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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The EU confronts huge challenges. These include 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 given the adverse changes the bloc now confronts, not least the political disarray in France and Germany. Yet, in confronting its future, it can build on great historic successes. The EU has, after all, managed to enlarge and extend its union over almost seven decades (and longer still if one goes back to the European Coal and Steel Community, created in 1951).
EU enlargement took it from an initial membership of only six (Belgium, France, Germany, Italy, Luxembourg and the Netherlands) to today’s 27 (down from 28, alas, after Brexit). It is not just enlargement that has been remarkable, but the extent of economic convergence among members. As Annette Bongardt and others noted in 2013: “One can broadly distinguish three phases in the 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 to continental Europe; 3) 1994-2010 — convergence of eastern Europe towards western Europe. This convergence process has been broad-based and robust, with only Italy starting to diverge in the third period due to lower GDP growth.” Then, after 2013, the shock of the Eurozone financial crisis occurred, which created significant divergence, for a while. There has also been the faster recent productivity growth of the US in the recent past, which I looked at last week.
Of the nine countries that joined the EU between 1973 and 2000, all but one (Greece, alas) had raised GDP per head (at purchasing power parity) relative to the average of the original six by 2023. Ireland was, by a huge margin, the winner. But, given the role there of foreign direct investment, GDP was 30 per cent higher than gross national income in 2023. Again, all the 13 countries that joined between 2004 and 2013, mostly from central and eastern Europe, raised their GDP per head relative to the original EU six, some of them by huge proportions. Poland’s real GDP per head, for example, rose from 40 per cent of the EU six level in 2004 to 73 per cent in 2023. (See charts.)
To provide a comparison with a country of a similar size, yet outside the EU, Ukraine’s real GDP per head rose from 28 per cent of the EU six average in 2003 to a mere 31 per cent in 2021 and down to 28 per cent in 2023, after Vladimir Putin’s onslaught. Turkey, though outside, did well. Yet a reason for that was the (fading) hope of membership, which drove policy until the mid-2010s.
What has happened to US neighbours is nothing like what happened inside the enlarged EU. Mexico, the most important by far, has gone backwards: its real GDP per head fell from 35 to 29 per cent of US levels between 2004 and 2023, despite the opportunities supposedly afforded by its free trade agreements.
The fundamental difference between EU enlargement and Mexico’s agreements with the US is that the former is both institutional and normative: it offers a route to becoming European. The US cannot offer that. On the contrary, the US social pathologies I recently discussed pour over its border, as it exports guns and imports drugs. This fuels gangsterism and devastates the rule of law. Given anxiety over the immigrants coming across the border, why don’t Americans try harder to make the fragile countries of this region more prosperous? Yet similarly, the EU has done too little for the Middle East and north Africa.
EU success has been overwhelmingly internal. Even the Eurozone crisis of the 2010s has, despite mistakes made in creation and subsequent management of the currency union, been successfully overcome. Since 2020, all the crisis-hit countries have done better than Germany, including Greece and Spain.
Neither the economic integration of Europe nor the convergence among its member states was inevitable. It was the product of wise statecraft, some of it, ironically, going back to Margaret Thatcher’s promotion of the single market in the 1980s. Yet now come new and even bigger challenges. The security provided by the US will, at best, become far 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. The EU’s ageing societies are raising fiscal burdens. Hostility to immigration is intensifying, while need for it is growing. Not least, as the Draghi report demonstrates, raising productivity growth — by building the digital economy, deregulating and deepening integration — is essential.
Some way will also have to be found to form and implement a common foreign and security policy. There is also a need to agree a substantial rise in the EU’s fiscal resources, via its own taxes and borrowing capacity. That, in turn, will take the EU back to the debates of the early 1990s on political union. It will also be necessary to reduce the ability of recalcitrant members, such as Viktor Orbán’s Hungary, to block essential common policies. Many will say that all this is impossible. But there must be some benefits to flow from the removal of British recalcitrance.
Europe should not embrace a social model that risks delivering the US pathologies of premature death, mass murder and stratospheric rates of incarceration. Yet radical changes are essential. The survival of a Europe whole, free and fragile depends on whether Europeans have the bravery and the wisdom to rise to the challenges of today’s era.
