European Union - World Economic Power

Donici, Gabriel-Andrei; Ionel, Simona; Incaltarau, Cristian Article European Union - World Economic Power CES Working Papers Provided in Cooperation with: Centre for European Studies, Alexandru Ioan Cuza University Suggested Citation: Donici, Gabriel-Andrei; Ionel, Simona; Incaltarau, Cristian (2010) : European Union - World Economic Power, CES Working Papers, ISSN 2067-7693, Alexandru Ioan Cuza University of Iasi, Centre for European Studies, Iasi, Vol. 2, Iss. 1, pp. 27-41 This Version is available at: https://hdl.handle.net/10419/198066 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ C CE ES S W Wo or rk ki in ng g P Pa ap pe er rs s, , I II I, , ( (1 1) ), , 2 20 01 10 0 27 EUROPEAN UNION – WORLD ECONOMIC POWER Gabriel-Andrei Donici ―Alexandru Ioan Cuza‖ University of Iaşi Simona Ionel ―Alexandru Ioan Cuza‖ University of Iaşi Cristian Încalţărău ―Alexandru Ioan Cuza‖ University of Iaşi Abstract: From establishing the European Coal and Steel and so far, European economic integration has seen remarkable success. There are however a number of difficult issues unresolved. Will EU succeed to move forward towards a political union and to shape a foreign policy that would enable a major role in international relations? The new confrontation that is taking place at the international level is not based on political-military conflict anymore, but rather on economic and technological competition to get a bigger part in the global economy. But will the acquisition of a world economic power status will allow them to remove American hegemony? Key words: global power, multipolarity, unipolarity, international relations, FDI, European Union JEL classification: F15, F02, F50 1. GLOBAL CENTERS OF POWER How can be defined the concept of "power" at a globally level? Ray S. Cline defined the power of a country, globally, through the following formula: Power = (critical mass 1 + economic power + military power) x (coherent planning of the national strategy + will) (Bonciu, 2006, p. 56). Zbigniew Brzezinski, a security consultant of President Jimmy Carter stated about the same concept: "As a country to merit the title of world superpower it should occupy the first place in the following areas: economics, technology, military and culture.‖ (Revel, 2004) And indeed, US would be the first to meet all these conditions simultaneously becoming the first global superpower in history. Pat Robertson anticipated the decline of US domination, saying, "while the '90s are looming, the world forged by the Americans after World War II draws to a close. 1 territorial area and population size; C CE ES S W Wo or rk ki in ng g P Pa ap pe er rs s, , I II I, , ( (1 1) ), , 2 20 01 10 0 28 The outline of global system decentralization can be clearly distinguished by long, but its new center coordinates were hitherto troubled and problematic. (...) American Hegemony died, Russia was in crisis and decline. Japan's new economic giant, Europe is on the verge of true community, and China is ready to take them to everyone. All of this composes the new core of a world in which change will be dynamic, uneven, unpredictable and multidirectional." (Robertson, 1998 in Ciochină, 2000, p. 28) Transformation occurred in the strategic game, worldwide, has been highlighted by Silviu Brucan which stated: during the Cold War, the dominant conflict on the global arena was political and military with East-West ideological substrate. With the collapse of the Soviet Union, political and military confrontation has lost it’s ideological virulence and on the international arena was installed as a type of conflict economic and technological competition to win a bigger part of the world market, military rivalry passing to the background. (Brucan, 2005, p.105) Modern technological revolution, particularly the globalization of communications, supersonic transport and the growing independence of industrialism, is boosting national states to wider unions, reflecting different stages of supranational integration (Brucan, 2005, p. 106). From the middle ages until the mid-seventeenth century the dominant economic centers were the state cities (Venice, Anvers or Amsterdam). The emergence of sovereign nation states, after the peace of Westphalia in 1648, international relations were dominated by sovereign and formal equal states (Has, 2009). Nowadays, however, the main actors on the international stage have become "continent-states‖ (NAFTA, EU, ASEAN, MERCOSUR etc.) (Patapievici, 2008). Today it can be said that the European Union, US, Japan and Southeast Asia region are the main centers of power in the global economy. And between them takes place the main international trade. Globally, the EU is the largest trading power and is the group most involved in providing financial and technical support to poorer countries, acting in the economic, social, and political, human rights and foreign relations of the member countries. Since 1989, Michel Beaud emphasized that this group has the largest capacity of polarization, indicating that more than 30 countries on different continents have more than 40% of the economic exchanges with this regional entity, while only 13 states place such a trade with the American pole and only five countries with the Japanese one. C CE ES S W Wo or rk ki in ng g P Pa ap pe er rs s, , I II I, , ( (1 1) ), , 2 20 01 10 0 29 2. EUROPEAN UNION'S ROLE IN GLOBAL ECONOMY EU is often described as an economic giant and as the largest trading power in the world, able to compete with US and to discuss with China on textile imports. Indeed, when we look at real numbers, the report is impressive: EU achieved 40% of global trade, its GDP is roughly equal to the US (and 25% of total world GDP), while it is twice as large as Japan's and is the largest global exporter in both goods and services (Cameron, 2007 in Has, 2009). EU is the world's second economic power. A decade ago it made a quarter of the global GDP and its citizens had some of the largest per capita incomes on the planet. Today, its global production and its trade with the world are making it one of the richest economic blocs. (Simon, 2008) The question is whether EU: should be sufficiently satisfied with the stagnation in a position of prosperous Great Switzerland, or should become a new nation with great control over its own destiny...? (Dehove, 2006 in Simon, 2008) In the following we will make a review of the key issues and data in the European Union and its place in the global economy. Key macroeconomic indicators in 2009 for the major centers of economic power are presented in the following table: Table 1 - Macroeconomic indicators (2009) Macro-indicators E.U. USA. Japan China GDP (trillion $) 14,51 14,26 4,14 8,71 GDP/inhabitant ($) 32 700 46 400 32 600 6 500 Area (thousand sq. km) 4 324 9 826 377 9 596 Population (thousand inhabitants) 491 582 307 212 127 078 1 338 612 Services (% GDP) 71,90 76,90 75,40 40,50 Agriculture (% GDP) 2,10 1,20 1,60 10,90 Industry (% GDP) 25,90 21,90 23,10 48,60 Source: www.cia.gov Overall, in 2009, global economic decline was 1% after the 2008 global GDP grew by 2.8%. Between the great powers of world, in 2009, Japan saw the largest decline 5.9% of GDP, after 2008 it decreased by 0.7%. The second largest decline (4% in 2009) was the one of European Union which followed an increase of 0.9% in 2008. US's GDP decreased less pronounced than that C CE ES S W Wo or rk ki in ng g P Pa ap pe er rs s, , I II I, , ( (1 1) ), , 2 20 01 10 0 30 of the EU or Japan (US’s GDP decreased in 2009 by 2.4%). The decrease followed a 0.4% lower growth in 2008. China's GDP grew by 8.7% in 2009 after an increase of 9% in 2008. If we relate to another indicator, GDP per capita, which is most representative of the welfare population, EU is brought forward by US and Japan. United States of America have a G.D.P. per capita of approximately 1.41 times higher than the EU. This is mainly due to last two waves of enlargement. Following the accession of the 12 new members the population has increased by about 20%, while GDP by only 5%, which resulted in a significant decrease in the value of this indicator. With a population of 1.3 billion inhabitants, China recorded a GDP per capita of $ 6500 per capita. On the weight certain areas occupy in obtaining GDP we can say the structure is similar. The differences are small. The largest share in obtaining GDP is the one of services (which has the greatest contribution to US GDP 76.4%) and the lowest share of GDP is obtained from agriculture (which had the largest contribution in China’s GDP 10.90%). Regarding EU the two enlargements produced slight changes in the value of these indicators, because some of the new member states, like Romania, had a lower share of services in GDP (around 60%) and a higher share of agriculture (about 5%), which has reduced the share of services, in the EU average (27), and increased the percentage of agriculture. Risky behavior and lack of supervision, which eventually triggered the financial collapse of 2008, have damaged America's relative power and influence. (Frost, 2009) C CE ES S W Wo or rk ki in ng g P Pa ap pe er rs s, , I II I, , ( (1 1) ), , 2 20 01 10 0 31 2.1 EU external trade For an analysis of exports and imports of goods we consider the following tables: Table 2 - Exports and imports of goods in billions ECU/EURO Year Country 1999 2000 2001 2002 2003 2004 2005 2006 2007 Exports E.U. 638,08 849,74 884,71 891,90 869,24 952,93 1 053,20 1 159,28 1 239,85 USA 650,03 844,87 816,19 733,10 639,68 657,53 726,90 825,92 Japan 391,84 518,88 450,37 440,69 417,25 454,83 478,21 515,07 Imports E.U. 743,30 992,70 979,14 936,97 935,25 1027,54 1179,85 1315,74 1425,95 USA 993,84 1362,13 1317,59 1271,45 1153,72 1226,20 1392,43 1528,35 Japan 290,86 411.06 390.01 357,03 338,98 365,99 414,65 461,19 Source: www.wto.org The value of exports of all three power centers have increased in 1999-2006. The highest value of exports was recorded by the EU, which held first place throughout this period. Upward trend was only interrupted in 2001-2003 due to the tense period of major international conflicts (the September 2001 terrorist attacks and war in Afghanistan in 2002). Regarding the development value of import goods, for the period 1999-2006 it is similar to that of exports. The general trend has been one of growing, excepting the period 2001-2003. United States of America occupied the first place in terms of value of imports during this period. Table 3 - Major exporters/importers of goods (excluding intra-EU trade), 2008 ($ billions & %) Source: International Trade Statistics, 2009 taken from www.wto.org With regard to exports and imports of goods we remark that on the first place is the EU-27 with 15.9% of exports and 18.3% of imports. Japan occupies the same position as exporter and importer: 4, with 6.5% from the exports and 6.1% of the imports. Differences arise regarding 2nd and 3rd place, China is the 2nd exporter and the 3rd importer (with 11.8% of exports and 9.1% of imports) and US are the 3rd exporter and the 2nd importer (with 10.6% of exports and 17.4% of imports). C CE ES S W Wo or rk ki in ng g P Pa ap pe er rs s, , I II I, , ( (1 1) ), , 2 20 01 10 0 32 Table 4 - Major exporters/importers of commercial services (excluding intra-EU trade) 2008 ($ billions & %) Source: International Trade Statistics, 2009 taken from www.wto.org Regarding imports and exports of commercial services we remark that the EU-27 is the first exporter and importer in the world with a 26.9 % share of the total. The top is completed by the same countries as for international goods trade, the second top position is occupied by US exporters with a percentage of 18.8% from total, and China and Japan are tied with 5.3% of total exports. Rating largest importers of services is almost identical to that of exports the difference being that Japan imports 6.4% of total opposed to 6.1% China. Chart 1 - World exports of commercial services Q1 2008 - Q1 2009 Source: International Trade Statistics, 2009 taken from www.wto.org Relative to the development before 2008 the global crisis and ―said‖ it’s word regarding exports of commercial services. Thus global exports saw significant decreases in both Q4 2008 and in Q1 of 2009. C CE ES S W Wo or rk ki in ng g P Pa ap pe er rs s, , I II I, , ( (1 1) ), , 2 20 01 10 0 33 2.2 FDI into European Union Table 5 - Inflows and outflows of FDI in the EU during 1980-2005 Period Region 1978-1980 1988-1990 1998-2000 2003-2005 Inflows E.U 39,1 40,3 46,0 40,7 USA. 23,8 31,5 24,0 12,6 Japan 0,4 0,04 0,8 0,8 Outflows E.U. 44.8 50.6 64.4 54.6 USA. 39.7 13.6 15.9 15.7 Japan 4.9 19.7 2.6 4.9 Source: www.unctad.org Table 6 - FDI flows (inflows) of the European Union with the Triad in 2007 (billion $) E.U. 27 % USA. % Japan % Rest of the world % Total 445.9 73 73.9 12 13.8 2 81.2 13 614.8 Source: epp.eurostat.ec.europa.eu From the previous tables is obvious that the main source of FDI for EU is represented by the EU countries. The EU countries had over the period 1978-2005, a rate of approximately 40% (in 2007 they amounted 73% and a value of 445.9 billion dollars). We have to mention the downward trend of US FDI in EU. If in the period 1988-1990 they amounted 31.5% in 2007 their contribution decreased by 12%. Table 7 - FDI flows (outflows) of U.E. with the rest of the world in 2007 ($ billion) EU 27 % USA % Japan % Rest of the world % Total 455,4 62 79 11 1,3 0,2 194,7 26,8 730,4 Source: epp.eurostat.ec.europa.eu Regarding the outflows of EU’s FDI (which were in amount of 730.4 billion USD in 2007) they have as main destination EU (62% in 2007). The FDI value directed to US decreased from 39.7% during 1978-1980 to 11% in 2007. If the main destination for both inflows and outflows of FDI is represented by EU countries, from the FDI directed to countries outside the Union, in 2006, the highest percentage went to the US (27.7% and a value of € 72 billion), followed by Canada (11.7%) and Switzerland (8%). The C CE ES S W Wo or rk ki in ng g P Pa ap pe er rs s, , I II I, , ( (1 1) ), , 2 20 01 10 0 34 main investors from outside the Union were in 2006, US (48.1% and a value of EUR 75.6 billion), followed by Switzerland (10.6%) and Japan (8.7%). 2.3 Monetary Financial Flows The world's international transactions, investments in foreign exchange markets, central bank reserves, bond issues, and international trade are conducted in dollars, yen, euro and sterling, currencies belonging to the US, Japan and EU member states. The analysis of the three global monetary units is restricted only to the US, Japan and the Euro zone. As it can be seen in the table below, historically, we can distinguish two distinct stages: first till 1999, the emergence of the euro and the second: from 1999 to present. In the first of these periods the highest share of total international reserves of US currency was in 1999 when it reached 70.9% of total threshold. The dollar was followed by the pound, with a share of over 6% and the Japanese yen (2.8%). The main rival of the dollar was the German mark (DEM), which held a 15.8% share of total in 1995. Table - 8 Share of the main international reserve currency in the period 1995-2007 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 USD 59 62,1 65,2 69,3 70,9 70,5 70,7 66,5 65,8 65,9 66,4 65,7 63,3 EUR - - - - 17,9 18,8 19,8 24,2 25,3 24,9 24,3 25,2 26,5 JPY 2,1 2,7 2,6 2,7 2,9 2,8 2,7 2,9 2,6 3,3 3,6 4,2 4,7 GBP 6,8 6,7 5,8 6,2 6,4 6,3 5,2 4,5 4,1 3,9 3,7 3,2 2,9 CHF 0,3 0,2 0,4 0,3 0,2 0,3 0,3 0,4 0,2 0,2 0,1 0,2 0,2 DEM 15,8 14,7 14,5 13,8 - - - - - - - - - FRF 2,4 1,8 1,4 1,6 - - - - - - - - - Others 13,6 11,8 10,1 6,1 1,7 1,3 1,5 1,5 2 1,8 1,9 1,5 2,4 Source: ECB: The Accumulation of Foreign Reserves, 2008 report, taken from www.ecb.int With the introduction of euro, the dollar share of international reserves decreased gradually, reaching, in 2007, a value of 63.3%. 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