Written by Marcin Grajewski,
Economic decisions taken at inter- and supranational level have recently come under fire from populists and protectionists. However, with better coordination between Member States, the European Union could play a stronger role in representing the needs of its citizens in global economic governance. Concerted pressure from EU and euro area countries acting together in fora such as the International Monetary Fund (IMF), or the G20, would help to make the world’s economic decision-making system more transparent and accountable, according to politicians and analysts speaking at a conference organised by the European Parliamentary Research Service (EPRS). The event, entitled ‘Global economic governance: what role for the EU?’, took place in the European Parliament Library Reading Room on 12 January 2017.
The damaging financial crunch of 2008 and the ensuing recession have forced the IMF, the G20 informal group of the world’s biggest economies, the World Bank, the Organisation for Economic Cooperation and Development, the Basel Committee of central banks, and other institutions, to act urgently to try to restore economic growth and ward off any repetition of such economic disaster. But the crisis, which has destroyed tens of millions of jobs and thrown millions into poverty, has undermined popular trust in traditional elites. The conference heard that public opinion has turned against globalisation and in favour of trade protectionism.
Sylvie Goulard, member of the EP’s Committee on Economic and Monetary Affairs, said citizen’s growing distrust in the economic governance system has been exacerbated by its confusing and complicated nature. ‘I was not in a position to tell my voters: who decides on the economy, who is really taking a decision. Is it parliament or is the financial industry itself that frames the activity? Many citizens in the EU and elsewhere feel that they do not choose the people who are making decisions.’ Sylvie Goulard added that the IMF, the Organisation for Economic Co-operation and Development (OECD), the Basel Committee, and the World Trade Organization (WTO) all have a different status, based on different governance powers – while the G20 is not very democratic. ‘When the system is complicated, it should at least be transparent.’
According to many analysts, some of these global institutions could be more effective if reformed, notably to reflect the growing role of emerging markets, such as China or India, in the world economy. However, Elena Flores, Director for International economic and financial relations and global governance at the European Commission, pointed out that some EU and euro zone countries are sceptical of such reforms. The Member States also often fail to act together, weakening Europe’s hand in international negotiations. ‘The EU could really play a much stronger role than the one it plays today if it were more unified,’ Flores said. The Commission has long advocated a single representation for the euro area on the IMF board, but without success to date. Flores remarked that the euro area’s global role could also be boosted if internal reform led to the completion of economic and monetary union. Flores added that, when the EU and euro zone countries act together, they are more successful in promoting their ideas, such as economic policy coordination, economic peer review or combatting macroeconomic imbalances at the international fora.
Difficulties in global decision-making may grow after the inauguration of Donald Trump, an advocate of economic protectionism, as US President in January, remarked Bernard Hoekman, Robert Schuman Chair at the European University Institute in Florence. Hoekman noted that ‘we are heading towards an administration in the US, which is much less inclined to pursue (…) multilateral cooperation’. Hoekman added that populism and protectionism are also fuelled by the pressure that technological change and innovation is putting on many traditional jobs.
Speaking on the EU’s track record in economic decision-making, Joachim Koops, Dean of Vesalius College Brussels and Director of the Global Governance Institute, said the Union, along with the IMF, should critically examine its role in imposing reforms on crisis-stricken Greece. ‘For the first time, the global and regional organisations worked together in an unprecedented way … They had divergent views on how to handle the economic crisis and rebuild the Greek economy,’ he said. ‘That has had an impact on populist movements and knock-on effects on elites in other countries. Many discussions in the previously pro-EU elites in Britain referred to Greece as one element in their shift in opinion in favour of Brexit’, he added.