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Asia to the rescue? Prospects and trade-offs

Shada Islam

Date: 28/11/2008
Relations between the European Union and Asia have climbed swiftly up the EU agenda amid hopes that China, India and Asia’s other emerging powers will extend a helping hand to battered European and American economies.
However, while Asian governments appear willing to help prevent a worsening of the financial and economic crisis, greater EU-Asia cooperation demands a far-reaching strategic rethink of Europe’s so far lacklustre relationship with key Asian nations. For, as European Commission President José Manuel Barroso told a meeting of 45 Asian and European leaders in Beijing in October: “We swim together, or we sink together.”
Joint efforts to tackle global financial woes dominated an EU-India Summit in Marseille in September, and China and India - along with other emerging economies - took centre stage at the G20 meeting on overhauling global financial institutions in Washington earlier this month.
A similar plea for increased cooperation was expected to be made at an EU-China summit on 1 December, now cancelled because of Chinese anger at a planned visit to Europe by Tibet’s spiritual leader the Dalai Lama. While expressing regret at Beijing’s move, EU policy-makers insist that the current global financial crisis demands that both sides engage in “very close cooperation”.
Certainly, many Asian countries - with their still relatively strong prospects for economic growth and large foreign exchange reserves (China holds about half of Asia's estimated total of $4 trillion) - are in less financial trouble than the EU and the US. Asia’s financial systems have had less direct exposure to the toxic sub-prime mortgages that have wreaked havoc on American and European markets, and many countries in the region put their financial house in order following the Asian financial crisis of 1997-1998.
The good news is that Asian governments have promised to act responsibly - and many are already doing so.
Japan has pumped $100 million into the International Monetary Fund (IMF) to help bail out those nations hit hardest by the financial meltdown. China's President Hu Jintao has promised to help alleviate the impact of the financial crisis and slowing global growth by stoking the Chinese economy through a $586 billion economic stimulus package, telling the G20 meeting that: “Steady and relatively fast growth in China is in itself an important contribution to international financial stability and world economic growth.”
However, Europeans must beware of over-optimism when assessing Asia’s financial resilience. For one, many of the region’s export-driven economies have seen a drop in exports and foreign investment, proving that Asia is not as insulated or decoupled from the US and EU as initially believed.
As a result, Asia’s once dynamic economies are beginning to falter. China’s economic growth is expected to slow from 11.9% in 2007 to 9% in 2009 and East Asia's from 3.9% to 3.4%, according to the Pacific Economic Cooperation Council, an independent non-government group. Japan, with the second largest economy in the world, has slipped into recession for the first time in seven years. Indonesia and South Korea are struggling to prop up their currencies and restore confidence. Analysts have also lowered India's growth rate projection from 7.2% to 6.8% for 2008, a stark contrast to an annual growth rate of 9% or more over the past three years. Second, any EU-Asian financial cooperation must be a two-way street, with Europe not just lecturing Asians but also listening to their views. Speaking at the ASEM (the process of Asia-Europe Meetings launched in 1995) Summit in October, Chinese Premier Wen Jiabao echoed French President Nicolas Sarkozy’s calls for more financial regulation - but, unlike the French leader, he also insisted on the need for “financial innovation” to shore up Asian economies.
Third, Asian governments have made clear that their backing for (and participation in) global rescue packages will come with strings attached - and require political sacrifices by both the US and the EU.
Under pressure to contribute towards an IMF emergency fund for struggling countries, China has called for more seats and voting rights for developing countries at both the IMF and the World Bank. President Barroso has described this request as “reasonable” and says EU countries are ready, in principle, to reduce their representation in both bodies to give China and other emerging economies a bigger role.
That may be easier said than done, however. Whatever President Barroso might say, many European countries remain reluctant to do this and are equally wary of jettisoning the cozy decades-old transatlantic arrangement whereby Europe appoints the IMF managing director while Washington nominates the head of the World Bank. 
Fourth, as illustrated by China’s tough stance on EU contacts with the Dalai Lama, Asia’s emerging powers are likely to become more assertive in linking their new financial clout with political demands.
As such, the EU's appeal for further Asian help to tackle current financial woes must be accompanied by a far-reaching review of Europe’s relations with key Asian powers, including China, Japan, India and members of the Association of Southeast Asian Nations (ASEAN).
True, the EU has signed so-called ‘strategic partnerships’ with China, Japan and India, and is negotiating ambitious free trade agreements with ASEAN, India and South Korea. ASEM also provides a forum for region-to-region discussions between the two sides.
But signing agreements is not enough. Injecting new momentum into EU-Asia relations will require both sides to focus less on process - the organisation of meetings and frequent high-level visits, and issuing communiqués – and more on exploring ways to enhance and reinforce the substance and content of their ties.
This requires a long-overdue internal EU discussion on how best to deal with countries like China and India which - depending on the issue at stake - can, at the same time, be partners, competitors or even adversaries. It also demands a more united EU stance when dealing with Asia. At a time when US President-elect Barack Obama is engaged in a major review of US policy towards Asia, EU governments also need to craft a new strategy to redefine their political, economic and security relationship with the region.
This could cover the EU’s wider strategic goals in Asia, the impact on Europe of the seismic changes taking place in the region, and how the two sides can better engage with each other to tackle common global challenges - including the financial crisis, climate change, fuel costs and rising food prices as well as cooperating on counter-terrorism initiatives and efforts to defuse political and military conflicts. Such a fresh strategic analysis could also have the additional benefit of helping to boost the EU’s profile in Asia.
As Javier Solana, the EU High Representative for Common Foreign and Security Policy, underlined recently, it is no longer just a question of integrating rising powers into the global system. Europe and America must get used to sharing power and accept that emerging actors will have their own ideas on reshaping global institutions - not just the IMF and the World Bank but also other multilateral bodies such as the World Trade Organization and the United Nations itself.
Shada Islam is a Senior Programme Executive at the European Policy Centre.

The issues raised in this paper are discussed and analysed in the EPC’s EU-Asia Forum.

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