Intereconomics 2021 | 3
and healthcare, but there should be a fast-track system in
case of emergency, as has been painfully demonstrated
by the current coronavirus pandemic.
Europe beneﬁ ts from globalisation but is reluctant to ﬁ ght
to make it more socially and environmentally responsible
so as to ﬁ t the European model. It has not set rules of re-
sponsibility for ﬁ rms’ suppliers (chain responsibility).
Additionally, the EU is lacking an immigration strategy.
There is no blue card systems to make Europe attractive
to top-qualiﬁ ed Indian or Chinese citizens. The EU does
not seek to limit disruptive immigration through education
and peace-building in Africa. Border countries take on a
disproportionate burden of this disruptive immigration.
A strong position in the new world order requires a deeper
Union to boost the EU’s lead in sustainability, one that
does not interfere but rather empowers and coordinates
Game changers on the road to a deeper Union
The following ten points of a reform agenda envisage a
double strategy for deepening the Union as well as offer-
ing partnership with neighbours. This needs ambitious
goals but empowering local innovations (Aiginger, 2017,
2021; Ketels and Porter, 2020).
Economic growth is rather low in Europe. The EU failed
at using information and communications technology to
accelerate dynamics and was slow to recover from the ﬁ -
nancial crisis. During the COVID-19 crisis, the decline in
The COVID-19 crisis brought about new challenges and
opportunities for the European Union, as it did for the
entire world. After decades of eradication of extreme
poverty and limiting inequality through taxes, transfers
and cohesion policy, inequality between the periphery
and the centre is again increasing and some regions feel
forgotten. The population is ageing in many countries,
and this is often exacerbated by the emigration of young
people, making the regions they leave less attractive to
new ﬁ rms.
New technologies and digital transformation stimulate
ﬁ rm growth and could make life easier, but Europe lags
in research and development (R&D) relative to the US and
to the Asian tigers. Europe is still not attractive for the
best brains due to the limited number of top universities.
The access to health services is easy, but coordination
between member countries is limited, as demonstrated
by emergency units and reserves in essential supplies.
Testing procedures for new medications are accurate,
which is extremely important for the quality of medicines
Karl Aiginger, Policy Crossover Center: Vienna –
Europe, Vienna; University of Economics and Busi-
ness Vienna, Austria.
A Deeper Union: From a Failed Project to the
European Quality Lead
After President Trump’s departure, many expected that the transatlantic partnership would
return to its previous state with the US playing a leading role. This article challenges that view.
Instead, a new world order is foreseen, with different partnerships and spheres of inﬂ uence.
Europe can decide whether it wants to remain small and homogeneous or a larger but also
more heterogenous Union that leads in welfare indicators such as life expectancy, ﬁ ghting
poverty and limiting climate change. Expanding this lead and communicating its uniqueness
can empower Europe to combine enlargement and deepening, which appears unlikely without
changes in governance and self-conﬁ dence.
© The Author(s) 2021. Open Access: This article is distributed under the
terms of the Creative Commons Attribution 4.0 International License
Open Access funding provided by ZBW – Leibniz Information Centre
ZBW – Leibniz Information Centre for Economics 175
ductivity follows from high taxes on labour and low taxes
on energy and transport.
Europe has to reduce inequality within countries, across
regions, and – an aspect of increasing importance – be-
tween the core and the periphery (Aiginger and Kreuz,
2020), which would in turn limit nationalism. “Forgotten
regions” are a powerful source of populism and illiberal
democracy. This creates opposition to a deepening of the
EU and its ability to cope with new challenges.
Traditional policy instruments are needed to limit inequal-
ity, since the bulk of taxes are levied on wages (where
extremely high rates limit formal employment) or on con-
sumption. This could take the form of a combination of
standardising tax bases for corporate or inheritance tax-
es and pricing emissions, ﬁ ghting base shifting and tax
evasion. New taxes on ﬁ nancial speculations, plastic or
platforms would also reduce inequality. To achieve this
goal, member states must engage with each other, since
taxes are a national matter.
Reforming governance: Deepening and empowering
The request for unanimity of decisions in the European
Council has to be removed. The agreement of a sub-
group on an issue (enhanced cooperation) should be
used more often and welcomed by all European institu-
tions (today it depends on the pre-approval of the Euro-
The right of the European Parliament to start the legisla-
tive initiative should be established. For European elec-
tions, political parties at the European level should be
Member countries that defy European decisions and
international compacts, or that do not respect human
rights and waive the division of power between the ex-
ecutive and legislative power or limit the freedom of the
media and universities should not receive substantial Eu-
ropean grants and subsidies.
Reforms should target problems with common interests,
strong external beneﬁ ts and a high impact on future well-
being. However, it is important to distinguish between
principles and targets on the one hand and implementa-
tion on the other. Innovation is a process in which local
initiatives reveal unexpected gains. Thus, a deeper Union
that sets targets together and encourages bottom-up so-
lutions is better than central planning, and also prefer-
able to ambivalent, partly conﬂ icting local priorities.
GDP in the ﬁ rst year was stronger than in the US. This is
also predicted for the combined loss and expected gain
in 2021 and 2022, while China’s economy is expected to
expand in both years. The GDP per capita in the EU is one-
third lower than in the US, and the catching-up process in
labour productivity stopped in the last decades of the past
century. Europe should not mimic the US model; income
dynamics make it easier to prioritise equality and decar-
Closing the research deﬁ cit
Modern growth theory tells us that insufﬁ cient research
is a root cause of lacklustre growth. R&D expenditure
as a share of GDP in the EU is about one-quarter lower
than in the US. R&D spending should have been raised
to 3% of GDP, according to the Lisbon 2000 strategy,
which intended to make Europe the “most competitive
region of the world”. As this did not materialise, the EU
2020 programme tried to enforce a “national ownership
of the strategy” by demanding that members set national
targets. But, ﬁ rst, the sum of the national R&D goals did
not amount to the EU target, and second, member coun-
tries failed to reach their own goals. Actual expenditure
remained slightly above 2%, now trailing not only the US
at 3%, but also the Asian tigers and, since 2012, China
Productivity growth allows for the same output with less
input. It is important to distinguish, however, which partial
productivity increases: it can be labour productivity or en-
ergy and resource productivity.1 These possibilities have
different policy implications (for more details, see Aigin-
Booming labour productivity exacerbates the growth im-
perative; if labour productivity grows by 3%, output must
increase at the same rate. Otherwise, unemployment will
increase and low-skilled workers will lose their jobs. In-
creasing energy and resource productivity also reduces
inputs and stimulates cost competitiveness, while at the
same time limiting emissions. Achieving the climate tar-
gets requires a reduction in greenhouse gases of 80% to
Redirecting productivity from its current focus does not
represent an unjustiﬁ ed interference in a market econo-
my. On the contrary, the current dominance of labour pro-
1 For the sake of simplicity, we put aside capital productivity (both hu-
man and physical capital).
Intereconomics 2021 | 3
From size to impact: Neighbourhood policy
A geopolitical role starts in the neighbourhood. Europe
has to build partnerships with neighbours in the East and
the South (Aiginger and Handler, 2018). Even if we argue
that the share of Europe in GNP, exports and manufactur-
ing is larger than perceived, it will shrink for a given geo-
graphical size. The EU can offer partnerships to its neigh-
bours since it is a continent with soft power that does not
intervene by military force. Europe’s leading role in ﬁ ghting
climate change offers important technologies that “rising
Africa” can adapt to local needs, such as digital payments
and remote healthcare consultations, which have already
been used successfully. European engagement in Africa
is regarded with scepticism due to Europe’s colonial past,
and therefore the European Commission and members
without former colonies will have to lead.
The Recovery and Resilience Facility as a reform engine
The new Multiannual Financial Framework, as well as the
Recovery and Resilience Facility (RRF), could boost re-
forms. The latter is partly ﬁ nanced by new European Safe
Assets, with common guarantees. The European budget
and the new facility should be used to increase dynam-
ics (as measured by GDP), productivity and research, but
even more support sustainability, energy and resource
conservation, and new clean technologies. To achieve
this, EU funding and national public expenditures have to
coordinate their goals, given that the EU budget amounts
to only 1% of GDP, while the national public expenditures
amount to 40%. The additional expenditures via RRF
increase the share of European expenditures for some
years to 1.8%.
The RRF is a combination of mandatory national plan-
ning and supranational control. It demands a focus on re-
forms, decarbonisation and digital transformation. Mem-
ber countries have to present regional plans in the ﬁ rst
half of 2021 revealing national priorities. Fresh money
cannot be used for old projects. Together with reforms
in the European budget, this could redirect European
Changes have started
The new European Commission intends to reinforce Eu-
rope as a stronger partner at the global level and at the
same time increase the commitment and responsibility to
European citizens. The ﬁ rst has been stressed by Com-
missioner Ursula von der Leyen’s intention to promote a
“geopolitical Commission” and “a Europe closer to citi-
zens, by supporting local led development strategies….
across the EU” (von der Leyen, 2019).
To limit global warming, goals must be set and their im-
plementation requires national and local initiatives. The
central authority must request local plans, monitor their
implementation and inform about best practices. It can-
not be acceptable that some regions use renewable en-
ergy while other countries build new coal plants. Even
cleaner heating with oil and gas is not compatible with
climate neutrality in 2050. Massive investment in energy
productivity and renewable energy, as well as better in-
sulation of buildings, must occur in all regions.
A deeper Union in the sense of common goals is not the
opposite of local initiatives; rather, it can encourage such
initiatives and make them more effective. And a larger
Union can gain the support of citizens, if they know that
European leverage on a global scale depends on Europe
From size to impact: Media and external
The visibility of Europe in international meetings and
organisations should be heightened. A European seat
in the UN, the WTO, the IMF or the WHO would ﬁ rst ne-
cessitate coordination between European countries, but
then increase their impact on global decisions and the
adherence of European countries to global decisions.
From size to impact: Promoting the euro as a transaction
The EU should promote the use of the euro as a reserve
currency alternative to the dominant dollar before the
renminbi assumes this role. The share of transactions
in euros is far lower than the trade volume of euro area
members.2 The creation of a euro debt market with high
liquidity would provide for international investors looking
for alternatives to the dollar, a process that began with
the European Stability Mechanism. European safe assets
should be promoted and the ﬁ nancing of the Recovery
and Resilience Facility, with the same small common li-
ability of all countries for new debt, is a small ﬁ rst step.
Currently only 23% of international loans are in euros
(more than 50% are in dollars); the market share for the
euro is at 16% of global foreign exchange turnover, and
the share of the euro in global foreign exchange reserves
is 20% (Baldwin and Weder di Mauro, 2020).
2 The euro has made inroads as a global payment currency, but its
share of 40% is still ﬁ ve percentage points below that of the dollar,
though Europe’s trade share is nearly twice as high as that of the US
(European Commission, 2018; European Central Bank, 2020).
ZBW – Leibniz Information Centre for Economics 177
Aiginger, K. (2017), How a strong Europe could create more national
scope of action, Intereconomics, 52(4), https://www.intereconom-
could-create-more-national-scope-of-action.html (15 April 2021).
Aiginger, K. (2021), What Role For Europe In The New World Order? A
Third Player Empowered By Green Productivity, Research in Econom-
ics and Management, 6(1).
Aiginger, K. (2021), European competitiveness and sustainable develop-
ment, Competitiveness Review, forthcoming.
Aiginger, K. and R. Kreuz (2020), Soziale Ungleichheit in Europa: Spreng-
kraft für die EU, Policy Crossover Center: Vienna-Europe Working Pa-
Aiginger, K. and R. Rodrik (2020), Rebirth of Industrial Policy and an
Agenda for the Twenty-First Century, Journal of Industry, Competition
and Trade, 20(2), 189-207.
Aiginger, K. and H. Handler (2017), Towards a European Partnership
Policy (EPP) with the South and the East. Fostering Dynamics, Fight-
ing Root Causes of Migration, Policy Crossover Center: Vienna-Europe
Working Paper, 3.
Baldwin, R. and B. Weder di Mauro (2020), Mitigating the COVID Economic
Crisis: Fast and Do Whatever It Takes, CEPR Press.
CEBR (2020), World economic league table 2021, https://cebr.com/wp-
content/uploads/2020/12/WELT-2021-ﬁ nal-29.12.pdf (15 April 2021).
European Central Bank (2020), The international Role of the Euro, htt-
en.html#toc (15 April 2021).
European Commission (2020), Coronavirus: the Commission mobilises all
of its resources to protect lives and livelihoods, https://ec.europa.eu/
commission/presscorner/detail/en/ip_20_582 (15 April 2021).
European Commission (2018), Towards a stronger international role of the
euro, COM(2018), 796 ﬁ nal.
OECD (2014), Do environmental policies matter for productivity growth,
OECD Economics Department Working Papers, 1176.
Ketels, C. and M. E. Porter (2020), Rethinking the Role of the EU in en-
hancing European Competitiveness, Competitiveness Review, 31(2).
Rodrik, D. (2020, 9 July), China as Economic Bogeyman, Project Syndi-
Schublach, S. (2021), Über den Führungsanspruch der USA in einer
veränderten Welt, Karl-Renner-Institut, Politik aktuell, 1.
von der Leyen, U. (2019, 16 July), Opening Statement in the European
Parliament Plenary Session.
The new world will not be bipolar
The new world order will be different post-COVID-19.
New challenges have come up gradually and have be-
come more visible during the pandemic. Crises should
make ﬁ rms and governments rethink their position and
investments. Changes that are not made today will be
delayed for a long time. This year is a watershed moment.
Analysts predicting the future world order concur that it
will be dominated by China and the US, but both coun-
tries have demonstrated their limits as of late. China is
seen in a much more critical light due to domestic issues,
but also because it extends its borders clandestinely
and uses its investments to grab resources and create
dependencies. The US plans to return to its former posi-
tion, intent on assisting its ﬁ rms so they can vanquish the
competition, contrary to WTO rules. The US lags in most
Sustainable Development Goals and in energy produc-
tivity. The Biden Administration cannot change this in the
next two years since it may lose its majority in the mid-
The power of the EU in world politics can only be achieved
by de epe ning t he Uni on. Th is star ts by d eﬁ ning the topics
that can best be solved together (and maybe those that
can be returned to members). Climate change, digitalisa-
tion, ageing, migration and the health crisis all need to be
and can be addressed more efﬁ ciently if the European
governance system accelerates decisions, sets com-
mon goals and monitors adherence. The details need not
be ﬁ xed centrally. On the contrary, due to new member
countries, the heterogeneity of the EU is increasing and
preferences become less homogeneous with rising in-
comes. The optimal strategy will therefore be to set goals
centrally and with global perspectives, while operation-
alisation is organised in the member countries if not in
the regions. This dual strategy will also help curtail popu-
listic and nationalistic backlashes motivated by a neglect
of regional diversity in the larger Union.
The autocratic tendencies in China and the political di-
vide in the US should effectively encourage Europe to
become more ambitious and self-conﬁ dent. A deeper
Union that at the same time encourages regional initia-
tives could allow Europe to take more responsibility for
climate concerns, while limiting income differences and
boosting cooperation with its buoyant neighbourhood.
The result could be a multi-polar world, with Europe as a
quality player that offers its model to its neighbours while
learning from them.