Lorenzo Izzi is a final-year student studying Politics. He is passionate about European Politics and the role of the European Union in the International world, as well as international security and conflict. He is particularly interested in Europe’s relationship with Russia and China in key regions such as Eastern Europe or the Indo-Pacific.
Here is why Europe’s lack of growth, mixed with Chinese internal subsidies, is bad news for Europe’s security ambitions and climate actions. A reform of the single market could provide a solution.
Almost every project requires a budget, and it is almost impossible for states and political entities to finance their projects without money. Economic growth generates states’ wealth and gives political entities the power to spend. Europe, as widely known, is facing the most pressing geopolitical challenge on its soil from 1945, and it is imperative that it shows its strength through military aid to Ukraine and a long-term project to reach strategic autonomy. However, both these tasks require money in the form of additional military spending, but the continent did not grow at all in 2023.
Additionally, the surge of cheap imports from China is not helping the European economic structure to grow, and consequently, without growth, military spending is less likely to increase. Particularly, Chinese exports towards Europe are directed towards green technologies, a sector in which China aims to become a leader in the near future, and that is harming European manufacturers and economic growth in general. If Europe aims to become a security actor in the future, it should invest in green technologies to foster growth and reduce Chinese leadership in the sector.
The situation insofar is such that China is building capabilities and expertise in this key sector to foster its growth by subsidising its industries and exporting these cheap technologies towards the European markets. Indeed, European consumers may benefit on the one hand from these cheap imports that lower product prices, but on the other hand the risk for the production manufacturing chain is too high and may lead to under-priced items and increased unemployment due to consumers going for the “cheapest” option, therefore not giving manufacturers the oxygen they need. In the grand scheme of things, this contributes substantially to the lack of growth, and is directly linked both to the non-capacity of increasing military spending and austerity towards welfare systems.
In addition, it is estimated by the World Bank that Ukraine’s reconstruction costs (which therefore do not take into account military aid expenditures) are close to $500 billions over the next decade, and this comes only after the war is ended. Thus, it means that Europe needs to grow in order to meet its medium and long-term security challenges.
This lack of growth is not matched up with other economies. China is thus betting on this green turn in Europe to fix its economic problems and foster a new wave of growth. This approach relies on the fact that European policies are leaning towards a green direction and in a few years the demand for such human capital and green goods will explode. If China manages to become a leader in this sector, then its economy will grow massively again, as subsidies help in keeping prices low and competitive for consumers.
The strategy adopted by Xi therefore could create a monopoly system of green goods in the future and will harm the proudly flagged European climate policy with a long-term manipulation of production and prices, leading to serious consequences for the planet. In addition, in the short-term, Chinese exports towards Europe harm European manufacturers and hinder economic growth, and therefore do not allow European states to concentrate on meeting their security goals without using more public debt.
This might explain why European institutions are becoming more assertive towards China and are calling for a new competitiveness deal and a reform of the European single market, with the aim to foster competitiveness with China and great powers in general. In this sense, the proposal of Enrico Letta, who was in charge of drafting a report on such a reform, is an integration of financial, energy and telecommunication markets in order to compete seriously. This reform, says Letta, is a serious opportunity to foster internal growth, protect the European economic structure and achieve European security goals; in all effects, free movement of capitals across borders and a pooling of resources could provide a solution to the lack of dynamism of the European economy and could take Europe on the scale of the gigantic markets, and an integration of energy markets will foster coordination and give Europe the opportunity to avoid dependency and turn greener. In particular, Letta says, integration in this policy area will mean competing with China over these technologies and improve Europe’s economic security in the long term.
Thus, the motto that EU institutions are planning to flag is competition on all fronts in order to become a holistic power; however, as explained, the path is far from being without challenges, and China is using its power to hinder this process. Europe must prepare now.
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