EU as world power: Brussels has the tools, but does it have the will?

When Iran announced Sunday it would shortly boost uranium enrichment levels, violating the terms of its 2015 nuclear deal and perhaps heralding its demise, Tehran explained that European signatories to the agreement had not kept their side of the bargain: They had failed to bring the economic benefits they had pledged.

That was true. Though Europe had stuck by the nuclear deal even when Washington withdrew, European companies pulled their investments out of Iran. Under the threat of U.S. secondary sanctions, they had to choose between doing business in Iran or doing business in America. There was nothing Europe could do about it.

As old friends such as the United States put their interests first and new rivals such as China prowl the world stage with increasing self-confidence, can Europe stand up to such unfamiliar challenges and maintain its role as a global power?

A new report says yes – if the European Union moves quickly. The bloc “has the market power, defense spending, and diplomatic heft to end [its] vulnerability,” argues the European Council on Foreign Relations, a Berlin-based think tank. “But unless it acts soon, Europe may become not a player in the new world order but the chessboard on which great powers compete for power and glory.”

In a number of fields, the EU is a top-flight global power. It is the world’s largest trading bloc, its most generous donor of development aid, the driving force behind climate action, and the benchmark for international regulatory standards.

“People underestimate Europe’s global power,” says Andrew Moravcsik, head of the EU Program at Princeton University. “It is an essential power in many ways.”

But “it is underperforming compared to its potential,” argues Jeremy Shapiro, co-editor of the ECFR report. “Its model of doing things is eroding in the face of greater geopolitical competition and it won’t work in future.”

Pooled decision-making

A key weakness, says the report, is that Europe does not use its areas of strength or its economic clout to push its geopolitical goals in the way that other powers do.

The U.S., for example, has exploited the dollar’s dominance of the international financial system to threaten anyone doing business in Iran with exclusion from U.S. banking institutions. China, pushing its Belt and Road Initiative to build infrastructure, is dangling billions of dollars of investment funds to expand its influence across Asia and into Europe.

The European Commission recently branded Beijing “an economic competitor … and a systemic rival” in the political realm.

The EU is not set up to behave like that, says Mr. Shapiro, because its designers deliberately left geopolitical and diplomatic affairs in the hands of member governments while centralizing economic decision-making in Brussels. That has led to a fragmentation of decision-making authority which complicates Europeans’ efforts to punch their full weight, he says.

Dispersed decision-making is not always a drawback, though, says Professor Moravcsik. In some cases, continental-level and national-level policies can reinforce each other, as has happened with a migration policy comprising “bribery and intimidation,” as he puts it.

The number of migrants entering Europe has fallen nearly eightfold since 2015, the peak migration year. “That is a tremendous success,” says Professor Moravcsik, resulting from a mixture of EU initiatives – such as a 2016 deal to pay Turkey €6 billion ($6.7 billion) to secure its border and stop migrants traveling north illegally – and national policies such as Italy’s decision to negotiate with Libyan militias to better secure the country’s southern border, or Hungary’s construction of a border wall.

But in the broader field of international relations, “states will no longer be able to protect their national sovereignty unless they pool more of it,” Mr. Shapiro argues. “What they did with trade policy in the 1960s, they now need to do with geopolitics.”

With nationalist governments in power in several European capitals, “that is a very difficult political message to sell,” Mr. Shapiro admits. “But the choice is between cooperation in Brussels or informal subservience to some combination of Beijing, Moscow, and Washington.”

Developing and using leverage

“The EU needs to learn to think like a geopolitical power,” the report argues. “The EU and its member states should create either a mindset or a policy mechanism devoted to protecting their overall ability to act independently of other great powers.”

That is already happening, says Nathalie Tocci, head of the Italian International Affairs Institute and adviser to Federica Mogherini, the outgoing EU foreign policy czar. Long gone, Dr. Tocci points out, is the idea of “Europe diffusing goodness to the rest of the world through its soft power tools.”

The EU is toughening up even in the most sensitive area – security and defense – where member states have long been divided over the value and purpose of a strong military force. At the end of 2017, after long debate, the EU set up a Permanent Structured Cooperation (PESCO) framework to coordinate national governments’ military spending, investment, and action. It’s not a European army, but it could be a first step.

The EU is also doubling down on its support for the multilateral approach to international governance in the teeth of U.S. President Donald Trump’s disdain for such a system. Brussels has signed a slew of free trade agreements over the past five years with Japan, Canada, Singapore, Vietnam, and, last week, with Mercosur, the South American trade bloc.

The EU has also played a leading role in defending pillars of the international rules-based order that have come under attack from Washington, such as the World Trade Organization, and saved the U.N.’s Palestinian aid agency from bankruptcy when the U.S. pulled out of it.

Even if Europe’s common currency, the euro, were ever in as strong a position as the U.S. dollar, Brussels could never use its economic and financial power in such a coercive manner as the U.S. government uses its currency; there would never be wide enough political support. But the EU is taking small steps in the direction of the ECFR’s recommendation that the bloc should leverage its economic clout for political goals.

Most recently, French President Emmanuel Macron warned that France would not ratify the trade deal that the EU just signed with Mercosur unless Brazilian President Jair Bolsonaro respected environmental norms. The threat prompted the Brazilian leader to abandon his campaign pledge to follow Mr. Trump out of the Paris accord on climate change.

Europe has also begun to stiffen its attitude to foreign investment, with an unspoken but manifest intention to keep a closer eye on – and possibly limit – Chinese investment. Last April, the EU created a network allowing member states to exchange information and raise concerns about foreign investments, but there is still no Europe-wide mechanism that could block investments seen as a threat to national, or continental, security.

Europe and sanctions

At the same time, in a bid to keep the Iran nuclear deal alive, European nations have set up Instex, a new transaction channel designed to sidestep U.S. sanctions and allow European nations to continue trading with Tehran through non-monetary means. The facility does not cover oil sales, which are essential to Iran, and has yet to come into operation, “but it can be expanded and it shows the desire for this sort of thing” to boost European autonomy, says Mr. Shapiro.

Instex has broader significance for Dr. Tocci, given the prospects of more European policy clashes with the United States. “What if tomorrow the U.S. imposed sanctions on China and made them extraterritorial,” like the current U.S. secondary sanctions punishing any firm anywhere for doing business in Tehran, she asks. “What would our [European] companies choose to do?”

Such a scenario is not so fantastical, says Dr. Tocci. “For 70 years the contract was that Europe didn’t really have autonomy, but followed U.S. foreign ventures, and in return Washington provided for European security,” she says. “Now we are living through a historical, structural moment that goes beyond Trump in which the U.S. may no longer be willing or able to provide security because it is focused on its main challenge, China.”

That means that “we are out there on our own,” she continues. “Change is happening in Europe” to make the continent more autonomous and able to act independently, “but not as fast as we need, given the pace of change elsewhere in the world.

“We [Europeans] need the political courage not just to speak out about what we are for, but to act on it,” Dr. Tocci says. “We’ve got to have the guts to grow up.”