EUROPE 2030 TOWARDS a RENEWED EUROPEAN SOCIAL CONTRACT Author: Pascal Lamy with Contributions of Mathew J

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PASCAL LAMY WITH CONTRIBUTIONS OF MATHEW J. BURROWS, ANTONIA ERLANDSSON, OLIVER GNAD, DHARMENDRA KANANI, JACQUES BUGHIN AND ROMAN PABLE

EUROPE 2030 TOWARDS A RENEWED EUROPEAN SOCIAL CONTRACT Author: Pascal Lamy With contributions of Mathew J. Burrows, Antonia Erlandsson, Oliver Gnad, Dharmendra Kanani, Jacques Bughin and Roman Pable Publisher: Geert Cami Director: Dharmendra Kanani and Nathalie Furrer Knowledge Partner: The McKinsey Global Institute (MGI) Programme Executive: Antonia Erlandsson Editors: Iiris André and Angela Pauly Design: Elza Lőw Programme Assistants: Elisa Abrantes

Remembering the foundations of the European social contract

Since the Maastricht Treaty of the European Union, signed in 1992, the EU’s social contract has been underpinned with the following principles (extracts from the Treaty):

PEACE, VALUES AND WELLBEING ECONOMIC UNION The Union’s aim is to promote peace, its values and The Union shall establish an economic and the wellbeing of its peoples. monetary union whose currency is the euro.

SECURITY AND JUSTICE PEACE AND HUMAN RIGHTS The Union shall offer its citizens an area of freedom, IN THE WORLD security and justice without internal frontiers, in In its relations with the wider world, the Union which the free movement of persons is ensured in shall uphold and promote its values and interests conjunction with appropriate measures with respect and contribute to the protection of its citizens. It to external border controls, asylum, immigration and shall contribute to peace, security, the sustainable the prevention and combating of crime. development of the Earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and the protection of human PROSPEROUS INTERNAL MARKET rights, in particular the rights of the child, as well The Union shall establish an internal market. (…) as to the strict observance and the development It shall work for the sustainable development of international law, including respect for the of Europe based on balanced economic growth principles of the United Nations Charter. and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and RESPECT OF THE TREATIES improvement of the quality of the environment. It The Union shall pursue its objectives by appropriate shall promote scientific and technological advance. means commensurate with the competences It shall combat social exclusion and discrimination, which are conferred upon it in the Treaties. and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child. It shall promote economic, social and territorial cohesion, and solidarity among Member States. It shall respect its rich cultural and linguistic diversity and shall ensure that Europe’s cultural heritage is safeguarded and enhanced. 2

Contents

#EuropeMatters, The State of Europe 2018 3

Introduction 5

The Quest for a renewed European Social Contract 6

Global Trends, Key Drivers of Change and Unknown Unknowns 8

1. Demographic Change: Ageing Societies and Migration 9

2. Technological Innovation and European Hesitation 11

3. Emerging Markets 12

4. Endangered Habitat and Dwindling Natural Resources 13

5. A Polycentric World 15

The Future We Face 16

Strategic Foresight – Four Alternative Futures for Europe in 2030 17

Scenario A: Market Maker – A Strong EU with a Domestic Focus 18

Scenario B: Value Setter – A Strong EU with a Global Focus 21

Scenario C: Balancer – A Weak EU with a Global Focus 24

Scenario D: Transactional Europe – A Weak EU with a Domestic Focus 27

Conclusion: The Case for a Renewed European Social Contract 30

About Friends of Europe 32 3

THE STATE OF EUROPE 2018

The fall of the Berlin Wall openness and democratic vibrancy and it is recognised as a region inaugurated the belief in liberal of the political union have not with a strong and attractive democracy and subsequently taken place as planned, despite social contract for citizens, even helped it rise to an all-time high. the improved quality of life for in comparison to other regions There was a sense of hope that Europeans. with similar preconditions. The destructing the symbol of a EU has been more successful More recently – similarly to 9/11 divided continent would help than others in converting putting an end to state security as Europe come together. It was average economic growth into we knew it – the global financial in Maastricht that European social progress and inclusive crisis became the landmark for leaders convened to establish growth. Moreover, it has made the end of economic security. the framework for the future the political and business case In the decade since, multiple of an integrated Europe based for acting on climate change and other foreign and domestic on a common social contract. has made a virtue of its funding crises followed, such as the The philosophy underpinning to accelerate skills development, spread of terrorist attacks in the European project was that innovation in science and Europe, hundreds of thousands economic integration would technologies, rights and equality. of refugees streaming to Europe, lead to political integration in It has been an engine for peace Russia’s annexation of Crimea Europe – neither of these fully based on the principles of and the ongoing civil wars in materialised. Looking back, cooperation and diplomacy. Syria, Libya and Iraq. Europe has developed differently Remarkably, the EU made it from the way many had hoped. Despite this, the EU has become out of recession with over 2% The imagined peace, freedom, the fourth largest trading bloc growth. 4

Meanwhile, massive external shocks, such as to grips with countless dilemmas and ambiguities. the sovereign debt crisis, the Euromaidan, the To list a few: competitiveness in a global economy exposure of corruption and poor governance, and vs. social equality at home; the free flow of capital, most significantly the migration crisis, together goods, and ideas vs. the preservation of intellectual with the subsequent perception of citizens, have property and entrepreneurial spirit; security (also driven a wedge between EU member states and in cyberspace) vs. individual rights, liberties and societies. self-determination; the free movement of people, migration, and political asylum vs. the preservation Traumatised by events, Europeans’ faith in the EU of traditions, cultural identity and the ability to project has become a casualty. For the first time integrate – a list that could be extended at will. since the end of the Cold War, the younger generation faces the prospect of a life that is less secure and We need to understand that the future does not prosperous than that of their parents. The broken simply happen or is imposed upon us. Rather, European Dream has led to a creeping erosion of the future is the outcome of the decisions we trust and confidence in institutions, political classes, take today. Government on autopilot will not be and elites at large. sufficient, nor will muddling through or constant crisis management. Or, as Yogi Berra once said: “If “The post-1989 dream painted an you don’t know where you are going, you’ll end up image of economic integration someplace else.” leading to political integration in Europe - neither of these fully This paper sets out a set of scenarios on the possible materialised” futures of Europe in 2030, in order to stimulate discussion and debate on the implications of today’s Today’s globalised and polycentric world with its policy choices for Europe’s future. #EuropeMatters rising insecurities, conflicts, uncertainties and the is our initiative to build policy choices and lack of clear-cut solutions have enforced a ‘hide in recommendations for the incoming European your shell’-reflex. Social coherence has long been leadership in 2019 to make informed decisions challenged by change and transformation – be it framed by an evaluation of these scenarios and the the rise of non-state (violent) actors, soaring social choices that lay ahead of us. media, the change of labour due to digitalisation and automation, or the degradation of our habitat “Government on autopilot will not be because of climate change. sufficient, nor muddling through or As a result, nationalism and populism have become constant crisis management” political mainstream in many European countries. The upcoming elections of the European Once again, Europe is being put on the defensive Parliament and the subsequent inauguration of by external shocks, including Brexit and a growing a new European Commission will trigger a new transatlantic divide. Ahead of the European elections political cycle. Brussels and the EU member in 2019, we are at the crossroads of making Europe’s states should seize the opportunity to create an future matter to its citizens. atmosphere of departure and engage in a debate about Europe’s future until 2030. Thinking about The lesson learned from a decade of crises and plausible alternative futures would be a creative disruptive events, within and outside Europe, is that way to reach out to policymakers, entrepreneurs basing our responses to our future can no longer and civil society representatives alike. All this could be determined by the past alone. Whilst learning culminate in a renewed European Social Contract is key, the current vortex of events has shown us between European citizens and their institutions to that we are ill equipped to deal with the pace and provide for prosperity, security and a sustainable unpredictability of simultaneous change. livelihood for generations to come. Before we enter into an intense debate about Europe’s future, we need to better understand the forces, factors, actors and developments that will Pascal Lamy shape our future. It is not only about substance Trustee of Friends of Europe (“what”) but also about institutions and processes Brussels, 27 September 2018 (“how”). If we do not want to leave politics to populists and radicals in the streets, public policies and procedures need to change. The EU needs to find a formula to balance conflicting interests and come 5

Introduction

We are moving into a future that between citizens and the In advance of considering the is increasingly unpredictable: European project. To this end policy choices for Europe 2030, lessons from the past are we have involved citizens, key this paper discusses the notion simply no longer cutting it to cross-sector stakeholders and of a renewed social contract, predict what is to come. The foresight experts to create a sets out the trends, drivers and policy choices made in the next matrix of the options, choices unknowns that are likely to effect 24 months will affect our near- and consequences for Europe. it, and using strategic foresight, term future, and this is why in outlines four possible scenarios Our intention is not to open up this pre-election year of a new for a future Europe in 2030. This arguments for treaty change European Parliament and a paper helps to think through and or structural reform of the EU, new college of Commissioners, deliberate the kind of Europe we but to reflect on what the EU we want to galvanise a big want in the future, along with institutions do and how they conversation across sectors the policy choices that need to do it. This paper asserts that a and among communities about be made as a result. The four renewed social contract focused how to make Europe matter. scenarios and how these might on security, prosperity, and interplay are intended facilitate This paper is part of a wider sustainability offers greater hope this process. Ultimately, there process aimed at sparking to reconnect the idea of Europe is likely to be elements of each debate and provoking thought with its citizens. We argue that scenario but the overriding aim on the future Europe that we this can provide the impetus for of this exercise is to agree on the want. As we look into the future, EU member states and citizens future purpose and role of the we feel that the importance of to regain a sense of common EU, what its focus should be to values, beliefs, identities and purpose and public good. add value to member states and, culture will be greater due to the The EU has an opportunity to critically, the quality and nature effects of rapid developments be a pathfinder in reinvigoratingof its connection to citizens. in technological advancement, participatory democracy and climate change, economics and We want to engage you as a invert the paradigm on how to geopolitics in all our lives and stakeholder in this project and govern by placing citizens in the societies. The combination of to build on the issues set out driving seat of policy making. these forces, their simultaneous in this paper with your own Perhaps the EU’s strength in acceleration and impact will insights on what will matter for these volatile times will be to increasingly call upon and Europe’s future. take a lead on issues that cannot accentuate the relationship be easily executed or resolved at This paper will be discussed at between citizens and those that member state level. The Union the State of Europe Roundtable govern them in terms of trust can also play a role in testing on 11 October 2018. Following and confidence. This calls foralternatives to governance and the discussions, we will produce more resilient, agile institutions dealing with problems related a final report setting out and policy coherence. to people’s sense of security, recommendations for Europe In order to think ahead and prosperity and saving the planet. 2030 underpinned by a renewed plan for the future we want, How we get there is the subject social contract. we initiated #EuropeMatters of this paper. to reinvigorate the relationship 6

The Quest for a Renewed European Social Contract

Europe’s place in the world has changed service quality and social protection. Governments fundamentally. Unlike the generation of Mitterrand, are expected to be capable and willing to deliver, Kohl and Delors who strove to end intra-European whilst being able to meet debt obligations and strife, the challenge for today’s generation is to ensuring opportunities for future generations. maintain Europe’s “quality of life” and cultural “A 21st century European social identity in the face of globalisation. The European contract has to look beyond average Union is founded on a strong social contract economic prosperity”

defined in the Maastricht Treaty with reference st to social progress, sustainable development, The social contract for the 21 century is therefore balanced economic growth and the wellbeing of its based on ensuring economic prosperity, equality peoples. It devoted itself to combat social exclusion and social progress through citizens’ contributions and discrimination, promoting social justice and in a fiscally and environmentally sustainable way. We protection, ensuring equality between women and know that citizens have less trust in the EU, whilst men, and solidarity between generations amongst trust in national governments has been increasing. others.1 Additionally, voter participation rates in the European parliament elections have been trending downwards Within the dimension of prosperity, a 21st century since its inception.2 More citizens believe that the European social contract has to look beyond next generation will be worse off than the current average economic prosperity. Citizens are likely one.3 If citizens’ expectations are not met and there to expect their work to generate income that is is absence of clarity between expectations of roles, fairly distributed; that their basic human rights are responsibilities and capabilities, trust between the protected, that the foundation for their wellbeing EU institutions and citizens will be damaged further. and equal opportunities is guaranteed. Quite reasonably, citizens expect their contributions, With current developments putting additional through taxes, to be commensurate to public pressure on the social contract, the existing EU policy mix could only partially mitigate the 1 Maastricht Treaty, 1992 2 International Institute for Democracy and Electoral Assistance 3 Friends of Europe Survey on the State of Europe (August 2018), this survey reflects the perceptions of 482 policy experts from across Europe on the state of the EU. These experts belong to the wide and tightly knit Friends of Europe network, hence these statistics are not representative; Special Eurobarometer 467, Report, 2017: https://ec.europa.eu/commfrontoffice/publicopinion/index.cfm/Survey 7

headwinds from macro trends. different drivers of change for Most macro trends would Trust levels can be negatively Europe’s future. Should more impact equality levels in Europe affected by the increased women be elected in office, thisnegatively. Public expenditures spending and lower growth may have a disruptive effect on are also projected to increase. In trajectories caused by the current trends.5 overall growth, the trends might ageing population. Should balance each other largely out, Analysing socio-economic factors emerging markets become resulting in an average growth shows high levels of inequality more competitive, it is likely in line with historic growth rates in the EU, with the top 20% that we will see an increase in the EU. Nevertheless, given earning around 5.2 times as in unemployment in Europe, pressure on equality, the level much as the bottom 20% of which will further diminish of trust may not easily increase the population. Economically without taking explicit action. confidence in governmentsspeaking, the EU demonstrated and EU institutions. Although solid performance compared The old European social investing in artificial intelligencewith the United States until the contract based on the Treaties (AI) could help sustain Europe‘s 2008 double dip recession.6 of Rome and Maastricht needs growth significantly, inequalities Levels of economic inequality to be renewed to tackle future and citizens’ contribution would vary significantly within Europe.challenges. Despite economic still be an issue to solve. The Southern Europe as well as performance and growth, the social progress index data, Central and Eastern Europe are narrative of the EU founders whilst the EU earns on average a significantly more unequal than does not resonate with European highscore, points to variation in the rest of the EU. In Southern citizens the way it used to. Even social prosperity across Europe. Europe, the share of the bottom when the most obvious threats “The EU is still among 40% is clearly declining since to the EU come from the outside, the most equal regions 2008. Even the founding EU it is the creeping erosion of intra- in the world” member states’ economies have European solidarity that appears Perhaps unsurprisingly, northern started diverging. 7 Looking at the to be bringing this postmodern European countries achieve the trajectory of the last decade, only experiment to a limit. highest scores on the social Southern Europe has undergone “European Union progress index in the world, significant decline in citizens’ wants to have a place compared to lower levels in other income levels and has a trend in the future, it needs to parts of Europe.4 of increasing inequality. Yet trust renew, reinvigorate and in the EU has fallen everywhere readjust itself” Questions on Europe’s future and support for populist parties Since Maastricht, the world has leadership belong to the “black has risen, even in countries with changed considerably. Other swans”. Leadership impacts excellent economic performance.8 direction. global players are increasingly The EU is however still one of shaping the game. Hence, if “Increased female and the most equal regions in the diversity leadership the EU wants to have a place may lead to a focus on world, and 10 EU member states in the future, it needs to renew, different policy issues” find themselves among the 20 reinvigorate and readjust itself. happiest countries in the world.9 Adjusting old narratives to new Current pushes for gender US income inequality levels environments will not be enough. inclusiveness may give more reaches a score of 8.2, despite women leadership roles in higher government spending the near future. An increase than the EU average. EU citizens in female leaders and leaders work less hours, have a longer with diverse backgrounds may life expectancy and higher lead to a shift in thinking and levels of trust in government, focus on different policy issues. while emitting less CO2, than the Female leaders already pinpoint average US citizen. 10 4 Social Progress Index 2017 5 Politico, 2018 – If women ruled 6 The Conference Board; Eurostat; McKinsey Global Institute analysis 7 The Conference Board; OECD; McKinsey Global Institute analysis 8 Parliaments and Governments Database; Press searches 9 World Happiness Report, 2018 10 World Bank, OECD, SPI, Gallup, Eurobarometer, McKinsey Global Institute analysis 8 Global Trends, Key Drivers of Change and unknown Unknowns

If the European Union and its member states want to renew the European Social Contract and make it robust for a 2030 global environment, we need to better understand which drivers are at play and how Europe will be affected. The following highly dynamic key drivers of change will play a prominent role for the future path of societies at large and Europe’s future trajectories in particular. They will therefore be the main focus of our analysis:

1 Ageing population and migration 2 Disruptive technologies, digitisation and artificial intelligence (AI) 3 Rise of emerging markets in the global competition 4 Resource depletion and climate change 5 Polycentric World

Today, Europe stands at the crossroads on managing these and the pressure they place on the European Social Contract. 9

1. Demographic Change: Ageing Societies and Migration

In 1950, Europe’s population a lower workforce growth, but long-term effects of austerity accounted for one fifth ofalso the from lower productivity per measures are putting pressure world population. In 2060, capita. Taxation potential would on healthcare spending and its share will shrink to 5%. fall, increasing contributions medical technology innovation Whilst Europe’s population is per active citizen. Postponing expenditure in particular. Europe decreasing, the world population retirement reduce the drag on is not fully appreciating the will hit 8.6 billion by 2030 and per capita growth. impact of disruptive technology 10 billion in 2050, compared in improving healthcare system Thirty years from now, the EU’s to the 2.5 billion just hundred average age will be at 47.3, sustainability for the benefit of years earlier. By 2050, Africa patients either. At current levels compared to 42.6 years today. will double its population, whilst of investment in healthcare Life expectancy will rise from innovation, intergenerational Russia will lose about one fifth of 76 today to 82 in 2050. Without hers. Meanwhile, the populations solidarity is restricted to the transformative migration and in Asia and North America will classical formula of the working integration policies, low European grow by some 30% and that of age population supporting our birth rate will have a devastating Latin America by around 37%. ageing societies. impact on economy. Already Implications of Europe’s today, skilled workers are lacking The potential of migration as ageing society in many sectors – a trend which a source for increased growth will be skyrocketing as Europe in Europe is stemmed by Increased senior dependency grows older. Today, European current levels of integration. ratios from 29% to 39% could healthcare systems are at a As most migrants will be poorer put pressure on social spending tipping point, driven by the than the current European (e.g. pensions and health care) increasing burden of providing population, inequalities will whilst reducing the active worldclass care for ageing increase. Today, migration is labour force. This would reduce populations at a time when the considered to be the trend growth per capita, mostly from

UNEMPLOYMENT

UNEMPLOYMENT RATE, EUROPE () TIME TO EMPLOYMENT FOR REFUGEES () 9% ~50%

EU citizens have a job 5-6 years after arrival 18% ~70% Non-EU citizens have a job 15 years after arrival

McKinsey Global Institute 10

that poses the biggest threats to the EU’s social 78% of migrants are economically active and could cohesion.1 This notion subsists despite migrants alleviate pressure of ageing population. Without having contributed (€1.98 trillion) or 14% of regional improving integration, migration might, however, GDP in Western Europe in 2015.2 increase inequality. Economic migrants have 30% lower wages and 10% higher unemployment than Europe – due to its geographic proximity, high native population after 5-6 years. Refugees show standard of living and endurable climate – will up to 50% unemployment after 5-6 years and 30% remain the main destination of migration from Sub- after 15 years. Saharan Africa, the Sahel, the MENA and Greater Middle East regions. Despite the fact that European But if we want to preserve our societies from job markets need an influx of workers from abroad d(r)ing out, it is all too obvious that we need to to counter the loss of economic competitiveness develop policies for structured immigration, brain due to shrinking public resources, European job gain and systematic integration. Ageing societies markets are not yet open for the arriving migrants. will not only fall behind in productivity and Across Europe, new migrants could help improve economic output – they will also shrink in terms of the rising old age dependency rate and make share of global GDP resources urgently needed for pensions more sustainable.3 The lack of a common the replacement of outdated infrastructure, rising European solution in dealing with immigration social security and public health care costs. Also, risks the disintegration of European economies ageing societies tend to be more conservative, and may lead to socio-political instability. Dealing hesitant and risk-averse. Instead of striving for with the refugee crisis is also putting significant (disruptive) change and innovation, they rather try pressure on public budgets in countries with high to preserve current standards of living. refugee influx, especially in the Nordics, Germany and Austria. Still, in many European countries, the public believes increased refugee populations will increase the risk of terrorism.4

1 Friends of Europe Survey on the State of Europe (August 2018) 2 UNDESA 2015; IMF 2015; McKinsey Global Institute analysis 3 UNDESA 2015; Eurostat 2015; UK ONS 2015; Pew Research Center: Birth rate and fertility; UK Office for National Statistics: Births, deaths, and marriages 4 Spring 2016 Global Attitudes Survey, PEW Research Center 11

2. Technological Innovation and European Hesitation

In the 19th and the first half ofcycles and our daily lives France, Finland and Sweden will the 20th century, Europe was the will decide not only Europe’s see the highest increase in Gross centre of global innovation. Today, economic competitiveness but National Income (GNI) per capita Europe is still one of the most also the viability of our socio- from AI. 3 innovative regions in the world, economic model – a model that Whilst investments into research but disruptive technological was developed 150 years are considerable across the EU, breakthroughs now almost ago and is still based on not all innovation is research- exclusively come from outside national economies, industry- based. For example, Lithuania has Europe. Globally, investment based production, centralised only 12% innovation coming from in innovation is growing at a welfare states and lifelong research while Denmark reaches rate of around 30% a year but work followed by second-life 94%. This illustrates the difference not in Europe. Europe is also retirement. within the EU in innovation culture losing out on competitiveness in “Technological transfer and the potential effectiveness comparison to China, whilst the across regions and of the EU’s research investment US is still well ahead. countries could counter programme to meet the diversity The European Union would the current trend of of need across member states. innovation polarisation greatly benefit from investing in Technological transfer across in Europe” artificial intelligence1 (AI).Not regions and countries could jumping on the bandwagon of Investing in the necessary digital counter the current trend of other early AI-adapters may also skills already at an early stage innovation polarisation in Europe. result in a steeper race, with late could respond to these changes Also, differences in European and cushion the damage. adapters falling significantly and non-European innovation further behind already in the Globally, up to 375 million workers cultures can be observed not only 2020s. As the nature of work may need to switch occupational in the realm of digitisation and AI will be impacted by this digital categories by 2030, due to future but also in life sciences such as revolution, education must follow. automation and digitisation. In biotech, nanotech, and genetic Europe’s five biggest economies, New technologies could engineering. A litmus test might almost half the workplace increase growth by more than be the introduction of policies activities could be automated 1 percentage point per year promoting geoengineering and by technologies that are already between 2017 and 2030. These negative emission technologies. available.2 gains are partially dependent The consequences of not entering on increasing spending in “In Europe’s five biggest the digital race may also result reskilling and ensuring the economies, almost half in serious strategic vulnerability additional income circulates the workplace activities could be automated by in security and defence. Cyber, in the economy. This growth technologies that are automated and nanotech warfare could be distributed unequally, already available” could have the same disruptive with pressure on wages for effects on our societies and low skilled and a premium The impact of AI on inequality might be negative across the EU, strategic thinking as gunpowder particularly for those with th and Southern European countries had in the 13 century, air warfare advanced technological skills. th would benefit the least whilst in the first half of the 20 century How fast emerging technologies suffering high inequality. In the and the atomic bomb thereafter. are integrated into production EU, Austria, Denmark, Belgium, 1 McKinsey & Company, 2018 2 Oxford Economic Forecasts, Emsi database, US Bureau of Labor Statistics, McKinsey Global Institute analysis 3 McKinsey & Company, 2018 12

3. Emerging Markets

Emerging markets offer new opportunities for roughly 60%, China has become the forerunner in European economies but they are also fiercegreen energy installation. competitors. By 2025, European Union countries “The EU-Africa relationship will are predicted to represent only 86 companies in the shift from humanitarian aid to Fortune Global 500, down from 168 in 1980.1 We are increased private investments for amidst a global race for leadership in many areas, good, fundamentally developing the be it in the digital economy, life sciences, mobility, continent” or many other economic sectors. At the same time, private sector revenue growth is shifting from Yet emerging markets also serve as trade partners. Western Europe to the fast-developing countries.2 With the European Commission serving as Keeping an edge will not only depend on innovation gatekeeper for EU markets, emerging economies rates but also on labour costs and the quality of are keen to negotiate free trade agreements and social security systems which currently leave benefit from mutual profits. European products less competitive on the world By 2030, Africa is also forecasted to have market. enormous growth rates. Already today, private and In ‘winner-takes-all’ digital technologies in public investment is transforming the continent. particular, the EU could be disadvantaged With its increasing strategic importance, the EU- compared to China and the U.S. Africa relationship will shift from humanitarian aid to increased private investments for good, Take China as an example: Already today, China including health, environment and biodiversity. is the largest economy by GDP. It sends more These have the potential to fundamentally develop students abroad than the Americas, Europe and the continent and Africa’s potential as a big market Africa combined; it has a military budget that is place, which is evident in the investment strategies only surpassed by the US; it holds more currency of China and Japan: a reminder of Europe lagging in reserves than any other country in the world; seeing this opportunity to turn its relationship with and it positions itself as a leader in automation, Africa in helping to develop markets and enterprise digitalisation and AI. Even though its share of fossil infrastructure. However, the African continent fuels in the country’s energy mix still amounts to also faces tough challenges, population growth

1 Fortune Global 500, MGICompanyScope; McKinsey Global Institute analysis 2 World Input-Output database; World Bank; IHS; McKinsey Global Institute analysis 13

accompanied with massive Silicon Valley. India’s source of in the next 10 years and have urbanisation and increased skilled and educated workforce a similar impact, if not more impact of climate change being and significant growth in its significant, on the world stage at the fore. middle class will increasingly as has been with China’s skew traditional trade and growth trajectory – a player to India is likely to leapfrog many investments approaches both watch and take into account in countries in terms of economic across Europe and beyond. The Europe’s future trade and inward growth, with an increased military country’s strategic importance investment strategy. budget and tech hubs that are globally will grow considerably competing more and more with

4. Endangered Habitat and Dwindling Natural Resources

We have been living beyond our our planetary boundaries. supportive of a European energy planet’s means for decades. Population growth, the rise and sustainability transition, and To be exact, on global average, of a global middle class with willing to pay for it at current today’s mankind is using 1.7 changing consumption patterns, levels.1 Moreover, meeting Earths because it consumes urbanisation and massive sustainability goals could more natural resources and eco- infrastructure build-up, the also drive European growth. services, such as arable land, increased need for energy and The circular economy in natural capital/biodiversity, water, electricity for heating, cooling particular can help raise overall decomposition of wastes and and mobility – all this leads to an GDP and household income production of oxygen through often-irreversible degradation of across Europe.2 photosynthesis, than nature can our natural capital. As a result, Europe has already committed regenerate. In addition, we emit climate change will accelerate, to ambitious emission-reduction more greenhouse gases than leading to domino effects and targets and already transitioned the Earth’s atmosphere is able to extreme pressure on our habitat to a relatively clean power absorb. and ecosystem. mix.3 While fossil energy has Climate change and pollution Combatting climate change seen a resurgence in the US, negatively impact growth and leaves an impact on Europe has shifted its power 4 the quality of life in the long government spending. Efforts mix to renewable technologies. term. Investments in shifting to on decarbonisation could However, in Europe we still use affect prices of goods and a circular economy could add many resources inefficiently, disproportionally affect those across all sectors.5 There are 7% to GDP by 2030 or 11% to with lesser means. Citizen large inconsistencies in energy disposable household income. contributions in the form of strategies across Europe, and All EU countries reach the so taxes to governments would also countries have not made the called ‘Earth Overshoot Day’ – need to increase to close the same progress in the transition the day we have consumed this investment gap to manage higher to a more sustainable economy.6 year’s ratio of natural capital, costs of the weather related well before the calendar year events that are a result of climate has passed. Only the poorest, change. Despite higher costs, developing societies stay within European citizens are generally 1 Gallup, Europe Risk Perception Survey, 2013 2 McKinsey Centerfor Business and Environment and the Ellen Macarthur Foundation, Growth Within: A circular economy vision for Europe, ”June 2015 3 European Energy Agency, 2016, SOURCE: Energy Transitions Commission, Pathways from Paris: Assessing the INDCOpportunity, April 2016 4 Ener data 5 McKinsey Centerfor Business and Environment and the Ellen Macarthur Foundation, Growth Within: A circular economy vision for Europe, ”June 2015 6 InstitutMontaigne, "The circular economy: reconciling economic growth with the environment," November 2016; OECD 2014; EEA. 14 BUILDING SECTOR

CONSTRUCTION UTILISATION USAGE END OF LIFE - % % -% %

of building material of European offices of energy in of demolition materials wasted during are not used even existing building landfilled, while some construction in working hours can be profitably countries only conserved landfill % - - % Passive building Most materials standards at or near unsuitable for reuse of residential profitability for most as they contain dwellers report new-build segments, toxic elements living in too but still only constitute much space a minority of buildings

FOOD SYSTEM FERTILISER UTILISATION % of fertisisers do not provide nutrients to the human body

OF FOOD PRODUCED Not absorbed by human body % IS LOST OR WASTED Fertiliser used to feed people OF FOOD IS Used by inedible part of crop % CONSUMED Lost or wasted vegetables

Not taken up CONSUMER WASTE % by Crops (up to %) % CONSUMED VALUE CHAIN % WASTE

Releasing GHG emissions and causing eutrophication Source: McKinsey Centre for Business and Environment & and drinking water pollution Ellen MacArthur Foundation, June 2015 15

5. A Polycentric World

We are already seeing more opens up new opportunities towards authoritarianism; and competition over values, for transnational networks EU member states being deeply governing principles, human and civil society organisations, divided over more issues than rights and identity politics in the such as human rights activists, ever before – all these invite new public sphere. This competition environment protection networks, security risks for the Union. between value systems will also advocacy and opposition groups, be experienced within societies, even dissidents. Organised crime In addition, the geopolitical through the degree of human as well as non-state violent scene could require NATO rights and personal freedoms, groups also benefit frommembers the to reach their the role of the media and civil changing global landscape. commitments of spending 2% society groups. The world has of GDP in defence. The cost “The EU’s close become polycentric – with neighbourhood, a of dealing with cyberattacks strong regional players across former ‘ring of friends’ already stood at around 0.4 all continents that fence off today is described as a percent of EU GDP in 2014, and their spheres of influence and‘ring of fire” is expected to quadruple by challenge other players’ interests 2019, according to the European in these regions. In the EU’s close neighbourhood, the former ‘ring of friends’ is now Political Strategy Center. At the same time, we are being described as a ‘ring of fire’. The EU has responded to the new witnessing a growing renunciation For years to come, Europe will threat landscape by a deepened of international institutions: the have to cope with a geographic security cooperation through liberal international order is environment that will remain the Permanent Structured being tested and the powers chaotic, fragile, sometimes Cooperation (PESCO). Moving representing the UN order findbellicose. Between 2014 and to a pooling of EU defence themselves in competition 2017, defence spending in could provide an estimated with alternative systems of most major Western European savings potential of up to 30% 2 governance. China has started to countries increased, but many on investment volume. The will still fall short of the 2% establish a parallel global order EU Global Strategy from 2016 NATO target.1 reiterates the need to strengthen mimicking the Western model. European military capabilities. Given China’s rise in the global The MENA region and the economy, its military build-up and Greater Middle East in flames; its strategic infrastructure projects Russia an opponent again, threatening the independence around the globe, the Chinese and sovereignty of states in the alternative to global governance so called post-Soviet space; may be well established by 2030. the US and the UK turning their But the polycentric order also backs on Europe; Turkey leaning 1 NATO, Defence Expenditure of NATO Countries 2010-2017, June 2017 2 McKinsey analysis -Based on EDA Defence Data (2014), McKinsey weapon system fragmentation analysis as in Munich Security Report 2017, and calculation scheme as published in McKinsey, “The Future of European Defence: Tackling the Productivity Challenge,” 2013. 16

The Future We Face

“Only if we can think the unthinkable, will we be able to prevent it”

Today, the sobering mainstream EU story is being Others want to forge a core-Europe that will move told like this: With the United Kingdom finally towards deeper integration. And at the same time, leaving, France will assume a leadership role within others do not want to go beyond the European the European Union whilst Germany is gridlocked Single Market. According to this thinking, the EU by due to a weakened chancellor and a grand coalition 2030 could be an organisation of different layers running on the lowest common denominator. of cooperation, intensities of integration and, Meanwhile, Italy becomes increasingly Brussels- therefore, more flexible in its approach vis-à-vis sceptic, chiming in with Poland and Hungary societies in its immediate neighbourhoods. – two European countries that turn more and Others vehemently oppose such concepts. They more pseudo democratic. In this “Dance of the fear that a multi-speed or multi-track EU would Elephants”, smaller member states fear to be soon lead to political entropy, dual-standards and pounded and demand a stronger say. the erosion of European values, whilst paving the If Europe sticks to its current course of trying to way for illiberalism and nationalism. The dilemma preserve unity at any price and avoid marginalisation is that we cannot test alternative models in vivo. among global powers, it will end up always doing Hence, if we want to prepare ourselves for an too little, too late, with too much hesitation – a uncertain future, the EU, its member states as triad that soon might become the formula of an EU well as societies at large need to improve their running on autopilot. capacity to anticipate change before it occurs – “If Europe sticks to its current course through foresight analysis and scenario thinking of trying to preserve unity at any – in vitro. Only if we can think the unthinkable, price and avoid marginalisation we will be able to prevent it. And only if we have among global powers, it will end up a notion about the shape and timing of chances always doing too little, too late, with and opportunities, will we recognise them early too much hesitation” enough to benefit from them. It is high time to move back into the driver seat. But this is only one plausible trajectory for the EU; one that extrapolates current trends and phenomena into the future. But as we have seen in the last 20 years, the future is rarely a linear projection of the past. Modern history can hardly be described as a smooth and incremental process towards peace, stability and prosperity. It is rather being characterised by disruption – both positive and negative – turmoil, crises, new coalitions and alliances, power shifts and, eventually, renewal. Already today, influencers across the EU prepare societies and constituencies for alternative narratives of a future European Union. Some are in favour of a multi-track EU, a scheme to save the Union from being sucked into a vicious circle. 17

Strategic Foresight – Four Alternative Futures for Europe in 2030

Scenarios are used extensively In this exercise, we have We have given names to each by government and business examined the interplay between scenario, signifying the overall to explore what could be the a weak or strong EU and a strong thrust. future. Without knowledge of domestic or global focus.1 In For “Market Maker,” the domestic the different directions the future reality, the pressures on any forces are as strong as in could take, policies cannot future European Union will come “Transactional Europe,” but the be designed to steer it in a both domestically and externally, EU is much stronger to deal positive direction or to prevent but one will be relatively stronger with them. “Market Maker” can the downsides from occurring. or weaker. This does not exclude concentrate on fortifying the Scenarios are therefore not the fact that any external or economy while “Transactional predictive; they are rather domestic pressures have Europe” must contend with the instructive for future decision implications impinging on the growing sense of sovereignty in making. other. These are detailed in the the member states. scenario narrative. All scenarios presented here The same logic applies to the envision a European Union from a In constructing the matrices “Value Setter” and the “Balancer” 2030-perspective. They take into and writing the scenario scenarios: A strong EU with a account the internal and global narratives, we were particularly global ambition will be able to trends, key drivers of change plus interested in analysing the play a leading role in the world. possible low probability/high implications of each scenario A weak EU with global ambitions impact events (“Black Swans”) on European security, prosperity would – at best – be able to play that have been detailed in an and sustainability – they are a balancing role in an emerging earlier section. Each represent listed in a synopsis attached G2 world, dominated by the US radically dissimilar futures due to each scenario since these and China, with other regional to the approaches the EU and policy fields constitute the threeactors trying to play more its member states take with essentials of any social contract. independent roles. the different trends and the challenges they present. 1 There are different ways to construct scenarios. The 2x2 matrix in which the x and y axis each constitute an independent and key variable helps to ensure all possibilities are explored, not just the more desirable ones. 18 strong

Market Maker Value Setter (Economy) (Values)

EU STRENGTH Transactor Balancer (Sovereignty) (Stability) weak

domestic EU FOCUS global

Scenario A: Market Maker A Strong EU with a Domestic Focus

In the 2020s, raging global trade wars resulted in the To further ease economic hardships, the European EU suffering a painful and long-lasting recession. Commission began negotiations with Moscow For its economic survival, the EU decided to create to eliminate remaining sanctions and investment its own sphere of economic influence. Expanding barriers, in return for Moscow easing tensions the EU market area to immediate geographic in Ukraine and dialling back on cyber hacking in neighbours and more far-flung like-minded statesEurope. The EU also decided to seek closer political would help compensate for the drop in the EU’s trade and economic cooperation with Beijing, as the Belt and investment due to international protectionism. and Road Initiative is progressing. The EU began by upgrading the Deep and With the breakup of global economy into self- Comprehensive Free Trade Agreements with contained blocs, the EU has no compunction neighbouring countries to the East and the South. about using sanctions and non-tariff barriers to It further developed trade agreements with both protect European workers and companies. The EU Asian and African countries, starting with India, instituted unified rules and regulations on artificial which surpassed China in population numbers intelligence and robotics to protect workers' rights. but also developed a steadily growing, consumer- Whilst the EU is focused on its internal stability and happy middle-class. The EU also reached out to development, the new trade agreements contribute the West African Union ECOWAS with Ghana and to sustainable global trade and the slow-but-steady Nigeria being frontrunners in (digital) platform spread of EU regulations on social standards and economies. In addition, the Union built on recent environmental protection. trade deals with Canada, Australia and Japan, who Whilst widening its economic sphere of influence, also feared negative consequences by increasing EU member states concentrated on internal isolationist policies. structural reforms – first, to become globally 19

more competitive in the long use of appliances enabled by Big especially in the field of food haul, and second, to ease Data and artificial intelligence, security and the refinement of the immediate impact of the water and energy consumption mineral resources for the Green economic recession. in cities and in rural areas Economy Transformation. A dropped considerably. Energy positive side effect is that fewer First, the EU ramped up its markets were integrated while African migrants seek economic promotion of the digital economy common energy and climate opportunities in Europe. At with most member states standards were legislated across the same time, European making massive investments the EU. All of these initiatives universities and other education into research and development have substantial start-up costs, institutions took in an increasing (R&D), followed by investments number of African students with in education and skills training. which are paid for with financial transactions and carbon and the idea of helping them acquire This surfaced given the bloc’s digital economy taxes. skills that are vital for economic need for the best-trained workers development at home, most and world-class technological In a major reform, EU member of them offering virtual Master innovation if it was going to fuel states also agreed to set up a Programmes online. continued economic growth. Coordination Office on Migration The EU also encourages greater and Asylum. It is mandated to Finally, after years of weakening use of new technologies over make recommendations directly transatlantic ties and challenges the medium-to-long run in to the European Commission posed by a multitude of new order to boost the efficiencyand the European Council. The security threats, Europe of government and business Coordination Office established has finally understood that operations. an investment fund and an “diplomacy without arms is like expert pool to support members music without instruments”. Second, maintaining social states and regions in their Hence, Europe adopted a welfare programmes was vital effort to integrate highly skilled comprehensive security strategy if the EU’s governing institutions immigrants. worth its name, set up integrat- were to receive continued public ed armed forces, decided upon support and if inequality was Whilst concentrating on internal shared R&D and procurement to be fought. However, a broad reforms, the EU did not turn a and built a civil-military-industrial reform of welfare programmes blind eye on Africa and the MENA complex capable of developing was accelerated. To boost region. The EU is heavily engaged the latest weapons systems. workforce participation and trim in the reconstruction of Syria costs, retirement age went up, and the stabilisation of Iraq and This big leap forward in policy enabling the quality of services to Lebanon. Simultaneously, the EU coherence and capabilities remain stable. The development redoubled its efforts to promote not only prepared the EU to of EU data hubs also increased economic development in Africa. respond to emerging threats in the efficiency of the healthcare Increased private investment an increasingly polycentric (and sector and other social services has helped to fundamentally highly competitive) environment across the EU. European cities change parts of the continent – but it also prepared its member became frontrunners in the especially in North Africa, Horn states to cope with unknown use of digital technologies to of Africa and within the ECOWAS geo-strategic territory: due to deal with traffic congestion,zone of influence. But the modus climate change, the Arctic is now policing, delivery of healthcare operandi has changed: African ice-free most of the year. and other services with the aim states and societies have Despite these news challenges, of exporting Europe’s know-how become more self-confident,Europe can look into the future to emerging urban centres in and due to the geo-economic with confidence: even if the Africa, the Middle East, Central and geopolitical importance outside world is backtracking Asia and other regions. of the African continent, to the realist world of the 19th Africans can increasingly pick Third, to ease its dependency on century, the EU seems to be on the and choose their partners. As imports, sustainable consumption cusp of realising the original aim a result, competition on the and circular economy as well of its founding fathers: “Together African continent is high – but so as biodiversity management we stand, divided we fall.” are the chances for cooperation, climbed high on Europe’s including the establishment of agenda. Due to the systematic trilateral contacts with China, 20

Scenario A: Market Maker – A Strong EU with a Domestic Focus

Social Contract: Social Contract: Social Contract: Drivers Triggers Security Prosperity Sustainability >Ongoing trade >European leaders >EU engages in the >Increased use of >The EU ramps up wars; protectionism see no other choice reconstruction of sanctions and non- its promotion of the and increased but to create its own Syria, Iraq and the tariff trade barriers digital economy regionalisation of economic sphere of stabilisation of to protect European >Massive investments international affairs influence (economic Lebanon workers and into R&D, education “cordon sanitaire”) companies >Long-lasting >Massive private and skills training to recession in Europe >Willingness of like- investments in Africa >Broad reform of ensure more equal minded states to which became a welfare programmes opportunities across >Disintegration of the cooperate (Canada, geopolitical and geo- and retirement the EU and a Europe liberal world order Japan etc.); reachout economic hub curbs systems to rich in knowledge, (free trade, collective to new strategic migration boost workforce talent, art, creativity security, protection of partners in Africa participation rates, and innovation the commons) >Europe drops and Asia with a new including measures sanctions and trade >Big Data and AI >Economic anxieties mode of cooperation to reach gender barriers against appliances for combined with (trade not aid) parity, and increase Russia efficient use of external threats labour market >The EU seeks resources (esp. water create stronger unity >EU negotiates accessibility to closer political and energy) among Europeans selective trade immigrants and the and economic who fear being left deals with like- older generation cooperation with > Unified rules and behind minded partners regulations on AI, Beijing, as the Belt >Commitment to (Canada, Australia), robotics, social, civil and Road Initiative is finance minimum widens its Deep and rights, environmental progressing welfare programmes Comprehensive Free and food standards. across the EU paid Trade Agreement Efforts to ensure for by financial (DCFTA) with biodiversity transaction, carbon neighbouring and digital economy >Strong integration countries (Algeria, taxes of energy markets, Tunisia, Egypt) and common energy and invests in emerging >High social, climate standards markets environmental and inside the EU, carbon data protection >EU develops trade tax on imports standards inside agreements with the EU, non-tariff >Build-up of applied other growing barriers and taxes on economies in Asia R&D networks to fight imports; Industry 4.0 the impact of climate (India et al.) and boost and build-up change, Carbon Africa (ECOWAS), of European digital Capture and Storage, spreading economy Geo Engineering; environmentally development of sustainable >EU Finance Minister synthetic fuels; regulatory standards coordinates introduction of economic and >The EU is developing EU-wide circular fiscal policies and an integrated and shared digital promotes structural military force, R&D economy concepts reforms and procurement, >Increased trilateral reinforced by France’s >Common cooperation with nuclear capability; immigration and China in Africa (food decreasing reliance asylum policies security, mineral on NATO tailored to the resources for green need of the EU economies) labour market; establishment of a Coordination Office on Migration and Asylum 21

Scenario B: Value Setter A Strong EU with a Global Focus

Authoritarian states pose a been set up (including parts of Office enforces common growing challenge to the liberal the British Armed Forces and asylum standards and distributes world order and compete coordinated with a declining refugees evenly across the Union. both in terms of militaries and NATO). Cooperation in foreign Simultaneously, an ambitious economies with the West. An policy has also been vastly reform of the “Blue Card” system increasing number of states improved among EU member eased migration for the highly around the world – even states. qualified to live and work in the EU. in Europe – are mimicking Confronted with a steadily Immigration policies are models of “managed pseudo- deteriorating international order being flanked by an expanded democracy”, turning inwards and and with a grim future outlook, “European Reconstruction and becoming more confrontational. the old transatlantic partners Stabilisation Plan” for Africa and With international cooperation searched for a new common the Middle East. This has not only and trust at low levels, Europe ground in the mid-2020s. While spurred economic development in the early 2020s found itself in populism in Europe peaked (mainly driven by digital a very unpleasant environment: already during the 2019 elections platforms) but also led to vibrant Following the collapse of the to the European Parliament, civil society networks working on Joint Comprehensive Plan pro-European politicians have social and environmental issues. of Action (JCPOA), Iran has become more confident aboutAll this contributed to a reduction resumed its nuclear programme, calling for reforms of the Union. in illicit immigration flows. triggering Saudi Arabia and After years of protectionist At home, European leadership others to start their own leanings, the US ended its has become more diverse, nuclear weapon programmes. withdrawal from international launching an impressive reform Russia continued to interfere in engagement, and China that agenda to foster growth, elections on behalf of right-wing suffered most from economic reduce inequality and increase parties across Europe, tried to stagnation signalled its will to the political, social and fiscal further destabilise Ukraine and cooperate in regions that were integration. With European undermined European policies previously highly contested: leadership becoming more in the Western Balkans and the Central Asia, Africa and the diverse, involving more women Middle East. Meanwhile, the US Pacific. and minority groups in leadership and China are at loggerheads Meanwhile, the EU has shown roles, governments have over trade and security issues, that it can successfully manage become more socially minded. further deteriorating the state of migration without closing its More member states have international affairs. To restrain doors to the world. While a adopted the euro and agreed on authoritarian regimes’ appetite common Border and Coast common social standards and for conflict and to bolsterGuard controls the Schengen welfare programmes to bolster European interests globally, a borders, the European Asylum solidarity and enhance the EU’s European Defence Union has 22

competitiveness. A European Finance Minister The new alliance of liberal states also works closely oversees the coordination of fiscal policiestogether in in setting standards for future technologies, the eurozone, manages a shared investment such as the use of artificial intelligence and robotics budget to encourage the implementation of and other new technologies such as biotech, economic reforms, and invests in countries hit by nanotech and geoengineering. They promote asymmetric shocks. The minister also chairs a rules, regulations and regimes for the governance newly established European Monetary Fund that of cyber space, space (including the exploitation serves as lender of last resort. of other planets) and the high seas (including the Arctic and Antarctica), and they join forces to To remain at the forefront of technological pressure others to bolster cooperation across the innovation, the EU has massively increased the different areas of the commons (climate, water, resources going to research and innovation, and soil, biodiversity, ecosystem services). By 2030, has created a common Agency for Breakthrough climate change has already demanded a high toll. Innovation. Major EU cities have moved ahead on their own on using smart technologies to improve By the late 2020s, the EU has a lead role as the delivery of public services, increase citizen a regulator of globalisation, whilst upholding involvement in public policy, boost “urban quality of universal human rights, and also as a champion life” and tackle climate change. Riding on a wave of of solidarity and equality. Europe perceives itself optimism, newly built trust and citizen engagement, as a guardian of the global commons and has European leaders also gradually reform public strengthened its sovereignty in the international pension plans, extending the retirement age and arena. But even more importantly, EU institutions cutting benefits for future retirees to guaranteeand courageous leaders from all walks of life have long-term financial sustainability. reinvigorated civic engagement and a new sense for democratic values across the EU member Taking note of all these improvements, like-minded states – mainly achieved by staying on course nations in Africa (such as Ghana, Nigeria, and during times of turmoil, bolstering solidarity Ethiopia), in Asia (notably Japan, unified Korea, among and beyond EU member states in times of and India) and the Americas (including the US, crisis, and encouraging substantial investments Canada, Mexico, and Chile) join the EU in its effort in dire times. to revitalise international cooperation and commit themselves in rebuilding a more equitable and inclusive international order based on liberal values and freedoms. Their common agenda includes the promotion of free trade, the development of new regional security architectures, the fight against climate change and its impacts, and the transformation of infrastructure into the digital age – an ambitious agenda that calls for new forms of participatory governance, the protection of social and environmental rights and standards, and the reinvention of governance institutions – with a strong emphasis on regional organisations. 23

Scenario B: Value Setter – A Strong EU with a Global Focus

Social Contract: Social Contract: Social Contract: Drivers Triggers Security Prosperity Sustainability >Autocratic and >Eurosceptic populism >EU member states >Member states >Retirement ages pseudo democratic is on the decline, strengthen cohesion agree on minimum are gradually regimes increasingly pro-European within the Union welfare standards extended, and challenge the liberal forces gain ground trough deeper across the EU to pension schemes are world order and their as the continent political, social and improve economic reduced to guarantee neighbours experiences solid fiscal integration to equality, financed longterm financial growth rates defend themselves by unionwide sustainability >Russia continues and declining against external taxes on financial to destabilise >The EU opens up unemployment threats transactions, carbon Ukraine and the its labour market emissions and the Western Balkans >The US ends its >The European Border to immigrants digital economy and aggressively withdrawal from and Coast Guard to address the interferes in international effectively protects >The euro is adopted demographic European elections engagement and the Schengen by more and more challenges many recommits itself to borders on its own EU member states; member states face >Escalation of the protection of a authority a common Finance conflicts in the >Europe ambitiously rules-based world Minister manages Greater Middle East >The European reforms its Blue order an investment triggering a nuclear Asylum Office Card system to budget to increase arms race >Europe together with enforces common better attract highly convergence and the like-minded partners asylum standards European Monetary qualified immigrants in Africa, Asia and the and procedures, from third countries Fund assesses the Americas pursue a distributes refugees debts sustainability >Europe works common agenda of across the Union of member states trade liberalisation, together with like- >The EU launches minded states in democracy >To remain an expanded developing the notion promotion, human competitive, EU “Reconstruction of a “commons”; rights, and the member states and Stabilisation European cities protection of increase their Plan” for Africa and become key players global governance spending on the Middle East institutions infrastructure and to fight climate to spur economic change and promote R&D and launch a >China opens up development sustainable lifestyles common Agency for cooperation in through smart >Based on PESCO and for Breakthrough formerly contested infrastructure Innovation regions (Central Asia, firmly integrated into NATO, a European >The EU sets Africa, the Pacific) >The EU expands Defence Union standards for the to ease pressure on its ambitious underpinned by use of AI, robotics multiple fronts and to trade agenda and common budgets, and other new reduce transfer costs exports its social, deployable forces technologies to to improve overall environmental, data and weapon systems, protect human and security protection, and food is created civil rights, including quality standards privacy and labour >The EU speaks with standards one voice on foreign policy issues and finally enlarges into the Western Balkans >Brussels protects civil liberties inside its own borders; structural and development assistance is made contingent on adherence to the rule of law 24

Scenario C: Balancer A Weak EU with a Global Focus

The EU is increasingly fractured and paralysed at some welfare programmes are reestablished at EU home. Immigration remains a hot political issue. level. The funds for these investments are raised In an attempt to discourage their entry, asylum by Union-wide taxes on the digital economy and seekers are held in detention camps outside the financial transactions. To balance the diverse EU for increasingly long periods before a decision interests among member states, the EU introduces on their entry is made. In exchange for their fiscal transfers to assuage inequalities and cooperation, governments in North Africa and the promote stability within the economic bloc. Middle East are rewarded with large amounts of Although the EU stays intact, it fails to address development aid. many challenges due to internal disagreements. The Union’s internal divisions are also worsened Brussels remains incapable to prevent the by the ongoing economic malaise due to democratic backsliding in several Eastern continuing trade wars. Rising global protectionism European states. Member states are also unable slows global growth rates, and unemployment to agree on substantial investments and research and poverty increase especially in Spain, Italy, programmes. Europe increasingly falls behind in Greece, and Portugal. Fuelled by these trends, the global innovation race and becomes dependent Eurosceptic groups gain further ground across on technological imports. several member states. While the EU balances its fractured domestic Outside forces seek to widen the European chasms. politics, it maintains unity in its external policies Russia expands its cooperation with far-right – border control, security and maintenance of groups across the continent and actively supports its share of global trade being its main concerns. them. As the growing economic divergence With the US drifting further away from Europe between the north and the south threatens to tear and undermining NATO, storms are gathering the eurozone apart, Germany and other northern in the Middle East and East Asia. Meanwhile, countries agree to grant southern member states Israel and Saudi-Arabia launch attacks on Iran’s greater fiscal flexibility and increase structural military infrastructure, leading to a permanent and investment funds. Northern and Baltic states destabilisation of the Greater Middle East. work on investments in renewables and diversify Despite Europe’s internal fragmentation, Europeans their energy sources to gain greater energy stand united in their reactions to the escalating global independence. With climate change devastating context. Strong responses come from the French regions across the Earth’s sun belt, the EU launches and German governments: Berlin and Paris see their a Union-wide Environmental Fund, to protect fragile role as trying to salvage as much of the rules-based ecosystems along its borders, such as the Sahel world order as possible. Led by a revitalised Franco- and MENA regions, in an attempt to stop one of the German alliance, a majority of EU member states root causes for migration. consolidate their foreign policy, increase defence Few member states manage to adequately reform spending and create a combined military force that their retirement and welfare systems, creating is able to secure Europe’s southern borders, but severe fiscal challenges and rising national deficits,can do little more. A minority of EU member states therefore fuelling populist parties. In an attempt continue to look to NATO for security, but do not to balance inequalities between member states want to be sucked into the looming global conflicts. 25

Development cooperation with citizens from outside interference try to develop more than just Sub-Saharan and Central Africa and the downsides of rapid lowest common denominator as well as the MENA region and ungoverned technological agreements wherever and is increased to ease the influxbreakthroughs. whenever they can. of illegal migrants and also to The protection of the habitat Finding a formula to regain reduce the risk of terrorism in and efforts to slow climate political initiative would be key Europe. But the EU is unable to change have become a casualty but this demands trust in agree on decisive policies that in this kind of international leadership, confidence in Europe’s would either ease the pressure on environment. Even though most inner strength, its social and neighbouring societies suffering governments and societies cultural capital, its values as well from the impacts of climate have understood that theas its fight entrepreneurial strength change (such as the salination against climate change is key and visionary power. of the Nile Delta) or those caused for human security, economic by massive population growth prosperity and longterm social (leading to chaotic urbanisation). equality, the global momentum To pursue as many of its global is geared towards competition economic and security interests and the survival of the fittest. and to ease the severest Europe, nevertheless, sticks to its hardships in its immediate environmental policies trying to neighbourhood, the Union transform its energy and transport intensifies its cooperationinfrastructures with from fossil fuels like-minded partners such as to renewables, slowly but surely. Canada, Japan, Nigeria and India, Smart City concepts as well as and explores opportunities for smart grids help to raise energy investment and trade agreements efficiency up to 30% by 2030 with the wider African continent. and shared economy platforms The EU strategically engages reduce traffic considerably in the US wherever it can, and tries inner cities across Europe. to find a modus operandi with But prospects are bleak for a Russia and China in diplomatic European Union that suffers overtures to ease global tensions. from external pressure and While the big powers move forward is weakened by internal in digitalisation, automation disagreement. Cooperation and artificial intelligence and rests on the sobering notion engage in a race for AI warfare that European nation states supremacy, the Old Continent would suffer even more from tries to forge alliances aiming international competition at setting standards for new and conflict than if it stays technologies to protect their united. The member states 26

Scenario C: Balancer – A Weak EU with a Global Focus

Social Contract: Social Contract: Social Contract: Drivers Triggers Security Prosperity Sustainability >Immigration remains > Russia intensifies >Driven by anti- >Unable to agree on >Social welfare a hot political issue its cooperation with immigration large investments costs are rising far-right groups in sentiments, the EU and research across Europe and >Trade wars and Europe closes its borders, programmes, Europe threaten its financial protectionism linger turning back refugees increasingly falls sustainability as on >Iran expands its on the Mediterranean behind in the global populist movements involvement in Syria, >The US grows and resettling them innovation race and prevent substantial sparking a military protectionist and outside of Europe becomes dependent reforms confrontation with further withdraws on technological Saudi-Arabia and >Development >West European from Europe imports Israel cooperation with member states >The EU suffers from Sub-Saharan and >To mitigate the increase investments >In reaction to ongoing economic Central Africa, as welfare gap between in renewables escalating hostilities and political splits well as the MENA South and North, and diversifies its between global between North- region is increased to the EU increases energy sources to powers, EU member South, and East-West ease influx of illegal its structural funds gain greater energy states coordinate migrants and also and grants member independence >Populist, Nationalist their foreign to reduce the risk of states more fiscal and Eurosceptic policies and launch >Despite the erosion terrorism in Europe flexibility movements are diplomatic initiatives of the international expanding their >Several EU member >Unionwide taxes climate protection influence in Brussels states, led by are raised on the regime, the EU sticks and several member Germany and France, digital economy and to its ambitious aims states launch joint military financial transactions to combat climate force, increase to mitigate intra- change (efficiency >Climate change is defence spending European inequalities gains through devastating large aimed to protect EU digitalisation and parts of the Sahel borders and interests Smart City concepts) and MENA regions >NATO becomes > Several member irrelevant as EU states pool their member states resources and launch refuse to be sucked an Environmental into looming conflicts Fund to protect fragile ecosystems in its >EU launches initiative immediate periphery to standardise new and to mitigate root technologies to causes of migration protect citizens from (such as climate outside interference change, chaotic and the downsides of urbanisation etc.) rapid and ungoverned technological breakthroughs 27

Scenario D: Transactional Europe A Weak EU with a Domestic Focus

Europe is overwhelmed by A recurring problem undermining including those inside the internal divisions. With German voter confidence in governmental Schengen zone, start closing nationalism on the increase, organisations at EU and member their borders. At first, these the traditional Franco-German state level is the failure to find border closures are temporary motor has slowed down to the a structured way in which to in response to surging number point that there is no possibility address the migration crisis and of migrants, but after a while, of agreement on any EU reforms. the growing numbers of migrants the closures remain permanent. from Africa and the Middle East. With Schengen now just a shell, At the same time, domestic woes Despite the slowdown in many the single market for goods and have increased, with the poorest EU member states, economic services stays mostly intact, but member states experiencing the opportunities remain better in free movement of people is no hardest hit. Europe than in the migrants’ longer on the table. The EU appears increasingly homelands. Inequality between member irrelevant to most European Within European states, the states increases rapidly. Germany citizens. Not only is it unable political and social fabric is and the Nordic countries, for to improve the daily lives of being torn apart by arguments example, remain competitive in Europeans but Brussels also between liberals asking for the global marketplace, but others seems to be unable to secure more humanitarian treatment of are falling behind. Populism rages European interests in the incoming migrants and those on throughout the EU, even in the broader global context. The EU the nationalist right-wing, calling wealthier states but there is no has failed to rebuild trust in its for expelling migrants and putting common front. project among citizens. As the EU up a fortress Europe. Liberal becomes more dysfunctional, its Nationalists, for example, in the arguments are increasingly member states are reclaiming better-off northern tier states losing out to nationalist ones power from Brussels and oppose social transfers to the in public opinion surveys renationalising the continent. east and south, further fuelling and an increasing number of Europe is increasingly split anti-northern sentiment in governments are moving away between north and south, west more impoverished regions. from liberal democracy as the and east. Slow global growth, Pro-European movements have model for coexistence. due to global protectionism and eventually become defeated trade wars, also acts as a curb Under growing public pressure by the low trust of citizens in on intra-European cooperation. posed by the far right, individual government and institutions. member state governments, 28

Over time, Europe’s divisions become even more visible. Because they do not want to endure the austerity which the EU imposed on Greece and other countries after the euro crisis, Italy and Greece elect to leave the eurozone, raising questions about the durability of the euro in international markets. Populist parties in Central European and Mediterranean countries call for their citizens to exit the EU altogether despite the fact the United Kingdom suffered economic losses after its separation. The European Commission cannot reach a consensus on any trade initiative because of the deepening splits between member states. Various blocs inside the Union (Northerners, Visegrád, Mediterranean) are forming to deal with their specific problems. Northern European and Baltic states are increasingly co-operating on issues such as AI, energy and robotics, without consulting other members. Germany, Austria and Italy openly defy Brussels, drop all remaining sanctions against Russia and sign cooperation agreements with Moscow. The EU fails to introduce common environmental standards and cannot agree on any strategic energy policies. Northerners invest in more renewables while southern, central and eastern European member states abandon goals to fight climate change. Most Europeans still do not want to disband the EU, but there is too much distrust and too many divisions between member states for cooperation to be rebuilt. EU common and security policy is increasingly absent, with member states working bilaterally with each other as well as with third parties in defiance of EU law to set their own course. 29

Scenario D: Transactional Europe – A Weak EU with a Domestic Focus

Social Contract: Social Contract: Social Contract: Drivers Triggers Security Prosperity Sustainability >No agreement >Italy and Greece fall >Inside the Schengen >The single market >Member states between France out of eurozone. Zone, individual for goods and nationalise their and Germany on Common EU member states close services remains strategic energy substantial EU currency about to fail. their borders mostly intact, but policies. France reforms Other countries see free movement doubles down on >Member states are little growth and fall gets increasingly nuclear energy and > Enduring influx of increasingly pursuing increasingly behind restricted Poland on coal immigrants, absence their own interests leaders of meaningful burden in foreign affairs. >Without reforms >The EU fails to sharing > Nationalists opposing Several states such of the eurozone, introduce common social transfers to the as Germany, Austria divergence increases environmental >Return of economic south are elected in and Italy are dropping and several member standards. While recession due to Northern Europe out of the Russia states are falling technologically global trade disputes sanctions regime back into major advanced states >Several EU member >The competitiveness recessions increasingly invest in states/populist >Various blocs of the EU decreases renewables, Southern movements within inside the Union are >Trade initiatives markedly overall, and Eastern Europe EU member states forming to solve their are coming to a while Germany, the will partly abandon indicate their specific problems halt as diverging Nordics and others climate goals willingness to follow (Northerners, interests are delaying have improved their the British example Visegrád, negotiations economic clout in the and leave the Union Mediterranean) global marketplace >Northern European >EU common and and the Baltic states >Rising poverty security policy is are increasingly and inequality in largely non-existent, cooperating on an Southern and Eastern with member states ad-hoc base on Europe fuel populist working bilaterally issues like AI, energy and nationalist with others to set and robotics sentiments their own course. >Failure to build trust in the EU project and solidarity between EU citizens 30 CONCLUSION The Case for a Renewed UpdateEuropean Title Social Contract

Without rebuilding confidence in the European more powers or be better resourced in some areas, project, we are not likely able to mitigate the but the political will to solve these challenges is the effects of macro trends, populist sentiment and a biggest problem. changing global context. However, it is not enough At the far end of the spectrum, the failure to to call for more Europe if the solutions to citizens’ meet expectations we have may lead to the everyday problems are not going to be solved. demise of democracy as we know it. Thus, it As we have witnessed, the current challenges and is our duty to uphold the belief in the European citizens’ expectations are not the same as they project. In this regard, our proposal lies in tying were 70 years ago when the EU was founded. rights and responsibilities of citizens, businesses The existing European social contract is based on and policymakers to each other in a renewed a society where the population was expected to social contract for Europe, based on prosperity, live shorter lives, disruptive effects of technology sustainability and security. with today’s magnitudes belonged in Sci-Fi novels, (western) states ruled the world, European industry was a giant in all sectors and climate change Prosperity seemed to only occur in the shape of hairspray. In this context, prosperity refers to both economic Today we face a very different reality. and social. From the business perspective, the “With the failure to meet expectations, European market needs to stay competitive in we may even end up with the demise the light of emerging markets and technological of democracy as we know it” innovation, while encouraging trade. Citizens expect their work to generate income and their Without renewing itself, politics cannot find its way contributions to society show positive results in back to citizens. Instead, the lack of trust among the quality of public service and social protection. citizens turns into a vicious cycle, where citizens Thinking of new ways of taxation may become are less involved in politics, and policymaking necessary to mitigate macro trends affecting becomes less inclusive. Citizen participation and education, health and social security systems. women’s leadership will be vital for solving the big challenges and rebuilding public trust in EU institutions. Additional efforts are needed to ensure Sustainability the inclusion of youth in decision-making. Whilst millennials represent 24% of the adult population We need to work on ensuring a sustainable in the EU, in comparison to older EU generations future for Europe and the world and on investing the millennial voice, vote, consumption habits and in a sustainable digitalisation. Moving taxation power varies considerably. Globally, 58% of their away from the positives, such as labour, to taxing millennial peers live in Asia. This generation will negatives, such as pollution, is one idea. Issues of undoubtedly shape much of what’s to come. Just inclusion need to be addressed by incorporating as important is the inclusion and participation of gender and diversity perspectives. Existing and cities, regional and local actors. Many cities are increasing inequalities within the EU can be fought already investigating how to provide better services with fiscal and technological transfers between the through digital means. member states. Can we fight nationalistic rhetoric by building pan-European solidarity? The EU will Kicking structural problems continuously down the only be as strong as its weakest region. road is not a sustainable option. The EU may need 31

Update Title

Security and decentralised. The European engendering greater trust within Union needs to become more society. The social contract is With geopolitics on the rise citizen and less state driven. based on a view on what makes and global powers shifting, the Preserving Europe's place in a society good, so that it fulfils EU must seize this opportunity the world will be shaped by the requirements and needs to offer a plausible sense how it fundamentally tackles for economic growth, peace, of security to its citizens, the big challenges ahead and security and sustainability, in ranging from a destabilising rebalances the relationship terms of measurable actions neighbourhood to asymmetric between citizens, member states on decarbonisation, support to threats and cyberattacks. and the ‘Brussels Bubble’. preserve the planet and making Investing in credible EU defence better use of its resources. It is a Ultimately, a social contract is a and fully exploring the potential belief that a society can become collection of behaviours and a of PESCO could give the EU better by operating in this way mindset that believes that there a credible deterrent. Around and on these terms. the world globalisation needs is a set of relationships between to also be regulated. The EU state, citizens as well as private As part of this publication, we should resurge as a champion and civil society sectors which propose that a renewed social for solidarity, protecting global can work to deliver positive contract can be the glue to bind human rights and European outcomes for all and generate citizens, members states as values. Regulating globalisation social progress. It is about the type well as private and civil sectors also entails fighting tax havens of role a state/governing body together in the belief that that increase inequalities and adopts in relation to its mandate; Europe can work, deliver and hollow out trust. the type and quality of relationship matter to them. between a state/governing body The fact that EU integration with the people it serves; and its ensured peace in Europe for relationship with the private and much of the past seven decades civil society sectors. It serves as is no longer enough for younger an agreement about how these generations who did not grow up relationships should operate; and in the shadows of World War II what are the shared values and and the Cold War. Maintaining mutual expectations underpinning Europe's quality of life, wealth, these relationships. and cultural identities will be difficult enough in the faceA ofsocial contract for Europe is globalisation. also about adopting structures of governance, policies and In a world of eroding social actions that are based on more cleavages, emerging transnational power sharing and finding ways networks and alliances, and all of working that are focused on pervading social media, societal challenges society will face in the institutions need to become future. The purpose is to learn more transparent, and political from the past and deliver better, processes have to become more with respect for accountability participatory, bottom-up-driven and transparency and by 32

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