Europe, with its independence from opposing blocs, can now become a global point of reference. However, to play this new role, it must strengthen itself and intensify the process of integration. For these reasons, it cannot afford further enlargement to the East before revising its decision-making rules, which currently allow each member state to exercise veto power. On the 40th anniversary of the Schengen Agreement, European institutions should introduce a common European social security code—an important step to reinforce that European identity which, for many young people, is already a reality.
Europe currently finds itself between the anvil and the hammer. It risks being crushed economically, politically, and militarily in a world that has increasingly become an arena for competition among large autocracies seeking to expand their spheres of influence, if not their territorial borders. Yet sometimes, being neither the anvil nor the hammer can be an advantage. One can become a point of reference for those who do not wish to take sides. Not only the United Kingdom, but also countries like Australia, Canada, Japan, and many emerging economies are now closely watching what Europe will do. More broadly, the European experience can play a crucial role in revitalizing multilateralism in the management of shared resources.
Accelerating the Process of European Integration
In the May issue of eco, we addressed the new self-defense responsibilities weighing on Europe’s agenda in light of the ongoing shift in the United States, the expansionist aims of Russia and China, conflicts in the Middle East, and the new assertiveness of the United Arab Emirates and Saudi Arabia. These are burdensome tasks, which will inevitably impact the economic growth of the Old Continent and divert significant public funds away from civilian use.
In this issue, we focus on the opportunities that the new global context presents for Europe—from the potential of the euro as a global reserve currency to brain gain, from the United Kingdom’s reintegration into the European Union to the emergence of a new European identity through the free movement of people. Seizing these opportunities, however, will require a sharp acceleration of European integration—a goal more feasible if further enlargement to the East is postponed until the unanimity rule for many crucial decisions is replaced with majority voting. What is concerning is the passive, if not skeptical, stance of the Italian government in this process, especially since its support is now essential. Reassuring, however, is the fact that, as documented in this issue’s chart of the month, European public opinion is increasingly favorable to advancing integration.
Can the Euro Replace the Dollar?
For decades, the dollar has served as the world’s “bank” or “insurer.” Investors around the globe bought U.S. Treasury bonds, financing not only the American public debt but also the growing trade deficits of the United States with many countries. What guided investors was the belief that the dollar would shield them from global economic turbulence, being a currency less volatile than others. Through the dollar, they purchased government securities that were relatively risk-free—a “safe asset.”
In just a few months under the Trump presidency, things changed radically. The U.S. president used tariffs and the dollar as tools of political leverage. Global investors began to sell off Treasuries, and the dollar weakened. Today, there is a real risk that the United States could enter a vicious cycle in which investors, fearing a possible default or a future surge in inflation, trigger massive sell-offs of U.S. government bonds, further raising debt costs to unsustainable levels. It’s a dynamic we know well, having lived through it during the 2011 crisis.
As a result, the world risks being left without a “safe asset,” increasing the likelihood of global financial crises. This raises the question of whether the European Union, with its single currency, could replace the United States and the dollar in the role of global bank and insurer. Today, the euro accounts for about one-third of the dollar’s weight in global currency reserves. It held a larger share before the European public debt crisis. Now it is slowly regaining ground. Rebuilding credibility takes time—it is easily lost and much harder to regain. To restore and strengthen investor confidence, the integration process must be reinforced, especially in fiscal terms. The credibility of a currency is inseparable from the sustainability of the public debt of the countries that share it.
Can We Bring the Brains Back?
What is happening in overseas universities is gravely concerning. The true objective of the Trump administration is to change their cultural orientation by imposing its ideology. This attempt—initiated and then failed during Trump’s first term—is now being pursued more forcefully. The strategy involves restricting free speech at American universities through threats of funding cuts or by taking foreign students hostage. It’s reminiscent of when Richard Nixon sought to defund MIT due to anti-Vietnam War protests. In fact, Vice President JD Vance openly declared that “universities are the enemy.”
For decades, the United States has been viewed as the epicenter of academic freedom, the ideal place to conduct research across all disciplines. Generations of students have dreamed of studying in the U.S., and many have achieved this goal. These students represent the most mobile form of human capital in the world. Now, many are redirecting their choices toward other countries. A growing number of scientists are seriously considering leaving the U.S. When the leaders of a research field leave one country for another, the top talent in that field will follow. European history confirms this: Germany never recovered from the human capital loss under Nazism.
Europe has a duty—not only to itself—to ensure that cutting-edge research can be conducted free from political pressure or interference. In much of Europe (though not in Hungary!), academic freedom is more protected than in the U.S., largely for historical reasons. However, European universities today cannot offer the same opportunities as their American counterparts. To approach U.S. research standards, resources must be concentrated in institutions capable of achieving excellence. New grants introduced by the European Research Council (ERC) for those bringing major scientific projects to Europe can be leveraged to attract ambitious researchers. Tax incentives can also be effective, as demonstrated by Italy’s experience with income tax breaks for returning graduates. Thanks to this favorable tax regime, over 10,000 graduates returned to Italy in five years—without these incentives, they wouldn’t have come back.
The United Kingdom’s Return to the Union
The United Kingdom’s return to the European Union is not currently on the agenda, but various processes are already bringing London and Brussels closer together in practice, if not formally. Progress is being made in reducing customs barriers between the UK and the EU—for instance, in food trade and arms supplies under the ReArm Europe plan, which allows British companies to sell military equipment to EU member states under the same conditions as European firms. Discussions are also underway about opening borders to young people from EU countries and about the UK rejoining the Erasmus program. This could offer new opportunities for youth across Europe and help satisfy British businesses’ demand for workers.
The UK’s de facto return to the Union greatly strengthens its negotiating power and could help bring countries like Canada and Australia into Europe’s orbit of non-alignment between the two opposing blocs—China and the United States. Conversely, it would be a mistake at this point to expand the Union further eastward. This is the time to reinforce economic and political integration, streamline the management of common resources, and accelerate decision-making processes that are currently too slow for today’s rapidly evolving international landscape. We need a more united Europe capable of handling the new challenges ahead; a larger Europe risks becoming a more diluted one in terms of integration. As long as individual states can exercise veto power—since many key decisions still require unanimity—new memberships risk paralyzing the Union.
Political union is now more necessary than ever, not least to ensure common defense and support technological transformation. Precisely for this reason, we cannot afford to admit into the EU new countries whose political systems and electorates are disinclined to support a strong, united Europe.
A European Social Security Code
This year marks the 40th anniversary of the Schengen Agreements, which enabled millions of people to cross internal EU borders, thus giving rise to a single labor market. This freedom has especially benefited young people and workers living near borders between member states. Businesses have also significantly benefited by being able to find skill sets in short supply domestically.
We document how, today—thanks to agreements signed forty years ago—around 3.5 million people cross internal borders daily for work, study, or to visit family and friends; nearly 1.7 million live in one Schengen country but work in another, and there are about 1.3 billion annual trips within the common area.
Such labor mobility calls for stronger coordination of national social insurance systems at the European level. EU citizens who live in one country and work in another—or who move for work between countries—must be able to carry their acquired social insurance rights with them. Social protection administrations must also be capable of tracking contributions and benefits abroad to prevent abuse, rather than losing sight of insured persons as soon as they cross a border. This is about making rights portable across countries—not about standardizing the social protection systems of different nations. The natural evolution of Schengen would be the establishment of a European social security number, similar to the U.S. Social Security Number. The technical issues related to privacy protection have already been resolved. There are EU directives already moving in this direction. At this stage, the decision is purely political. It’s time to make it. This would also help strengthen the sense of belonging to an economic and political community and allow young people, in particular, to see their European identity recognized—an identity based on the existence of a welfare state that many of them aspire to.
