23 Nov 2008

Europe in 2012

It has been a surprising year of sorts. Today’s resolution of creating a new pan-Eurasian free trade area is an important and key step that will shape the future for years to come. It is not, however, the significance of the single largest free trade area ever created, it is in fact, the agreement between the EU and several Asian countries, of creating and sharing resource and knowledge pools. This will enable, for the first time in history, largely free movement of highly skilled workers between China on the East, and Great Britain to the west. Today’s agreement not only enables smooth merchandise trade between India, China, the Baltic countries and the EU, but also is the first concrete step taken by such a large group of countries to address talent shortage in several knowledge-intensive industries.

That Russia is not a formal signatory of this agreement is unimportant as it already has FTA’s in place with both China and India and therefore presents only a small administrative hurdle to overall integration. It is clear that Putin is aiming at further re-election of his party by feeding on the renewed nationalist movement in Russia this week after further acerbic criticism directed at Poland for allowing the United States to install missile defence positions.

With the establishment of this cooperation zone, members of the WTO are also probably breathing a sigh of relief as the long drawn argument between Europe, the US and developing countries on the issue of agricultural subsidies is finally drawing to a close. With Europe agreeing to reduce agricultural subsidies to 20% of their current level by 2020 and with Brazil, India and Egypt agreeing to open up their markets to agricultural imports the pressure has now shifted to the US, which is under pressure from the world community to follow suit.

The increasing rift between the US and the rest of the world does not show signs of abating in the near future. With European-led UN peacekeeping forces expected soon in Iraq, anti-American opinion is expected to further rise as more evidence of American mismanagement comes to light.

What does all this, however, mean for Europe? We are now in 2012, a year when Germany is overshadowed by China as the largest exporter in the world, but when Ukraine and Turkey have been given conditional approval to join the EU. When Poland’s agricultural industry is facing the prospect of a shutdown but when the Bank of England is in talks with the ECB to discuss Britain’s accession to the Euro zone. Conflicting signals, but hopefully there exists a common cure and Europe perhaps, has already taken that first crucial step.

The path that Europe takes over the next few years, will be the key driver to how it utilizes this new cooperation area and achieves its vision of the Lisbon Agenda of 2005. That vision, a surprising foresight for the leaders of that time, established clearly that Europe’s future lies in niche services, high value brands and increased knowledge management. Leveraging this low volume-high variety service offering with Asia’s mass production and service industries, is expected to add 1% to each countries’ annual GDP growth – an immense figure considering France only grew 0.8% last year.

The free movement of high skilled labour, is going to address the demographic issue partly, but it is intended more so, as a policy targeting the sudden slowdown of several service industries in Europe because of a lack of suitable talent. It is no wonder that the financial centres of Shanghai and Singapore have grown 30% year on year when London is facing the prospect of a decline.

The future then, seems bright and clear, for a stronger Europe that is more integrated with Asia, the biggest driver of global growth today. Coupled with the ongoing process of further internal European integration and the new members, it seems that Europe has finally awoken out of its slumber and is ready to challenge other developed parts of the world into doing the same.

This is an imaginative article (and in my mind, quite an impossible scenario) I wrote earlier this year during the Cass MBA (yes, I've just graduated).

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