A sovereign debt crisis has tormented Europe for the past four years, with many governments collapsing in capital cities across the continent. But only after the 2014 EU parliamentary elections has the crisis touched European bureaucrats in Brussels and gained potential to substantially reshape the modus operandi and the direction of European politics. This reorientation is likely to affect the relationship of the EU with China, particularly on trade and investments.

In France and the UK, the second and third largest EU economies, two anti-EU populist coalitions—the National Front in France and the UK Independence Party (UKIP)—won the elections. The power of anti-EU parties within the EU parliament is still below 20 percent, yet given the determination and demagogy of these parties, political effects are self-evident. Agenda-setting effects in particular could lead to even more vocal anti-Europeanism and heavily undermine internal political stability not only in France and the UK but also in Greece and beyond.

Shi Zhiqin
An expert on European issues, Shi Zhiqin runs a program on China-EU Relations at the Carnegie-Tsinghua Center for Global Policy.
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The European People’s Party (EPP) lost more than 20 percent of its members of European Parliament (MEPs), but the socialists suffered only a marginal decline; the grand victory of the Italian socialist party mitigated the disaster of François Hollande’s Socialist Party in France. The young Italian prime minister, Matteo Renzi, scored a strong 40 percent, the highest vote of any socialist party currently in government in mid- and large-sized EU states. Renzi, a fervent supporter of pro-growth policies, is utilizing the momentum and seems determined to publish an anti-austerity manifesto arguing for more investments in education, R&D, and infrastructure—policies that could for the first time since the 2008 financial crisis directly challenge German leadership.

The outcome of the parliamentary elections led to chaotic negotiations about the next president of the European Commission. Jean-Claude Juncker received the official nomination from the EPP, though he has been dismissed as a “federalist” by British Prime Minister David Cameron. The socialists are willing to support Juncker yet they demand important positions in the new commission, and perhaps the next commissioner on economics will be a member of the Socialist Party.

In the past four years, the EU commission has attempted to strengthen European unification by promoting stricter fiscal coordination. Without unification and the right mix between fiscal federalization and productive investments, though, undimmed austerity has harmed the middle class and led to high unemployment. As a consequence, the newly created proletariat has clung to far-right and populist parties, as seen in Marine Le Pen’s success in France. Le Pen’s National Front platform, with its radical anti-immigration policy and promotion of strong French rather than European identity—¬is unprecedented in post–World War II EU history.

François Hollande can only confront Le Pen with developmental policies that will reverse the rising trend of unemployment. It is still possible for the socialists to negotiate with the EPP for a large package of investments for infrastructure and R&D in recession-hit EU economies through the European Investment Bank. Even though pro-EU parties can unite against the “rebels,” only lower unemployment and more opportunities for the European youth can tame anti-EU sentiment.

In terms of the Sino-EU relationship, a “known known” is that the rise of anti-EU parties and the delicate balance in the parliament between socialists and the EPP could affect Sino-EU commercial relations. Negotiations on trade and investments could slow or become more complicated due to the EU’s new polarizing political spectrum. In particular, the delicate balance within the commission could affect not only the China-EU investment treaty and the discussion of a potential China-EU free trade zone but also the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States. That deal is relevant for the bigger trade game among the three trade superpowers—the EU, China, and the United States.

Another “known known” is that a pro-growth pact and the promotion of more investments in infrastructure for the EU’s periphery could positively affect China. A stronger EU economy will import more Chinese goods, and EU companies would gain more confidence in exporting to China, thus promoting Sino-EU trade. Chinese companies could even bid for EU infrastructure projects, and eventually China could reciprocate and open up its government procurement activities to Europe.

Though these two factors can be accepted with confidence, it is also important to consider the more uncertain aspects of Sino-EU relations. A “known unknown” is what the anti-EU parties’ views are on China and how influential they will become regarding perceptions of China in the EU. Will they go down the road of populism, citing China as a country that disrespects labor regulations and uses regulatory arbitrage to flood the EU market with cheap products? Or will they appreciate the positive-sum game of Sino-EU relations?

Another “known unknown” is the influence of anti-EU parties in exacerbating the anti-globalization sentiments within Europe and further promoting the idea of “Fortress Europe.” The current commissioner for internal market services, Michel Barnier of the EPP, had called for a new industrial policy as the central pillar of the new commission and asked for negotiations with China and other partners, but it is unclear if these sentiments will remain dominant given the latest election results.

A final “known unknown” is how the pro-Russian and anti-U.S. sentiment expressed by populist EU parties could affect EU foreign policy and the efficiency of the European External Action Service, the EU’s foreign policy arm. In recent statements, both Le Pen and UKIP’s Nigel Farage have supported Russian President Vladimir Putin, and the former even expressed admiration for Putin. Allowing the populist Right to influence EU foreign policy will weaken the EU overall. A more ambivalent EU with wide divisions on a consistent foreign policy would weaken the EU’s position as a global power and would not contribute much to Beijing’s interests.

During his recent trip to Europe, Chinese President Xi Jinping showed his commitment to the Europeans and European economy by signing several multibillion-euro agreements. In particular, he promoted a €50 billion ($68 billion) agreement with Airbus Helicopters in France. At the same time, Chinese maritime giant COSCO is looking to expand its share in the Greek Port of Piraeus, and ZTE built a logistical center in Athens. China is intentionally investing in European countries that are in need of positive shocks to boost employment and growth.

It is thus crucial that Brussels remains committed to the Sino-EU partnership and sees China not just as a strategic partner but also as a friend who is ready to invest in Europe’s great future. As the world marks the centenary of the dark events at Sarajevo and the beginnings of World War I, or what Chairman Mao wisely called the European civil war, it should heed the danger of yet another round of European division and chaos.

Prime Minister Renzi asked the Europeans to take action and be the Telemachus generation, referencing a figure in Greek mythology who was under the aegis of Athena, the goddess of wisdom. China may not be an Athena, but it is certainly a committed partner in Europe’s peaceful and socially sustainable future.

This article was published as part of the Window into China series.