Letta report must focus on economic security
There are many important issues that Enrico Letta will undoubtedly address in his forthcoming report, commissioned by the European Council in June 2023, on the future of the EU Single Market. From challenges of enforcement, to new sources of funding for Europe’s green transition, there will not be a shortage of priorities on which to focus our collective attention. However, there is one dimension, which can no longer be avoided in the context of the Single Market, and this is the urgent need to address Europe’s economic security.
The EU Single Market was officially initiated 30 years ago. Since then, the international context has changed beyond recognition. When the project was launched, China was only negotiating its entry into the WTO. It not only claimed that it was a developing country, but it was clearly one by virtue of all major indicators. Today, China dominates global manufacturing in a number of critical areas, such as rare earths and solar panel production and is poised to reach a commanding position in other strategic industries such as electric vehicles and wind energy. 30 years ago, the US was going through one of the most multilateralist periods in its history, leading the post-Cold War reorientation of the world. Today, the US is thoroughly skeptical about the virtue of international collaboration and holds deep distrust in multilateralism. Supply chain disruptions and energy price hikes following the COVID-19 pandemic and Russia’s full-scale invasion of Ukraine have demonstrated the vulnerability of the EU economy to external dependencies. Increasing great power rivalry and the decline of the WTO-led free trade system suggest that a more fragmented and shock prone geo-economic order is here to stay.
In this context, economic security must be Europe’s overarching priority for the 2024-2029 political term. Far from being a defensive measure, it can actually serve as the most powerful incentive to revitalise the Single Market since its launch in 1993. It speaks powerfully for both its deepening in areas such as integration of capital markets, and further enlargement.
When Enrico Letta presents his report on the future of the Single Market, there should be five measures that he should address in the context of economic security. Firstly, the Single Market must deliver on strategic technologies, where sizeable investment is needed as well as a radically improved ecosystem for innovation. Secondly, the EU needs heightened supply chain vigilence. The Single Market allows for a more rapid rebuilding of supply chains in areas where excessive global exposure brings an undue element of risk. This means a greater mode of transparency and information-gathering is needed. So far, EU measures envisage that the European Commission can issue recommendations to Member States on how to reorganize certain supply chains and production lines. A more forceful mechanism will be necessary in the future in certain areas.
Thirdly, an economic security approach to anti-trust is needed. While consumer welfare has been the predominant focus of the EU competition policy to date, a broader view is now necessary, enabling consolidation where it can serve the interests of Europe’s economic security, while monitoring attentively concentration of corporate power, in particular through the emergence of network effects. Fourthly, aggregation of demand and facilitating cross-border public procurement will be necessary in critical areas. As the success of the latest round of the EU Energy Platform for joint purchasing of gas demonstrates, having been heavily oversubscribed, the EU can obtain significantly better terms when acting as a bloc.
Finally, emergency preparedness needs to be part of the EU’s standard operating procedure. While the Single Market Emergency Instrument (SMEI) has envisaged three different modes, the economic security paradigm means that the scope of situations envisaged in the SMEI in case of pandemic-related crises, should be assumed to be significantly more widened. The European Commission should be mandated to gather a large part of the information envisaged under the Emergency Mode of the SMEI, also in presumably non-crisis times. It should be in the position to order economic operators to prioritize certain orders for the production or supply of crisis-relevant goods.
Economic security is not a matter of choice in a period dominated by global rivalry and conflict. It is a necessity, which must be at the heart of how the EU Single Market is revamped.
