The EU's Shifting Balance of Power
undefined and Director of Analysis at RANE
Adriano Bosoni
Director of Analysis at RANE, Stratfor
10 MIN READJan 5, 2023 | 17:18 GMT
EU flags fly outside the headquarters of the European Commission on Feb. 23, 2022, in Brussels, Belgium.
EU flags fly outside the headquarters of the European Commission on Feb. 23, 2022, in Brussels, Belgium.
(Thierry Monasse/Getty Images)
Between 2020 and 2022, three heavily disruptive geopolitical events altered the balance of power within the European Union, increasing the influence of countries in the south and the east of the bloc to the detriment of traditionally more influential countries in the north. These new power dynamics will not only shape EU domestic and foreign policy in the coming years, but likely lead to internal conflict further down the line that will once more test the bloc's internal unity.
A Turbulent Three Years
The first of the three disruptive events was Brexit. The United Kingdom left the bloc in January 2020 after years of negotiations that began with the June 2016 referendum. Britain had previously been one of the bloc's strongest supporters of free trade, deregulation and limited social, economic and political integration in the continent. For decades, the United Kingdom had also been an ally to Northern (and especially Nordic) European countries that defended an open Europe with a pro-business approach to economic affairs and were skeptical of EU federalization. Britain's departure from the European Union, therefore, created an opportunity for countries in Southern Europe, which tend to defend a more interventionist EU that shields their economies from external competition while also pooling financial resources across the continent to pay for bloc-wide policies.
Right after Brexit came the COVID-19 pandemic, which resulted in the first wave of EU-wide lockdowns in March 2020. The devastating human and economic impact of the pandemic opened the door for the European Union to take unprecedented steps, including launching a massive 750 billion euro stimulus package in July 2020 that included grants and loans for its members, with Italy and Spain receiving the largest sums of money. Notably, the 27 EU member states allowed the European Commission to borrow in financial markets on their behalf to pay for the package — a policy that had proved impossible to implement during the financial crisis only a decade prior due to firm opposition from northern European governments. To some extent, the north supported the 2020 package because, unlike the 2009 eurozone crisis, the economic damage in Southern Europe was not the result of irresponsible fiscal policies but of events beyond their control. Still, both in scale and especially in the way it was financed, the stimulus package was unprecedented in recent European history and was a strong sign of a more influential Southern Europe. As such, it has established a precedent for future crisis responses.
The third geopolitical event that altered the balance of power in the European Union was Russia's invasion of Ukraine in February 2022, which led to a spike in inflation across Europe amid tighter and more expensive energy supplies. The economic fallout from the war and the subsequent disruptions to Russian energy exports saw European governments (again) introduce large stimulus packages, as well as desperately look for alternative supplies of natural gas to avoid gas rationing and blackouts. Energy-intensive industries across the continent in sectors ranging from cement to fertilizers were also forced to reduce or halt their operations. The war presented both a risk and an opportunity for Central and Eastern European countries, which for decades had warned about Russia's threat to peace in the continent, and had demanded a greater presence of NATO troops in the region and a more hawkish EU position toward Moscow. Under pressure from Poland and the Baltic states, the European Union imposed economic and political sanctions on Russia while increasing financial, humanitarian and military aid for Ukraine. Notably, the war also forced Germany to break with its decades-old policy that sought to keep political tensions between Russia and the West separated from Germany's massive imports of Russian natural gas. Berlin's decision in February 2022 not to use the controversial Nord Stream 2 pipeline connecting Germany to Russia (which previous German governments had fervently defended) was highly illustrative of this policy change.
Perhaps more crucially, the war also gave NATO a renewed sense of purpose that was in line with Central and Eastern Europe's views, less than three years after French President Emmanuel Macron had declared the military alliance ''brain dead'' and promoted European alternatives to NATO cooperation. The fact that Sweden and Finland broke their historical neutrality to join the Western security alliance realized Poland, Lithuania, Latvia and Estonia's aspiration of completely surrounding Russia in the Baltic region and opened the door to deeper Baltic-Nordic security cooperation.
Finally, the war also increased the strategic importance of Southern European countries, which overnight became key players in the European Union's push to diversify its natural gas supplies away from Russia. Spain and Italy's multiple LNG terminals and their pipeline connections with Northern Africa contrast with Germany's high dependence on pipelines coming from Russia, and put Madrid and Rome at the center of ongoing plans to multiply and diversify the European Union's energy suppliers. In addition, Southern Europe's significant investments in renewable energy (including solar power, which has a huge potential in sun-blessed Mediterranean countries) will only further expand its role in the bloc's energy mix in the coming years —- especially if Northern Europe is willing to pay for the necessary infrastructure to distribute the energy across the continent. Ironically, Europe's energy crunch also resulted in Brussels tolerating countries using more coal, which was a short-term victory for heavy coal users like Poland and other countries in the region.
The Impact Moving Forward
The effects of Brexit, the COVID-19 pandemic and the war in Ukraine were visible in 2022, but their impact will continue in 2023 and beyond. Now that the taboo of joint EU borrowing has been broken, Southern European governments will continue to push for joint borrowing to pay for continent-wide initiatives in areas ranging from climate change to energy infrastructure. Meanwhile, the European Commission (which in 2020 suspended EU rules on sovereign debt and fiscal deficit limits so that countries could spend their way out of the pandemic) is pushing for a redesign of the rules before they are reintroduced in 2024. Under pressure from the south, the new rules will likely focus on more flexible goals related to long-term growth and debt sustainability as opposed to the current rules, which are more skewed toward meeting short-term, rigid fiscal goals that have proven almost impossible to achieve. In addition, the European Union will use protectionist measures in China and the United States to justify its own ramping up of state aid, subsidies and other forms of assistance to strategic sectors of its economy, which is also in line with Southern Europe's views on how the bloc should operate.
The coming years will also offer new opportunities for Central and Eastern Europe to increase their ability to steer the European Union's strategic direction. Poland and the Baltic states will use their newfound influence on EU foreign policy to ensure that sanctions against Russia are kept and, if possible, expanded. They will also call for (and contribute to) an increased presence of NATO troops in the region, and push against any French plans to implement defense initiatives that would compete with the U.S.-led military alliance. A cease-fire in Ukraine is unlikely in 2023, which means that Poland and its Baltic allies will probably achieve these goals in the short to medium term. More importantly, Poland is emerging as a leading military power in Europe thanks to years of increased defense spending and military modernization, a trend that Russia's invasion of Ukraine will accelerate. This, combined with the fact that Poland is one of the most dynamic economies in the European Union, means that Warsaw's clout in European affairs is likely to only increase in the coming years.
A Permanent Shift?
While these power shifts in Europe will be visible in 2023, they may not be permanent. Once the pandemic- and war-related sense of urgency is gone, Northern European countries may decide that the combination of more flexible fiscal rules and massive EU spending backed by joint debt is not a responsible or sustainable policy. This could result in significant pushback against these measures later this decade out of fears of a new financial crisis in the European Union.
This potential change in attitude will largely hinge on Germany, because many of the current EU policies have been made possible by the fact that two of the three members of Germany's coalition government are economically progressive. By depriving Brussels of decisive German leadership, Berlin's increased focus on domestic affairs over the past year in response to mounting economic and energy crises has also granted Southern European governments room to raise their own profiles in the bloc. But Germany's next general election (which is scheduled for 2025) could bring the conservatives back to power and, with them, more hawkish positions on EU fiscal integration. Early rebellions against the European Union's laxer debt and deficit policies are also likely in countries like the Netherlands, Sweden, Austria and Denmark if the bloc's economic recovery from the current crises happens faster than anticipated. Even without a return to north-south conflict over fiscal policy, volatility in financial markets caused by significant jumps in sovereign debt levels (especially in southern countries like Italy) could be a wake-up call for the European Union to change direction.
The influence of Central and Eastern European countries faces constraints of its own. Poland's sway over EU policy grew in 2022, but the country is still under the threat of sanctions from the European Commission due to rule of law-related disputes that could result in the freezing of billions of euros in EU funds. And while Poland is a leading voice in Russia-related policy, pro-EU countries like Estonia, Latvia and Lithuania do not necessarily share Poland's euroskeptic views on continental integration, which means that there could be divides among the Central and Eastern European governments that are the leading Russia hawks. Moreover, the war in Ukraine isolated Hungary, which was left alone in opposing some of the sanctions against Russia. But Hungary and Poland are still aligned and back each other on social, cultural, rule of law and institutional issues that irritate most Western EU member states and limit cooperation with them. Opinion polls suggest that Poland's pro-European opposition stands a decent chance of winning the general election in late 2023 (which would improve Warsaw's relations with Brussels). However, times of war also tend to benefit incumbent governments, meaning Poland's euroskeptic leaders may secure another term, which would limit its influence on EU policy beyond security issues.
So far, the European Union has managed to remain united despite the seismic changes that took place between 2020 and 2022. But the effect of these changes on EU policy may fade with time. Protectionist trends in China and, to a lesser extent, the United States will give EU members that support state intervention continued justification for their views, which means that such policies will likely persist. But Northern Europe is unlikely to remain passive to the fiscal policies promoted by Southern Europe for fear of rising moral hazard and the risk of new debt crises in the south. In addition, some Eastern European countries' skepticism regarding further EU political and economic integration will likely clash with the more pro-integration views in Western Europe. From a security perspective, China's military rise will not bring the European Union together in the same way that Russia's invasion of Ukraine did, which will result in internal debates over the future of both NATO and defense integration in Europe. This means that while the ongoing shift in internal power dynamics does not pose an immediate existential threat to the European Union, the seeds are currently being planted for new confrontations that will likely come to a head later in the decade — and when they do, the bloc's unity will once again be tested.