European Union’s Structural Vulnerability in a Changing Geopolitical Environment

Abstract

After several decades of economic integration and enlargement, divergence has been increasing in the European Union (EU), with weaker member states and regions falling behind their stronger counterparts. This paper argues that the structural causes of this increasing divide are explained in terms of the divergent trajectories of interdependent economies with different productive capabilities. In the process of European integration, the Southern peripheral countries were exposed to macroeconomic policies and shocks that, although apparently neutral, generated different effects and ever increasing regional disparities. Since the formation of the EU’s Economic and Monetary Union in 1992, events representing important milestones in the process of divergence include China’s accession to the World Trade Organization, the eastward orientation of German industry, and the 2008 financial and sovereign debt crises and the ensuing austerity. In the final part, the paper evaluates whether new divides are likely to emerge in the new global context triggered now by the COVID-19 pandemic and the Russia-Ukraine war.