Does Europe have an External Economic Strategy?

Abstract

The European Union is the second largest economy in the world, but does it have a global economic strategy? 10 years after the creation of the euro, there is little evidence for it. Policy makers are more concerned with protecting narrow domestic advantages than with improving opportunities for the European economy as a whole. The Lisbon Treaty offers now a new perspective. It explicitly calls for policies that “encourage the integration of all countries into the world economy” (art. 21). It will be the task of the new President of the European Council and the High Representative for Foreign Affairs in the European Commission to translate this objective into a coherent strategy that takes into account the euro as the second world reserve currency. This chapter looks at the most urgent issue: how to restructure the world economy after the financial crisis and remove the huge global imbalances. This is an important task, because macroeconomic imbalances were a major cause for the financial crisis. Exchange rate policies for the euro will have to play a major part in such a strategy and this is an eminently political project. I will first discuss the lessons to be learned from the crisis, and then draw conclusions for an international strategy.