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Remedial action

Although the European Union's economic outlook remains uncertain, it has renewed confidence that it can maintain its integration


The novel coronavirus outbreak dealt a heavy blow to the European economy in 2020. Its GDP fell by 7.4 percent in the eurozone and 12 percent in the United Kingdom, sharper declines than that of the United States. Against this backdrop, most European nations have adopted massive economic stimulus programs such as loosening policy control, injecting liquidity into the market, expanding fiscal expenditure, formulating support policies for targeted industries, and protecting key enterprises. But the future of European economic recovery is filled with great uncertainties.

The pandemic cast a shadow over the future of European integration. At the very beginning, most EU member countries fell into panic. But the EU, withstanding the unprecedented challenge, soon got its response into shape, and European integration is now enjoying more public support. In a landmark deal last year, the EU members agreed on July 21 to a 750-billion-euro ($894 billion) recovery effort, Next Generation EU, to help the EU tackle the crisis caused by the pandemic. Alongside the recovery package, EU leaders agreed on a long-term EU budget for 2021 to 2027. Among other things, the budget will support investment in the digital and green transitions and resilience. The deal showed that the 27 EU member states have reached a consensus over pressing ahead with European integration, boosting confidence in it.

European integration has always been an ambitious plan. It aims at creating a set of industrial strategies at the EU level to accelerate localization and regionalization of production and promote the digital and green transitions. The EU, which possesses declining advantages in economic growth factors, has formulated these measures from the long-term perspective to sustain and strengthen its competitive edge in the global economy. However, the ongoing pandemic has made the implementation of some of the policies quite difficult.

Europe's political situation was generally stable in 2020. Despite the raging pandemic, the continent did not witness an upsurge in trouble caused by the rise of populist parties and mainstream political parties had a more stable ruling status than before. However, populism seems likely to spread across the continent. In the long run, mainstream parties will become increasingly irrelevant, party-system fragmentation will increase and mainstream parties will lean more toward populism.

Despite the challenges caused by the pandemic, the EU has been insisting on foreign strategic independence. However, that is not easy to do. The EU is currently confronted with multiple internal and external challenges, the biggest internal challenge being the exit of the United Kingdom from the bloc. The UK announced that it had reached a trading agreement with the EU on Christmas Eve 2020, which temporarily avoided a lose-lose situation. But the EU and the UK are locking horns over many issues as both parties want to get more out of the Brexit deal. But the real challenge is the internal conflicts within the UK following Brexit, to which the EU must make corresponding adjustments.

Therefore, the ensuing conflicts are quite difficult to solve in the short run.

It is no secret that US-Europe relations have been cool to ice-cold during the Donald Trump presidency. The Joe Biden administration has offered a ray of hope to the improvement of bilateral relations. In a desperate move to improve bilateral relations, German Chancellor Angela Merkel reportedly called Joe Biden three times within four days to congratulate him on the heels of the announcement of the presidential election results. However, as Europe and the US are both busy coping with the pandemic and economic recession, there has yet to be obvious progress in the improvement of bilateral relations. On the other side of the equation, EU-Russia relations have come under renewed pressure. Although Europe relies heavily on Russia for imports of natural gas and other energy sources, it is reluctant to have a quick thaw in bilateral relations due to severe political distrust between the two sides.

Following seven years of negotiations, China and the EU concluded their negotiations on a landmark investment treaty in 2020 against the backdrop of the pandemic. The deal bodes well for China-Europe cooperation in years to come, which has great significance for both sides. The future of bilateral relations looks bright as long as the two sides uphold multilateralism and remain committed to mutual benefit and win-win cooperation.

On the other hand, Germany, the backbone of Europe's economy, is moving into the post-Merkel era this year, bringing new uncertainties to the country and the EU at large. Any political instability in Germany will inevitably undermine the process of European integration.

Europe has a bleak economic outlook this year. Apart from the pandemic, the biggest problem is the rapid debt growth. European countries have different attitudes toward the issuance of sovereign debt. They reportedly issued a total of $400 billion worth of sovereign debt in 2020. How can such a large sum of debt be repaid? Interest rate policy alone can hardly solve the problem. The European Central Bank is the central bank of the 19 European Union countries which have adopted the euro. However, it remains questionable to what extent it can cooperate with the EU's macro policies. Speaking from the long-term perspective, the European economy is plagued by a lack of investment and innovation. Green and digital transitions of the European economy and the attempted solutions for the problem can hardly produce the desired result in the short run.

The author is deputy director-general of the Institute of European Studies at the Chinese Academy of Social Science. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

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