International Relations

Between Eurozone Crisis and Arab Revolution

Future of Europe and the Med Region

As North African countries went through revolution and unrest, southern European countries came under severe pressure in the context of the euro crisis. While views remain mixed on whether southern European countries are out of the woods financially, the post-revolutionary transitions in the Arab world have not been smooth. Challenges north and south raise questions about the future of the Mediterranean region. How have the eurozone crisis and Arab uprising affected the region’s prospects? Can Europe still lead, or do the ‘twin crises’ mean that the shape and character of its leadership must change? Do these developments offer an opportunity for change, and what are the potential positive developments?

Europe’s Mediterranean Vocation

“It is necessary for us, at this important juncture, to remind Europe of its Mediterranean vocation,” Malta’s Prime Minister Joseph Muscat said. He added that the developments in the Mediterranean region over the past few years “took many people by surprise”. There was now an emerging consensus that developments in the Mediterranean can never be taken in isolation from Europe or, indeed, the international community.

The Prime Minister said that one could not easily determine Europe’s future on the global stage with the continent having several, yet unanswered questions, regarding its current situation and problems, interests and objections as well as political and economic intentions. “The eurozone economic crisis and the lack of political will have seen Europe under use its own clout. We have lacked self-confidence to push through as if we remain at the starting block, paralysed by ourselves.” He added that compared to the up and coming economies like China and India, Europe was looking more like the ‘old’ continent once again.

There were indeed several examples where Europe has demonstrated that it has all the qualities of a leader. “Europe has the structures and the standards to enable it to act. The values it holds dear – respect for democracy, human rights, the rule of law – serve as the standard-bearer for many nations across the world.” Dr Muscat mentioned that there are signs that Europe is taking measures to become a stronger global player. The Prime Minister referred to Europe’s 2020 Strategy, largely devised to draw Europe out of economic stagnation, but underlining the ambition to become a knowledge-driven, competitive and sustainable economy.

Developing a Partnership Vision

“I think it is time, and it is right, to consider our region as one region. We have to take into account the huge progress made through logistics. Our future should be envisaged as a common future,” Abdelilah Benkirane, the Prime Minister of Morocco said. He highlighted that Morocco’s reform package had brought tremendous progress to the country. In 2013, Morocco’s GDP had grown by 4.8 per cent, the fiscal deficit had been reduced by 2 per cent, the debt ratio had been kept under 63 per cent of GDP and inflation had been limited to 2 per cent.

Foreign direct investment (FDI) had increased by 25 per cent in 2013, placing Morocco second in Africa in terms of attracting investment, Prime Minister Benkirane highlighted. “The job is not yet finished,” he said with a view to the democratic process. He stressed that Morocco could be one of the models for the region. The country had benefited from an advanced status with the EU since 2008 and was looking forward to the deepening of the free-trade agreement that links Morocco to the EU according to the Prime Minister. He concluded that “in our region we need a vision, we need a vision to build a new set of partnerships.”

Too Weak to Lead

Anna Diamantopoulou, former European Commissioner and President of the Greek DIKTIO Network for Reform for Greece and Europe, argued that Europe is too weak to be at the forefront of a Mediterranean dialogue: She said: “Debts and unemployment in the eurozone remain alarmingly high. It is utopic to believe that Europe can take the leading role in the Mediterranean area or elsewhere while it faces turbulence on its own fronts.” She said that with the exception of Malta, all Euro-Mediterranean countries were facing their own crisis. “There is no way for effective cooperation. Cooperation cannot flourish while the danger of destabilisation still exists.”

She added that both the Lisbon Strategy and the Barcelona Process did not reach their respective targets due to a number of reasons. “The EU Leadership failed to predict the impact of financial markets operating without sufficient political oversight and without the proper mechanisms in place.” She also mentioned the architecture of the euro, highlighting that monetary policy without economic policy was inadequate in dealing with the crisis while certain southern Mediterranean countries had not implemented the required reforms to comply with the eurozone rules.

Overcoming the Euro-Med Fatigue

Enrico Letta, Former Prime Minister of Italy, agreed that the new European legislature was one “with the need for the Mediterranean to be at the top of the agenda”. The eurozone crisis as well as the instability in North Africa and the Middle East had contributed to the current “EuroMed fatigue”. He said that in the past years the Mediterranean was “again a problem, not an opportunity”. He highlighted economic and political stability as key conditions for change. “Without stability in the Mediterranean, without overcoming civil wars and difficulties in the energy supply chain, it would be very difficult to have a complete recovery in the Mediterranean.”

He also insisted that migration flows should be on top of the EU’s agenda and that a general alliance was required. Mr Letta argued that EU leaders could no longer delay addressing the matter effectively: “There will be no prosperity in the area if the Mediterranean remains a sea of death.” He also advocated the need for an institutional framework to bring together all the leaders to enable them to take decisions.

Ensuring Security and Financial Recovery

The revolution had revealed many shortcomings in Tunisia, in particular an imbalance between regions and high unemployment among graduates, Noureddine Zekri, the Tunisian Secretary of State of Economy and Finance who is in charge of Development and International Cooperation, said. The country was undertaking wide-ranging reforms in areas such as education, local governments and civil rights, he added. According to him, the government “has two major missions”: to ensure the security of the country as well as economic and financial recovery. To enhance the role of the private sector, the investment code was being revised while a draft framework regulating Public-Private Partnerships was being prepared, he said. Mr Zekri also highlighted that Tunisia had long been a foreign investment magnet. “More than 3,000 foreign companies operate in Tunisia, providing more than 330,000 jobs. The majority, 80 per cent, are European companies.”

Opportunities for Cooperation

Gamal Bayoumi, Ambassador of Egypt, also argued that one should not look to the southern Mediterranean as a problem but as an opportunity. “I want to assure you that Egypt is not in economic trouble, we are facing a short period of liquidity shortage. If we talk about Egypt, we are talking about the largest economy in North Africa and the second largest economy in the Arab World, after Saudi Arabia.” He said Egypt’s growth potential lay in its young people, with around 55 per cent of the population under the age of 30.

With a view to the EU and the Mediterranean region, he argued that the relation between the north and the south should not be one “of dictation”. He said: “We can always learn from other countries,” adding that Egypt is a unique mixture between many civilisations. “We cannot copy any other civilisation, but we can add and receive while creating real cooperation in the Mediterranean with the help of our partners from the north Mediterranean.”

Reaching out to the Arab World

Ambassador Fadel Jawad, Assistant Secretary General, Head of the Political Sector at the League of Arab States, said that the time had come to consider whether, for certain aspects of Mediterranean policy, it would be appropriate to include the Arab world as a whole. “It has long been recognised that it is not enough to involve only those states with a Mediterranean coastline. For several years, countries like Jordan, Portugal and Mauritania have been included as well. No one doubts their relevance to the Mediterranean as a political-economic area. Similarly, on certain aspects of Mediterranean policy, the inclusion of the Black Sea is seen as logical and helpful.”

He said: “There was a time when the Mediterranean flourished by serving as a hub of cultural and commercial exchange on a global scale. The prosperity of the ‘Middle Sea’ was linked to the Middle East.” Today, when Arabian Gulf countries were influential in the Mediterranean, it was artificial to exclude them completely from a strategic dialogue on the region. Ambassador Jawad said: “Arguably, our people are already showing us the way. In deciding where to work, where to study, where to visit, where to trade, where to invest, they increasingly treat the Mediterranean and the Gulf as a single area of exchange and movement. Perhaps, diplomats and decision-makers should follow their example.”

Shifting Markets, New Opportunities

Changing trade patterns required European businesses to embrace strategic alliances with high-growth economies, Tim Reid, HSBC’s Regional Co-Head of Commercial Banking Europe, said. “Until recently, Europe saw the rest of the world as its supplier. It imported cheap products from China, India and other emerging markets to satisfy domestic demand. But demand is shifting eastwards. China and other faster growing economies are increasingly rebalancing away from exports and towards imports.”

The rise of China and other developing nations was not necessarily bad news for European businesses. “This will open up significant new opportunities for businesses in Europe and the West.” Mr Reid mentioned that Europe had the industries, the goods, the services and many trusted brands that are required in this new reality. Mr Reid also commented that the Middle East would be a perfect trade partner for Europe. “Not only is it the world’s largest supplier of oil and gas, it is also a major export market for products and services that European countries generate.” He added that there were also opportunities for infrastructure providers as the Middle East was expected to raise over a 100 billion US$ in funding for infrastructural activities and projects by 2015.

The Economist Insights

Europe was not just facing a growth crisis but actually a political crisis, John Peet, Europe Editor of The Economist and Consultant Editor John Andrews said. Sharing the Economist’s forecast for 2014, they highlighted a sluggish economic recovery, deeper European integration and democratic confidence as the EU’s biggest challenges.

The eurozone’s recovery was a fragile one, and the European Parliament would need to address joblessness, particularly in southern countries, Mr Peet said. According to him, the relationship between countries in and those out of the eurozone is another challenge. “The 18 countries in the eurozone are integrating their policies more closely. The 10 countries that are not in the eurozone will be in a slightly awkward position.” Mr Peet added that a lack of democratic confidence in the European project was another challenge. He mentioned that the eurozone realised it needed deeper integration to survive, but the political will of the people was required to achieve this goal. Securing legitimacy for a more integrated eurozone would be a serious challenge for the European Commission, Mr Peet said.

With regard to foreign policy, the two editors said the European Union punched well below its weight. “As Europe moves beyond the euro crisis, it has to start looking at its neighbourhood, not only Ukraine and Russia, but also North Africa and the Middle East. The EU must be a significant player and it must have more weight in foreign policy.”