29 Ene Europe undermining itself – ABC

*Originally published on 29 January in ABC newspaper.

On April 2, Donald Trump marked his own version of Liberation Day by announcing a reckless tariff strategy under which imports of goods from the European Union would be subject to a 20 percent duty. Ultimately, following a period of negotiations, the tariff was set in August at 15 percent—an agreement that, incidentally, is still pending approval on this side of the Atlantic by the European Parliament. This unhappy episode, which illustrates the complex environment in which we will have to operate in the coming years and exemplifies the definitive end of a rules-based international order—not only in economic affairs but across almost all areas of public life—offers a useful starting point for reflecting on Europe’s growth problems, grounded in the widely shared principle of the negative effects of tariffs.

The European Union established, in the Union Act signed in 1986 under the leadership of the socialist Jacques Delors, the legal mandate to create a fully operational single market by 1993. Yet today, more than thirty years later, a multitude of non-tariff barriers continues to hinder the normal functioning of trade. The International Monetary Fund quantified the cost of these frictions in its 2024 Regional Economic Outlook, and the results could hardly have been more disappointing. According to the IMF, non-tariff barriers amount to a cost equivalent to tariffs of 42 percent on intra-EU trade in goods and a staggering 110 percent in the case of services. Both figures are alarming. So much so that the European Central Bank sought to recalibrate these estimates. In September, ECB President Christine Lagarde announced that its research departments had reached a similar conclusion: “shadow tariffs” within the single market stand at around 60 percent for goods trade and 100 percent for services.

Behind these exorbitant figures lies a persistent diversity of national and local regulations that fragment the single market, EU directives that are poorly implemented and inadequately enforced by the Commission, and a wide range of protectionist practices maintained by public administrations and private operators alike. Without downplaying the harmful effects of Donald Trump’s tariffs, it is evident that the damage Europeans inflict upon themselves is unsustainable. Unlike external tariffs, however, their removal lies entirely in our own hands. Faced with these extraordinarily high “shadow tariffs,” it is therefore fair to say that there is no growth strategy with greater regulatory reach and potential impact than a robust roadmap to dismantle these barriers to trade and deepen European integration.

Enrico Letta explains this clearly in his study on the single market, as does Mario Draghi in his broader report on European competitiveness. Yet more than a year into the current legislative term, the ambition of the EU institutions in this regard is conspicuously absent. Their focus has been placed almost exclusively on a battery of initiatives, bundled into various “omnibus” packages, aimed at “simplifying” strictly EU-level regulation. While complex, this body of law does not in itself generate fragmentation of the single market. This approach has, moreover, facilitated a framework of understanding between the European centre-right and Eurosceptic and anti-European right-wing forces, dissolving the space of trust and cooperation among pro-European parties—a necessary condition for advancing the most powerful lever for increasing competitiveness: the completion of the single market.

There is no doubt that the Union needs to reorganize part of the EU legislation adopted during the previous term, a point Mario Draghi also makes in his report. In both environmental and digital domains, recent years have been marked by regulatory activism that has produced a framework riddled with duplication and overlap, through directives and regulations that seek to protect the same public good via layered and redundant measures. However, to regard EU-level regulation as the principal obstacle to European competitiveness, and to concentrate almost all legislative effort in this area—given the severe problems of the single market reflected in the IMF and ECB estimates of “shadow tariffs”—reveals a deeply ideological bias. This bias is the product of a misguided “culture war” among the various right-wing forces, both pro-European and otherwise, locked in a dynamic of competition-cum-cooperation that will not resolve Europe’s economic problems but will instead fuel hyper-nationalism and reactionary populism, actively supported from outside the Union by Donald Trump and Vladimir Putin.

Nigel Farage led the campaign from the European Parliament that ultimately resulted in Brexit by invoking extravagant—though entirely fictitious—EU laws. According to the then likely future prime minister of the United Kingdom, EU rules regulated the curvature of bananas or banned corgi dogs, so beloved by the British royal family—claims that were notably propagated by Boris Johnson during his time as a journalist in Brussels. Later came the infamous “Polish plumber,” a narrative that proved highly effective for the Brexiteers. The Conservative Party under David Cameron accepted this storyline, renegotiated the UK’s membership terms, and then lost the referendum, ushering in an unfinished period of deep political instability and mediocre economic growth that continues to fuel populism. The conservative parties that remain within the Union—already disfigured in countries such as Italy and France—now face a choice: follow the example of their counterparts across the Channel or reaffirm their Europeanist legacy.

Socialists offer a balanced assessment of EU regulation, advocating a pragmatic and swift rationalization rather than the deregulation now being promoted by the European People’s Party in alliance with Eurosceptics—some for ideological reasons, others as the fastest route to eroding the Union’s legislative capacity. Moreover, the deregulation of EU rules being forged by this new majority will generate little economic growth without substantial progress on the single market—progress that this coalition neither can nor wishes to lead. It will, however, have harmful effects on certain public goods, including financial stability.

Europe’s main economic challenge—and not only in economic terms—inevitably lies in the accelerated consolidation of the single market, the strengthening of the common budget, and the deepening of political union across the continent. All three are necessary conditions for addressing the dissatisfaction evident in every election. Only one majority in the EU institutions is capable of delivering this agenda: the pro-European platform. By contrast, the current supposedly “simplifying” agenda fails to address the real sources of Europe’s competitiveness problems, preserves the underlying causes that fuel populism, and simultaneously whitewashes those who seek to dismantle the Union through their negotiations with the European People’s Party. There is still time.