The Eurogroup warns of the risks of trade fragmentation for the eurozone

The bloc draws up its competitiveness strategy in a highly volatile and increasingly polarized environment. It is the prelude to the debate that will take place next week at the extraordinary summit of EU Leaders in Brussels. For now, the ministers of Economy and Finance of the euro (Eurogroup) have warned of the economic risks entailed by an international scenario of commercial fragmentation for the euro zone economy.

“Disruptions in global trade come from economic evolution and government interventions around the world,” introduced the president of the Eurogroup, Paschal Donohoe, to detail that trade fragmentation can imply economic costs “particularly for the euro zone and in its interaction with the global value chain”.

The managing director of the European Stability Mechanism (ESM), Pierre Gramegna, has stressed that “competitiveness is key to success in foreign markets” and has shown that, in terms of foreign trade, Europe is in a “difficult position”: Exports with third countries are equivalent to more than 60% of its Gross Domestic Product (GDP), compared to 5% in the United States and 38% for China. Therefore, in the event of trade fragmentation, “Europe will be more impacted by definition.”

The rise in geopolitical tensions and energy prices has had a impact on commercial dynamics, as explained by the Commissioner for Economy, Paolo Gentiloni, who has established the need for the euro zone to seek a balance between supporting production, improving economic security and using commercial instruments.

It was the president of the European Commission, Ursula von der Leyen, who called last year to reduce excessive trade dependencies on third countries, looking especially at China. She called for “reducing risks” but not for breaking ties or decoupling, emulating the term in English. decoupling. In this sense, Gentiloni has stressed that the decoupling from third countries “is not happening and, surely, will not happen.”

Faced with such a situation, the Irishman has put on the table the need to strengthen the single market and advance the capital market union. “I think we are aware that the euro zone benefits from strong integration into the global economy. We are convinced that the foreign market and investment help boost productivity and living standards,” said Gentiloni.

At a meeting in Luxembourg, the heads of the Economy of the Twenty have focused on trade policy in a geopolitical scenario of growing fragmentation. The EU calls to reduce risks in its trade relations after the lesson learned recently with Russian gas. Also for the breaks in the supply chain with China that showed the pandemic and left the automotive industry in stand by waiting for microchips from the Asian giant.

Gaining competitiveness and strategic autonomy will emerge as two pillars of the EU strategy for the next legislature. Upon his arrival at the meeting, the Economy Commissioner explained to the press that the dialogue would focus on competitiveness, but with an international angle: “we consider globalization as a framework”, he assured. The Italian then advocated for “safer” supply chains, although he is not inclined to protectionism.

The bases of the debate

This Thursday, the Eurogroup debated a document prepared by the European Commission that highlights the risks that trade fragmentation entails for the eurozone. Although, with the opposite formula, a greater single market integration It could be one of the pillars that gives the Twenty greater competitiveness.

According to the document, not only the lack of integration plays against the euro countries, compared to other markets such as the United States. High energy prices reduce the competitiveness of companies and the need to diversify business relationships to gain security in the supply chain, but at the same time it must strengthen its international cooperation and its networks of trade agreements.