citizens to actively discuss the future of democracy across Europe. As societies emerge from the worst of the pandemic, such democratic engagement will be essential to counteract illiberalism.
In addition to internal pressures, foreign actors such as Russia have increased their efforts to exacerbate discord within the EU through disinformation and information manipulation in the media and via social networks. COVID-19 placed further pressure on public trust in democratic institutions; lockdown measures intended to curb the spread of the disease encroached on the public’s freedoms of protest and movement, and a perception of fragility and slowness among democratic institutions in the face of the pandemic - aided by widespread misinformation - encouraged some to wonder if authoritarian regimes are better equipped to confront crises and to make at least an indirect case for illiberal democracy. However, signs of democratic re-engagement have emerged. Protesters in Bulgaria, Slovakia, Romania, and Poland have stood up for democratic reforms, and civil society initiatives (bottom-up and top-down) have sought to foster greater democratic participation - not least through digital means.
Managing Migration to the EU
Enabling the EU’s Green Transition
The UN Refugee Agency (UNHCR) has estimated that four million people will flee Ukraine by July 2022. European Union institutions reacted quickly to the humanitarian emergency. EU institutions gave immediate protection to those fleeing Ukraine, but divisions over asylum and migration policies remain.
In March 2022, the Council of the European Union unanimously decided to activate, for the first time, the 2001 Temporary Protection Directive (TPD). This grants the right to move freely, live, work, and access education and social services throughout the EU for at least 12 months to designated categories of people including Ukrainian nationals residing in Ukraine before 24 February 2022 and their family members, and stateless persons and nationals of third countries other than Ukraine who benefited from international protection or equivalent national protection in Ukraine before that same date (and their family members). The swift adoption of the TPD received universal praise, and followed years of disputes over EU migration and asylum policies. Commentators noted that the response to refugees from Ukraine represents a paradigm shift from 2015-16, when about 1.5 million asylum seekers who arrived from outside of Europe had to apply for a separate and weaker protection system.
The creation of legal migration pathways to foster economic growth and counter the impacts of ageing European populations remains another area of contention. Presently, legal migration is one of the least-developed areas of EU cooperation. As COVID-19-related restrictions recede, economic reconstruction will likely rely heavily on migrant workers. Both the experience of the Ukrainian refugee crisis and the need to sustain a post-COVID economic recovery may speed up legislative reform of asylum and migration policies - and hasten the creation of common EU standards in these areas.
Furthermore, the protection directive for Ukrainians contrasts starkly with policies meant to ward off asylum seekers from Afghanistan, Iraq, and Syria who have attempted in recent years to reach EU member states via Belarus. Responsibility-sharing and the question of relocation - or the transfer of people from an EU country with heavy inflows to one with fewer arrivals - continue to cause friction among member states, however, and related political fault lines do not yet seem to be alleviated by the shared stance on protections afforded to arrivals from Ukraine.
The bloc has committed to ambitious climate goals, though details of its plans are still being hashed out. The European Commission has made transitioning to a more sustainable economy one of two primary strategic goals for the European Union (alongside digital development), as part of what’s been dubbed the “European Green Deal.”
The invasion of Ukraine and related concerns about energy security cast a shadow over these efforts. However, the invasion also offers an opportunity to speed up the green transition, even if fossil fuels must be deployed more aggressively in the short term. The EU has committed to climate neutrality (no new human-made greenhouse gas emissions on a net basis) by 2050, and to an emissions reduction target of at least 55% by 2030 from 1990 levels. That is a step up compared with the EU’s initial pledge made under the Paris Agreement, which was to reduce emissions by 40% by 2030. The EU’s Emissions Trading System, a flagship climate instrument meant to ensure cost-effective emission reductions, should be further bolstered. Other measures, such as emission-performance standards for passenger cars, and renewable-energy policies, are also being strengthened - every sector of the economy will be impacted by increased stringency and the need for enhanced energy efficiency.
Future spending will focus on innovation, industrial transformation, investment in public goods (such as digital- and energy-related infrastructure), and a “just transition” to retrain workers for low-carbon jobs or help poorer households and energy-intensive industries faced with high energy prices. Much of this will rely on higher amounts of capital spending via the European Investment Bank, as well as public and private funds. The collective ambition of these initiatives suggests low-carbon technologies are seen as a potential new engine of economic growth - and an enabler of greater energy security.
One particularly novel measure is a carbon border adjustment mechanism, which would require certain carbon-intensive importers to pay a levy based on the emissions embodied in energy-intensive goods. Negotiations on this are underway; a three-year startup phase has been proposed, which would see the implementation of reporting obligations before payments would become due on imports starting in 2026. Within the €1.1 trillion EU budget and €750 billion pandemic recovery fund, the bloc has earmarked 30% of its annual spending and at least 37% of each member state’s funding from the Recovery and Resilience Facility for investments specifically related to the European Green Deal.
Countering Hybrid Threats in Europe
Russia’s war on Ukraine reinvigorated Western security cooperation and may be a turning point in Europe’s defence policy. Russia’s war of aggression inadvertently revived transatlantic security cooperation and emboldened the European Union to take unprecedented steps regarding its Common Security and Defense Policy. Under the leadership of US President Joe Biden and at the urging of East European allies, NATO massively stepped up its troop presence at the eastern flank. While NATO remains adamant about not becoming a party to the war, it has supported sanctions against Russia and provided military support to Ukraine. After years of simmering disagreement, NATO’s new “Strategic Concept,” due in summer 2022, is expected to show a new resolve in terms of strengthening collective defence and deterrence. Meanwhile the EU has coordinated with the US on its most far-reaching sanctions package ever imposed on a foreign country.
When Russian forces invaded Ukraine in February 2022, war as a geopolitical instrument returned to Europe. Over the previous decade, illegal annexations, humanitarian crises, cyberattacks, and disinformation campaigns had already created a volatile security environment. Terrorism, trafficking, instability in Europe’s neighbourhood, and the climate crisis all broadened the spectrum of potential threats, and made the notion of Europe as a continent at peace ring increasingly hollow.
The EU is not a global security player on par with China, the US, or Russia. It will take time and compromise to increase Europe’s defence capabilities, and reformed modes of collective decision making. COVID-19 added an additional layer of complexity, as it laid bare vulnerabilities in strategic supply chains and in health security. Future threats related to energy and food security, as well as to cyber security - and multilateral security cooperation within the United Nations or NATO will remain a priority, as the EU has yet to demonstrate its capacity to act on its own.
The bloc also decided for the first time to purchase weaponry and military equipment for a country under attack, and as of March 2022 planned to spend up to €1 billion out of the European Peace Facility. The EU also pledged to increase defence expenditures, expand capabilities and joint projects, and strengthen the industrial defence base. The EU’s “Strategic Compass” reflects ambitions to increase Europe’s strategic autonomy and make a stronger contribution to global and transatlantic security cooperation. Individual member states have stepped up related commitments, with the most noticeable change occurring in Germany. Challenges remain, however.
Managing Europe’s Health Emergency
COVID-19 has tested the ability of EU institutions to respond to a large-scale public health crisis. The pandemic has highlighted the European Union’s need for collective action when it comes to public health. Initially, the response within the bloc was relatively uncoordinated and slow. The virus spread after the capacity of national health systems had been degraded, following years of cuts to public spending. While member states are parties to the World Health Organisation’s International Health Regulations, the EU itself is not a WHO member. The consolidation of health policy and services within EU institutions is at an early stage, and as a result it was criticized for its initial management of the crisis. However, the bloc eventually mustered a substantive collective response.
The European Commission enabled flexibility on fiscal rules and state aid, and supported member states’ unemployment schemes. Meanwhile the European Central Bank’s Pandemic Emergency Purchase Programme calmed financial markets, and the European Investment Bank offered financial support to businesses.
The EU introduced a framework for coordinating travel restrictions and the EU Digital COVID Certificate, and took charge of vaccine procurement. The effects of these measures, together with decreased mortality related to newer variants, gave member states confidence to lift restrictive measures in Spring 2022.
After at first encountering serious procurement bottlenecks, the EU achieved one of the highest rates of full vaccination among adults by the end of summer 2021. In addition to delivering hundreds of millions of doses to its own population, the EU had exported over 1 billion doses to more than 150 countries as of October 2021. Efforts to strengthen health security and preparedness have been tied to the EU's Multiannual Financial Framework (2021-2027), and the EU4Health recovery programme was devised to boost preparedness for major cross-border health threats, strengthen national health systems, and invest in medical research. HERA, the European Health Emergency preparedness and Response Authority, is designed to detect and prevent future health risks, and facilitate crisis response by building capacities to develop, produce, and distribute medicines and medical supplies. In addition, the mandates of the European Centre for Disease Prevention and Control and the European Medicines Agency are slated to be reinforced, and a new biomedical-research agency is being created in line with the EU's pharmaceutical strategy. The essential building blocks for a future European Health Union have been formed.