Global economic integration
While globalisation brings huge benefits and opportunities, it also means that Europe has to face increased competition in all traded goods and services.
Through globalisation, EU firms receive easier access to new and expanding markets and sources of finance and technology. EU consumers have access to a larger variety of goods at lower prices. And there are potential significant gains for the EU including higher levels of productivity and real wages.
The European Commission estimates that about one-fifth of the increase in EU-15 (countries with EU membership before 2004) living standards over the past 50 years is attributable to world economic integration. That is why it has been firmly in favour of greater economic openness.
The public often associates globalisation with job losses and downward pressures on wages and working conditions. These anxieties are based on fears that increased competition from low-wage countries puts excessive pressure on local producers and workers and may result in the closure of factories in their country. While these understandable concerns are not new, they seem to have been heightened by the rapid emergence of China and India on the world trading scene. On top of this, widespread use of information technologies increasingly erodes the boundaries between what can and cannot be traded.
Challenges and benefits
The challenge is to
- find an adequate response to globalisation and turn its potential benefits into real gains
- successfully cope with structural economic change
- minimise the social costs
To benefit from globalisation, the EU needs to adjust in a way where factors of production such as capital move from activities and firms that can't withstand the increased competitive pressure to those that can thrive on it.
However, while there is evidence that globalisation is not associated with overall net employment losses, adjusting economic structures by moving resources between firms and activities does have negative costs. The structural adjustment of more rigid labour, capital and product markets can be costly and painful.
By taking measures to improve the functioning of EU markets and to boost innovation performance, the EU helps to shorten the adjustment process, and through targeted policy actions such as the European Globalisation Adjustment Fund (EGF) it assists affected workers.
Besides these issues within the EU, there are also significant external challenges which need EU responses, including:
- encouraging global trade and maintaining Europe’s position as the leading global trading bloc
- managing migration as a source of workers, as a response to ageing and a benefit to development
- maintaining the EU’s position as a leading source and destination for foreign direct investment (FDI)
- managing imbalances in the global economy in partnership with other countries and international institutions
The European Commission plays an important role in the design of a coherent policy strategy to face the challenges of globalisation. It closely analyses the evolution of main trends in world trade, and related FDI flows and EU performance. It also regularly analyses the impact of globalisation on the EU’s economic performance and provides policy advice.
- Resilience of EME's to Economic and Financial Developments in Advanced economies, European Economy. Economic Papers. 411. October 2010
- EU trade negotiations from a global value chain perspective, ECFIN Economic Briefs. 28 December 2013
- Competing within global value chains, ECFIN Economic Briefs. 17 December 2012