Just a week into 2021, political tensions in Europe and the bloc’s power play with China and the United States have already come to the fore.
The new year also brings new political dynamics to Europe as the coronavirus pandemic and the economic consequences make foreign and security policy even more vital.
As the European Commission continues its aim to become a “geopolitical” player the top challenge will be navigating between the U.S and China.
Europe finalized an investment agreement with China on December 30, which is the first step towards negotiations towards a free-trade deal.
The Comprehensive Agreement on Investments (CAI), which took seven years in the making, will remove barriers to foreign investments in China and allow European companies to compete more equally.
The European Commission said it would “ensure that EU investors achieve better access to a fast-growing 1.4 billion consumer market,” and could “compete on a better level playing field”.
But it comes as China faces global criticism over its human rights record and as the U.S. is still embroiled in a trade war with China.The outgoing Trump administration has been vocal over its dismay of the EU-China investment pact.
“Leaders in both U.S. political parties and across the U.S. government are perplexed and stunned that the EU is moving towards a new investment treaty right on the eve of a new U.S. administration,” said Matt Pottinger, U.S. President Donald Trump’s deputy national security advisor.
But the incoming Biden administration had a more sober tone in reaction to the pact.
Biden’s nominee for national security adviser, Jake Sullivan, tweeted the U.S. “would welcome early consultations with our European partners on our common concerns about China’s economic practices.”
While Trump has been calling for the decoupling of U.S. and China economies, it is unclear if Biden would go that far but “he would like to confront and perhaps find a strategy to better contain China,” said Steven Blockmans, director of the Centre for European Policy Studies.
“I suppose he (Biden) and leaders of other democracies will in 2021 at least continue to struggle with this difficult question of how to deal with China’s authoritarian regime,” he said.
The political tensions that come out of that will put the EU increasingly on the spot, he added, especially as China’s President Xi has consolidated his power during the COVID-19 crisis.
But tensions will not just arise between the EU, China and the U.S. but also within European member states. The CAI still has to be approved by European leaders and not all are on board. Poland has raised objections to the deal and suggested that consultations with the Biden administration were needed.
But other countries such as Hungary and Germany, which exports more than half their goods to China, mainly cars, are likely to plead for a softer line to safeguard their own commercial interests.
Technology will test Europe’s relationship with the U.S. as technology has reshaped lives since the coronavirus pandemic outbreak with huge numbers of people working from home.
In December, the EU unveiled the Digital Services and Digital Markets Act which will focus on competition and make platforms more responsible for the content it hosts, especially the U.S. tech giants.
But it will also provide a boost for European tech start-ups on the single market.
If the Biden administration finds its first strategic partner in Europe it will have to contend with some of the irritants felt by the EU in dealing with big tech, namely the U.S. giants such as Amazon and Google.
A transatlantic tech agenda could be the answer to resolve those issues.
But it would also have to compete with China, which wants to be an integral part or even dominate world supply chains.
Inequality will also be rising trend in 2021.
The coronavirus pandemic has hit world economies hard and increased borrowing by the public and private sectors.Countries with more office workers and service-driven economies did not suffer as heavily as the more tourist led economies and counties that already had high unemployment rates, such as Spain and Italy.
Europe’s Southern and Northern states already locked horns over budgets in 2020. The ‘Frugal Four’ (Sweden, Denmark, Austria and the Netherlands) argued the $750 billion recovery fund was too much and the hard-hit EU members should only receive repayable loans rather than grants.
But the economic impact will also give rise to political tensions within EU countries, especially in Italy and Spain, which are suffering from a backlog of economic recession.
“Aggravated indebtedness, has grown almost everywhere over the past decade,” says Blockmans, pointing to Italy where he says “when crises have interrupted the private sector ability to borrow, the government has taken up the slack.”
This then affects EU policy.
“There comes an end to all of this of course to the creditworthiness of the country.
“Italy has petered on that edge before so it remains a major headache to the EU to make sure it doesn’t default,” he said.
Rule of Law
The final big concern for Europe will be the issue of the rule of law. Following the attack on the US Capitol by the pro-Trump rioters, the EU may do a U-turn and get tougher on the issue.
Last year, Poland and Hungary vetoed a massive seven-year EU budget and recovery fund over a clause in payments to member states that were conditional on upholding the rule of law.A compromise was reached after the European Council offered Poland and Hungary a way to delay the rule of law mechanism and hedge their positions until 2022.
It gives Poland and Hungary the time to defend their financial interests and curb the relative power of the opposition while strengthening their own influence.
This has already been seen in the Hungarian parliament, where a set of new laws were passed in December including one that effectively bans same-sex couples from adopting children as adoption will be restricted to married couples. Another new law will change electoral rules by making it harder for parties to contest national elections.
Meanwhile, Germany which has ensured there was also solidarity between member states and compromises could be found, faces a leadership change in 2021.While we do not yet know what a leadership change in Europe’s economic and political powerhouse will mean, if it does hold weight, “divergences with increasingly authoritarian run member states will indeed increase”, said Blockmans.
“The foreign policy front will be much more difficult for the EU to cohere around. You see increasingly that individual member states feel more and more comfortable and have taken stronger positions,” he said.
Europe is pushing to become a geopolitical power but to do so in 2021 it will be key for it to define its industrial policy, which will include defining its tech, defense, and green economy plans.
“Thinking about the new transatlantic agenda the EU will have to agree to with the Biden administration in order to face up to the bigger and longer-term challenges,” said Blockmans.