How Europe can benefit from Asia's rise

Giles Merritt is a former FT journalist who now heads the Brussels-based think tank Friends of Europe. His recent book “Slippery slope” argues that the EU's member countries are all too small and too weak to have an impact on global affairs on their own. In his eyes, a more united EU is needed. He wrote the book before the Brexit referendum in June, but that event did not make his arguments less valid.

Merritt warns that many Europeans believe that Asia's rise must hurt Europe because they feel that countries compete with one another in the same way that private-sector companies compete for market shares. That view is fundamentally wrong, we warns, since the world economy is not a zero sum game.

In his eyes, there is no doubt that Europe is heading for relative decline because Asian countries, which are mostly still quite poor, are catching up. What really matters, according to Merritt, is that Europe must avoid absolute decline in the sense of deteriorating standards of living. To achieve that, he proposes close cooperation with Asia at all levels. The idea is that the EU can – and should – become Asia's partner and benefit from its rise. Asian success would then be European success as well.

As Merritt elaborates, Asian and European interests have begun to converge. For example, Chinese authorities' stance towards intellectual property rights is changing as ever more patents are registered in the People's Republic, proving that technological prowess is growing there. At the same time, China's government is showing ever greater interest in social protection. Similar trends are evident in other Asian countries, Merritt argues. To an ever lesser extent, he states, low wages are what drives Asian development. He welcomes foreign direct investment from Asia, moreover, as economic interdependence should make violent conflict less likely.

Demographic trends reinforce the need to interact intelligently with Asian partners, according to Merritt. One of his important points is that Asian nations are ageing, and China's population of working age has actually begun to shrink. Skilled workers and academically trained specialists are becoming scarce. Unemployment and skills shortages not only coincide in Europe, but in Asia too. Migration will thus become increasingly important, as countries compete for plain workers and skilled professionals. Training facilities and institutions of higher learning, which are fields where Europe has comparative advantages, will also become more important. The EU should not close its borders, Merritt warns, but seek as much exchange with Asia as possible.

To do so successfully, Merritt wants the EU to pay more attention to Asian sensitivities. It does not help, for example, that European leaders insist on staying overrepresented in important institutions of global governance such as the World Bank or the IMF. It is a problem, moreover, that Asian governments feel that the rich world is not living up to its duties in regard to cutting carbon emissions and protecting the climate, after having been the main contributors to global warming ever since colonial times. Another contentious issue is that ASEAN officials feel they deserve more respect from their EU counterparts than they are getting.

Merritt's conclusion is unambiguous: Asian leaders are interested in cooperation with Europe, but they want to be dealt with at eye level. Moreover, they are keen on taking advantage of access to the EU's huge domestic market, the biggest in the world.

To play its hand well, Merritt argues, the EU needs a joint approach. It is a potential global leader in terms of international cooperation, and it can contribute to setting the agenda and defining fair global standards that benefit all parties. Speaking with one voice, its members will have an impact on global affairs. Fragmentation, however, will mean loss of relevance, according to Merritt.

It is interesting to note that Brexit proponents told British voters a rather different story ahead of the referendum. Unshackled from the EU, they said, Britain would be free to make deals with China, India and other emerging giants. Now that their nation is set to leave the EU, it is becoming evident that China is beginning to put greater pressure on its government, for instance in regard to Hinkley Point, the planned nuclear power plant a Chinese company wants to cofinance. Moreover, multinational corporations that run production facilities in Britain are beginning to reconsider their investments there because they are no longer sure that “made in the UK” means duty-free access to the entire European market. The empirical truth is that Asian giants will find it easy to pit separate European nations against one another if the Europeans fail to act in a united and coordinated manner.

Reference: Giles Merritt, 2016: Slippery slope – Europe's troubled future. Oxford: University Press