How does the EU become a geopolitical force?

As long as the EU keeps sending mixed messages to its foes, it won't get global respect

Ever since Russia’s invasion of Ukraine, the EU is locked in a debate how to become a respected - and feared - geopolitical actor on the global stage. This debate is of critical importance, but it’s been hijacked by fiscal dysfunction in the EU. Countries that are out of fiscal space use every opportunity to push for joint EU debt issuance as a way to alleviate their fiscal constraints. They’re doing this now on the pretext that defense spending is a “public good” and should be jointly financed. Unfortunately, this is yet another cynical attempt to alleviate their fiscal constraints and does nothing to make the EU safer. The path to becoming a respected geopolitical force is a different one.

As I noted in a series of pieces on the Euro, festering debt overhangs are creating major distortions in the EU. High-debt countries use the ECB to keep their debt loads going, creating the illusion of sustainability, when their only focus should be on debt reduction. This has all come to a head after Russia’s invasion because big players like Italy and Spain are unable to step up with meaningful aid for Ukraine. I’ve proposed that Germany should exit the Euro, which will create needed fiscal space and allow the EU to respond to external threats with the force that is needed. But I recognize that this is a profound shift that’s unlikely to happen soon. It would require a degree of purpose among low-debt countries in Northern Europe that is lacking.

So, in the meantime, what can the EU do to become more effective? There are low-hanging fruit, which boil down to stopping all the mixed messages that are being sent. As I’ve flagged repeatedly, transshipment of Western goods to Russia continues via out-of-the-way places like Kyrgyzstan from key players like Germany and Italy. This just has to stop. These transshipments send a message that short-term profits are more important than geopolitical stability, which is a message that Russia and China are only too happy to hear.

The charts above show exports to Kyrgyzstan from Germany (top left), Lithuania (top right), Italy (bottom left) and Poland (bottom right). Lithuania and Poland ended these transshipments, which shows it’s entirely possible to do so (it basically takes a phone call to key exporters) and is therefore - above all - a question of political will. It’s this political will that Russia and China are watching. As long as that is lacking, the EU is banging its head against the wall in its quest to become a feared global player.

Russia’s shadow fleet of oil tankers, which continues to operate with impunity in the Baltic, is a similar issue. The EU this year did tremendous work sanctioning many of these ships, but the unfortunate reality is that EU sanctions don’t have the same “fear factor” that US sanctions do. Much more needs to be done to improve the efficacy of EU sanctions. Oil tankers are Putin’s Achilles heel in his terrible invasion of Ukraine.

The purpose of this post is to remind people that there’s basic things that can be done to improve the geopolitical standing of the EU that don’t require resources and thus side-step the stand-off over debt. It’s these basic things - like transshipments and the shadow fleet - where the EU needs to act with great urgency.