Can’t let go of EU

Traditionally, a President’s first foreign trip is to any of the ASEAN member countries. Ramos, Estrada and Macapagal-Arroyo all did ASEAN. Aquino III went to the US, our strongest military ally. President Rodrigo Roa Duterte (PRRD) could have chosen China in the wake of the favorable Permanent Court of Arbitration Ruling or Malaysia in recognition of its role in the peace talks with the MILF. In the end, he chose a mini expedition of the ASEAN together with an audience with US President Barack Obama at the ASEAN summit in Laos.

The agenda for the ASEAN visit includes the highly charged regional security issue. For the meet and greet with President Obama, an equally electric human rights discussion is expected. With this focus on relations with the US, China and the ASEAN, it is easy to overlook the fact that our largest investment partner is not any of these three. That honor belongs to Europe which in 2014 had foreign direct investments (FDI) totaling 814 million Euro or P48 billion accounting for 26 percent of total FDI stock. The implication of these pressing issues on our relations with our European investors is also entitled to urgent consideration.

Europe is home to almost 175,000 overseas workers or approximately 7.1 percent of the 2.4 million deployed worldwide. This figure does not include the 22,000 Pinoys based in the United Kingdom.

My brother Emmanuel “Manny” Maceda has travelled in Europe extensively for the last 10 years and is watching events there with a combination of fear and interest. This is his contribution.

First an overview of Europe, a confusing tapestry of overlapping groups and agreements.

1. The Council of Europe: 47 of the 49 countries in Europe tried to create a “UN of Europe” to help prevent intracontinental wars that have an been an ongoing part of European history for hundreds of years (even the colonization of the Philippines is tied to the Spanish – Portuguese wars in the 1500s). Founded in 1949, the Council is based in Strasbourg, France.

2. The European Union (EU) or what we think of as integrated Europe today. Seeded by six members in 1951 and then formally established by the Maastricht Treaty of 1993. Based in Brussels, the EU currently has 28 members. The objective is to create a stronger economic and cultural union that builds and scales market power allowing access as a trading bloc. It has a “federal” governing body that makes and enforces policies across the region. Just as China and other economic superpowers like the US encouraged the ASEAN countries to ally, Russia has always been the implicit shadow behind the EU.

The EU tries to enable a common agenda by creating and adopting a common currency, the Euro. Nineteen of the 28 countries have switched to the Euro while others such as the UK opted to remain on their own.

3. The Schengen agreement removed border controls such as passport checks to cross member countries. Seventeen of the 28 EU countries signed Schengen. And a few countries not in the EU also joined like Switzerland (Filipino tourists see the benefit of this in the visa process today as separate visas are no longer needed for each country).

EU is like ASEAN on steroids. Imagine if you could travel and work with no constraints between countries. No visa and no passport check preventing you from working in Singapore or Malaysia. Many might want to move to strong economies with great social benefits like Singapore – and all across the region, you have just one currency so you don’t need exchange rates.

The creation of the EU changed Europe’s way of life. Travel opened up, cultural mix increased with Europe wide media and education. It changed the views in particular of the youth. Many with limited life experience within socialist regimes become globally comfortable citizens where studying in a different country for university is normal. An unexpected implication especially with UK joining the EU was the de facto adoption of English as a common language. Most European university students now are fluent in English in addition to their native tongue.

The impact on the population varies. For the youth it is a benefit. The older population find it difficult to embrace the many changes. Migrant workers who accept low paying jobs in stronger economies openly cross borders creating job displacements. Mass migrations to countries that had strong welfare systems are straining those systems (e.g. Sweden). Refugees arriving in large numbers from outside Europe creates additional pressure. One implication in many countries including France, Germany, and Spain, is the rise of ultranationalist political parties. And many are backing movements to secede from the union and bringing with it racial or religious tensions in the guise of nationalism.

Brexit was the first shoe to drop. This was odd since the UK is already one of the least integrated countries in the EU. The UK is not in Schengen (you need a separate visa to visit UK). It also did not adopt the Euro. Yet 52 percent of the country still voted to leave. The young overwhelmingly voted to stay. So did Scotland, Northern Ireland and London. The older generation voted to leave, the typically white lower middle class workers that feared losing their jobs to lower cost Eastern Europeans. In addition, the sheer number of migrants and refugees fleeing the Middle East, their lack of cultural or national integration, and increased terrorist incidents arguably made easier by movements across countries enabled by Schengen, all contributed to the fears of the group and ultimately the Brexit vote.

It’s possible that Brexit will trigger comparable exits by other countries and the union will eventually dissolve. A reasonable scenario is that the European Union will narrow to a core group that have similar enough economic heft, government systems and cultural affinity, such that you have a “super Europe” within Europe. In that model the countries outside the core group will be less secure.

This moves us into a future where we should not assume long term stability of the EU model. What are the potential implications for Filipinos as workers, tourists, investors, immigrants or trading partners?

1. Jobs in classic service economies roles (e.g. cruise ships services) increasingly filled by eastern European citizens.

2. Work opportunities for illegal visitors or undocumented workers (e.g. domestic helpers) will also be filled with lower cost “legal” workers.

3. Tourist markets will improve due to the weak euro. Over the last 5 years the euro exchange was as expensive as P65 to one euro. Now it’s close to parity with USD. In the near term Schengen is a great tourist enabler, but over time it will likely be under pressure and some countries might leave Schengen.

4. Safety will likely be an ongoing issue as terrorist attacks continue. ISIS sponsored terrorism might target and attack Catholics.

5. Europe as a trading block will weaken relative to other markets. Country specific trading (e.g. with UK post Brexit) will increase.