TheMarketForIdeas

This week, the authors launched a White Paper on the Romanian Priorities and the Presidency of the Council of the EU. As Romania’s term at the Presidency of the Council of the EU is approaching at the beginning of 2019, many are still left wondering what does it mean for our country to hold this position? We argue that both the opportunities and challenges of this position are linked to the broader context in which Romania and the European Union function today.

In order to develop a set of priorities in each policy field, we first need to engage in a proper diagnostic of the current situation. We provide such contextual, as well as sectorial information with the hope that it will serve public officials, as well as the general public. 

The current context 

Europe is facing a variety of challenges, as recent developments have opened debates on the future shape and direction of the European Union. A series of overarching themes emerge from the diagnostic of the current challenges of the EU. First and foremost, there is a persistent lack of convergence between European regions and, increasingly, between different elements of the public. Connected with this point, the second overarching challenge is the design of the intergovernmentalism or multilevel governance in the European Union; given the various transnational or sectorial challenges that arise, the idea of a multi-speed Europe seems difficult to apply. 

Lines of division 

New lines of division appear in the European Union, without having necessarily resolved the historical disparities of development between the Member States and regions. Divisions within the different categories of the public across Europe and within Member States are currently just as important as the traditional divides across Member States.

Regional divisions are persistent in the EU, and they no longer align to the classical old vs. new Member States categories. Newer member states are facing challenges of convergence, or catching up, as many have been recently labeled by the European Commission as “lagging regions”. However, despite the fact that CEE is still struggling with low incomes in some of its regions, high economic growth rates have been recorded across the region, as opposed to older Member States, in Southern Europe (i.e. Portugal, Spain, Italy and Greece) whose lagging regions are marked by low economic growth. Many of the EU Member States have seen a growing regional inequality, as convergence has stalled during and after the 2008 economic crisis.

Social divisions have become increasingly more visible according to the various Eurobarometer data of the past decade. The values and beliefs of European citizens reflect new dividing lines on top of the persistent socio-economic ones, as the economic crisis in Southern Europe and its strong negative social impact, or the current migration crisis, amplify social insecurity across Europe. Capital cities are increasingly behaving very differently from rural areas in elections (e.g. Poland, Hungary, Bulgaria, UK), according to different alignments of values: as capitals remain predominantly liberal and cosmopolitan, the rural areas are increasingly turning to traditional or even fundamentalist values.

Economic divisions were meant to be tackled from the very early existence of the cohesion policy and the integration process. Still, economic grievances persist and amplify social and cultural insecurities. According to a recent assessment on CEE states, the European Union membership has made prosperity more achievable for countries in transition, but also made the consequences of failure more apparent. EU-wide income inequality declined notably prior to 2008, driven by a strong process of income convergence between European countries – but the Great Recession broke this trend and pushed inequalities upwards both for the EU as a whole and across most countries. Also, according to recent evaluations, both inter- and intra- generational mobility has stagnated or decreased in several Member States. Furthermore, several regions in CEE countries have changed their status from ‘less developed regions’ to ‘developed regions’ over the course of the current multiannual financial framework (MFF 2014-2020). 

Facing common internal and external challenges 

The practical failure of any multi-speed Europe proposal in the face of transnational issues and communalities. With growing subnational divisions, there is very little chance of drawing a clear-cut separation between any given Member States in the EU. Counterintuitively, the growing subnational disparities between regions, between cities and rural localities, between citizens, make the European project more interdependent, as only together can Member States leverage their strengths and pool resources to push common solutions to their current weaknesses and threats. The latter are reflected not only at the subnational level, but also at the whole European level (e.g. migration crisis, legitimacy crisis, competitiveness in the global markets).

In the State of the Union speech delivered by President Juncker in September 2018, he underlined the importance of unity in tackling both internal and external threats: “United, as a Union, Europe is a force to be reckoned with”. As a measure of the strength of the European Union, Junker mentioned such victories as the recorded economic growth (following the turmoil of the economic crisis), the global trading position of the EU (covering 40% of the world GDP), the size and resilience of the single market, as well as the Paris Agreement on climate change. On the side of further challenges, president Junker referred to the neighborhood commitments, especially in the Western Balkans, as well as playing a more active role in humanitarian crises such as the one in Syria. In terms of commitments, he summed up a yet incomplete term in office, around the following priorities: (1) a more innovative Digital Single Market, (2) a deeper Economic and Monetary Union, (3) a Banking Union, (4) a Capital Markets Union, (5) a fairer Single Market, (6) an Energy Union with a forward-looking climate policy, (7) a comprehensive Migration Agenda, and (7) a Security Union. 

The political dimension « It’s the politics, stupid » 

The political dimension seems to be the biggest current challenge to the future of Europe. As the EU was created top-down, the solutions for its current turmoil should also be top-down.

Rule of Law (RoL) is clearly one of the sources of political tension amongst Member States. Despite the fact that the Art. 7 procedures were commenced against Hungary (in 2015) and for Poland (in 2017), there is increasing uncertainty as to how exactly the EU will strengthen in practice the Rule of Law amongst its Member States. Some corrective measures to strengthen compliance might include the future multiannual financial framework (MFF 2021-2027) proposal of clear conditionalities on the EU funding with respect to RoL. This type of sanctions has however the downside of strengthening nationalistic and Eurosceptic rhetoric, thus constituting Pyrrhic victories for the EU. Still, there is little commitment to strengthen preventive measures in support of RoL (e.g. budgetary allocations for CSOs that promote democratic values in EU Members States are only about 50 mil. euro).

Extremist parties are gaining ground across Europe. As there are increasingly more Eurosceptic ruling parties in Europe (i.e. Hungary, Poland, Italy), there is a looming failure of multilateralism in Europe. European member states are going through political turmoil as electoral cycles prove there is ever rising polarisation in the platform of the main political parties. National scenes become divided between mainstream and extremist parties. The European decision-making forums will inevitably suffer tensions as well, in the process of incorporating and representing national view-points. The political crisis in the peripheries (e.g. Italy, Spain), in CEE (e.g. Poland, Hungary), or in Western Europe (e.g. France, Netherlands) point to emerging threats to the European construct as a whole. Reflecting these political trends at the national level, the Council of the European Union lacks unity of vision and will, and as such it is unable to provide convincing programmatic alternatives.

Across Europe, and especially in CEE, there is a dual decrease in the quality of democracy (QoD) and quality of governance (QoG). As multiculturalism is increasingly dismissed by extremist ruling parties, the quality of democracy is affected by the decreasing representativeness of all grievances, and popular preferences. At the EU level, this fuels into the issues of procedural legitimacy, as democratic accountability requires clear and transparent decision-making processes both at the national, and European level. The challenges related to poor quality of governance (QoG) especially in newer Member States are directly linked to corruption and the Rule of Law (RoL), as well as to effective use of domestic and European resources. The general concern regarding the quality of governance is especially amplified by the weaker institutional capacity at subnational level, in the case of newer Member States. In a context of depreciating quality of democracy and quality of governance, European citizens’ share of the benefits of integration is diminished. As such, individual disenchantments fuel the rise of extremism, as mentioned in the previous paragraph.

EU subsidiarity is again under question, as to what is the optimal balance of powers and responsibilities between the EU and the Member States, in the context of increasing interdependencies, and failures of coordination across specific policies (e.g. energy, migration, social). The political elites fail to provide coherent solutions to these current challenges. 

The economic dimension 

There is widespread pessimism regarding the potential resurgence of a financial and economic crisis in the European economy. The limited economic convergence between the centre and the peripheries has left many disgruntled parties, and Brexit is likely to have a negative impact on the internal market.

The biggest challenge ahead for the European union (especially after Brexit) is to develop a truly functional capital market—one that is able to support both the entrepreneurial and innovation objectives of development. In the CEE region at the moment, companies are approximately 90% reliant on banks for financing, while at the level of certain Member States, such as Romania approximately 75% of SMEs are self-funded. Especially for the high-tech sector, access to mature, well-developed capital markets is an essential ingredient for success.

In terms of economic challenges, it is also important to develop the resilience and competitiveness of the single market, as more than the sum of its parts, and to build on regional specialization in order to achieve sustainable growth across the regions. The Regional Competitiveness Index (RCI) is a useful subnational metric assembled by the European Commission. While certain regions and member states remain industrial leaders (e.g. Germany, France, Italy), there are new growth drivers across Europe, from entrepreneurship in the Baltic states, to agricultural production in countries like Romania or Bulgaria.

The competitiveness of the European single market is especially important in the context of what is generally referred to as Trade Wars (i.e. increase in protectionism, and contestation of multilateral liberalization). Externally, the EU is losing ground in international trade, competitiveness of its MNCs or innovation, and a consensus has yet to be achieved on how to tackle these threats to European growth and development.

Economic growth is key to the overall development of new Member States. CEE region has for example recorded high growth rates over the past years, yet its economic development model is just as important as overall figures. Prosperity has to be home grown, depending on a range of competitive small and medium businesses, and these countries must also commit to innovation and integration of new technologies as core drivers of domestic economic development. Also, the extent to which national or regional development is translated into individual welfare is of paramount importance. Despite good economic performance in many EU member states, people do not always feel the benefits themselves, as growing inequality of income figures show. 

The social dimension 

Europe is facing several social challenges at the moment. On the one hand, the demographic pyramid issue means not only a rising pressure of social protection measures for an increasingly elderly population, but also a grave loss of the consumption capacity in the internal market. The inward migration flow could potentially meet currently unfulfilled demands of the labour market, but they also impose significant pressures of assimilation on both institutions and societies. On the other hand, the design of the social model in the European Union as a whole is an open discussion, from the new social compact to the new social fund.

Protecting and preserving human dignity is one of the cornerstone ideas of the humanistic European project. Yet, in the face of various economic and security challenges, not the least the current migration crisis, EU seems prone to question its role in ensuring that its citizens achieve this threshold of the quality of life and dignity of existence—one that can often constitute a benchmark for countries across the globe. The current feeling in many of the EU Member States is that the current order has failed to deliver on the promise of security, protection and the creation of conditions necessary for a decent, dignified existence.

In the face of nationalist, populist rhetoric that is increasingly anti-liberal, and anti-European, the extent to which Member States and their citizens respond to common values falls under question. A sense of civility seems to be lost, as deep social cleavages appear in the tectonic shifts of values, ethnicity, or religion.

The sense of self-worth of European citizens is increasingly challenged by both internal (e.g. economic crisis, political extremism) and external (e.g. trade wars, cyber threats, migrants) factors. The sense of belonging to a common space is diluted in a general state of socio-economic insecurity, and as such, it is increasingly more responsive to nationalistic identity triggers. 

The technological dimension 

The current developments under the broad label of the Industry 4.0 model impose significant strain on the EU both in terms of competitiveness, and regulation. Disputes with multinational giants in the digital sector have brought to light a new regulatory stance of EU authorities. The development of artificial intelligence (AI) programmes is highly reliant on data collection, which in turn imposes new responsibilities of regulation with concern for both data privacy, and competitive potential of EU companies in comparison to companies from the USA or China.

While Industry 4.0, digitalization and artificial intelligence offer effective solutions for a number of actual challenges, they also raise concerns about their social impact, employment, education, and, last but not least, about governance. Central and South East European countries are the most dynamic within the EU. Their fastest convergence is happening in digitalization. The region’s digital infrastructure is relatively well developed, as Central and South East European Member States are almost on par with the EU15 in terms of internet access and mobile broadband usage.

Attracting talent and skilled human resources is important for the global competitiveness of most economic sectors, but it seems to especially important for ITC. As such, in order to attract the best and brightest from across the world, European IT companies should strive to be “good workplaces” and provide employees with “exciting things to works on”.

Well-performing high-tech companies in CEE today are the ones that nurture collaborations with local university centres and startups. What is important to realise in the context of the StartUp Europe initiative is that the majority of the tech start-ups are born globals (i.e. companies rapidly become players on the global stage). Many European tech companies are moving up the value chain, shifting from mobile apps to deep tech. As such, necessary but not sufficient conditions to perform are access to capital (i.e. larger markets such as USA, UK, or Japan), and access to skilled human resources (see previous paragraph)—computer engineers, and connected business specialties. As more than the sum of its parts, European tech start-ups need a prolific ecosystem to perform and be competitive on the global markets. In order to properly reflect the current dynamics and challenges of the tech sector in Europe today, it is important to involve business accelerators in the policy-making process currently shaping the entrepreneurial environment in the EU. 

The main challenges and opportunities for the EU and Romania 

Currently, the European Union is facing both structural and contextual challenges. On the structural side, there is an ample need to reform and bring the European project to a new dimension. Striking the right balance between subsidiarity and a greater role for the European Union on the world stage would be a difficult enough task without the current divergence of opinion between and within Member States.

On the contextual side, there are imminent issues on the leaders’ agenda including the unprecedented Brexit, problems related to migration, security and cyberdefense, and last but not least the construction of an MFF through which to seek to enhance the European Added Value without imposing additional burdens on Member States. The upcoming European elections make consensus even harder to reach.

The White Paper on the Romanian Priorities and the Presidency of the Council of the EU has mapped out 3 dimensions of the current context in which Romania will assume the rotating Presidency of the Council of the European Union:

Firstly, it has provided a canvas of the political, economic, social and technological environment of the European Union. As it is first and foremost a common market, it is useful to have such a market diagnostic of the EU at present time. Complex issues call for innovative solutions, and we provide an inventory of potential remedies to current issues in this first section of the paper.

Secondly, it looks at the challenges and opportunities that the EU is facing in general, and Romania in particular. As mentioned before, we find the EU to be challenged by Brexit, cybersecurity, fake news, divergent visions at national level and between institutional actors, the turmoil related to the upcoming European elections, climate change, energy dependency and terrorism. With respect to opportunities, the EU can look ahead to completing its digital market, furthering the EMU, new trade negotiations that consolidate its multilateral approach, developing projects with specific European added value, and developing a new partnership with Africa and its immediate peripheries.

For the specific case of Romania, national constraints are likely to inform the agenda the Romanian Presidency of the Council of the EU. Romania’s main challenges arise from development factors (e.g. poor infrastructure and healthcare system, leaving school early, brain drain), as well as political instability (e.g. conflict between the Presidency and the Parliament, numerous changes in the Government including the designated portfolios for the Romanian Presidency of the Council of the EU). Its opportunities are linked to the way Romania will manage major EU landmark negotiations in the near future (i.e. rotating Presidency of the Council of the EU, or the negotiations for the future MFF).

The final section of the White Paper on the Romanian Priorities and the Presidency of the Council of the EU covers the topical priorities Romania might hold across the various Council Configurations. While there are topics that are of primary interest to it, such as the cohesion or agricultural policy, other major themes will be very important as well for strategic reasons and their relevance to major partners in the EU. The latter category includes the General Affairs Council recurring topics, such as Brexit and the future MFF. Another interesting set of topical issues are those regarding migration, security and cyberthreats, as these are not in particular challenging for Romania, but very important politically for Member States such as France or Germany. Moving forward as an honest broker with the targeted policies in these sensitive sectors would bring political capital to Romania. However, Romania’s performance in this role will be severely constrained by the calendar and the little time left for negotiations before the European elections. 

Source: White Paper on the Romanian Priorities and the Presidency of the Council of the EU 

Selected references: 

Bărbulescu, I., Volintiru, C., Troncotă, M. and Toderaș, N. (2018) Romania as a provider of democratic transition expertise for neighboring countries in the Balkans and Eastern Partnership, European Institute from Romania (IER) Policy and Strategy Study No. 2/2017 [in Romanian]. Available at: http://www.ier.ro/sites/default/files/pdf/SPOS_2017_Studiul%201_FINAL.pdf

Dăianu, D., Fugaru, A., Mihailovici, G., and Volintiru, C. (2018) Multiannaul Financial Framework Post-2020: Risks and Opportunities, European Institute from Romania (IER) Strategy and Policy Study, no. 1/2018 [in Romanian].

Tromme, M. and Volintiru, C. (2018) Corruption Risks at the Local Level in the EU and EU Periphery Countries. OECD Global Anti-corruption & Integrity Paper. Available at: https://www.oecd.org/corruption/integrity-forum/academic-papers/Tromme.pdf

Volintiru et al (2017). Preventing Corruption and Promoting Public Ethics at the Local and Regional Level in Eastern Partnership Countries. European Committee of the Regions (CoR), Brussels, Belgium. Available at: http://www.lse.ac.uk/business-and-consultancy/consulting/assets/documents/preventing-corruption-and-promoting-public-ethics.pdf

Volintiru, Clara and Olivas Osuna, José Javier (2018) Preventing corruption at local and regional level in South Mediterranean countries. European Committee of the Regions (CoR), Brussels, Belgium. Available at: http://eprints.lse.ac.uk/90170/1/Olivas-Osuna_Preventing%20corruption_2018.pdf.